LeRoy v. TimberWest Forest Corp.

2020 BCSC 978 LeRoy v. TimberWest Forest Corp

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: LeRoy v. TimberWest Forest Corp., 2020 BCSC 978 Date: 20200702 Docket: S14836 Registry: Duncan Between: Rebecca LeRoy and Ted LeRoy Plaintiffs And TimberWest Forest Corp., TimberWest Holdings Ltd., TimberWest Forest Company, David Whiteley, Paul McElligott, Beverlee Park Defendants Before: The Honourable Madam Justice Forth Reasons for Judgment Counsel for the Plaintiffs: D.C. Harbottle and A. Crabtree Counsel for the Defendants: J.S. Yates and A.B. Gray Place and Dates of Trial: Nanaimo and Vancouver, B.C. January 22-25, 28-31 February 1, 4-8, 11-15, 19-22 25-28, March 1, 4-8, 11-15 June 10-14, 2019 Place and Date of Judgment: Duncan, B.C. July 2, 2020 Table of Contents Introduction.. 4 Factual Background.. 5 TLT 5 TimberWest 6 The Logging Process. 7 The Logging Contacts. 10 TLT's Financial Condition. 15 The Munns Trial 30 Subdivision Plan and Bill 13 Strategy. 31 Plaintiffs' theory and factual assertions. 31 Defendants' theory and factual assertions. 34 Developments in 2005. 38 Developments in 2006. 39 Developments in 2007. 44 Developments in 2008. 56 Harvesting volume. 61 Expert Evidence.. 62 Credibility.. 63 Legal Principles. 63 Positions of the Parties. 65 Position of the Plaintiffs. 65 Position of the Defendants. 66 Analysis. 68 Other Evidentiary Issues.. 74 Use of Mr. LeRoy's Diaries. 74 Hells Angels Issue. 76 Browne v.

Dunn issue. 77 Issues.. 79 Issue 1: Have the assignments been properly proven at trial?.. 79 Issue 2: Does the release include the claims for fraud, conspiracy, and deceit alleged in this action?.. 83 Does the Release cover the claims in this action?. 88 Issues 3 & 4: Did the defendants, or any of them, conspire to cause TLT to go bankrupt or destroy its business, or engage in fraudulent or deceitful conduct?.. 95 Legal Principles. 95 Conspiracy. 95 Fraud/Deceit 98 Positions of the Parties. 99 Position of the Plaintiffs. 99 Position of the Defendants. 100 Analysis. 101 Was there an agreement or common design?. 102 Predominant purpose to cause injury. 110 Unlawful conduct/means. 111 (a) Fraudulently refusing to permit TLT to carry out work under the contracts and unlawfully shutting down operations. 112 (i) Stumpage and Market Conditions. 113 (ii) Shutdown of the Johnstone Straits Operations. 123 (b) Fraudulently interfering with TLT's lending relationship with RBC and misrepresenting the value of the Bill 13 Contract 126 (i) Providing information on shutting down the Johnstone Straits 126 (ii) Devaluing the Bill 13 Contract 130 (c) Making fraudulent and defamatory statements about Mr. LeRoy and TLT 131 (d) Delaying, refusing to discuss, or failing to negotiate rate adjustments in good faith 134 (i) Delaying Rate Adjustment Negotiations and Requiring Production of Financial

Statements. 135 (ii) Negotiations for Nanaimo Lakes Rates. 137 (e) Fraudulently misrepresenting the true intentions and consequences of the implementation of the subdivision plan in respect of TLT. 140 (f) Filing a false affidavit sworn by Mr. Whiteley. 142 Conclusion.. 145 Introduction [1] Ted LeRoy Trucking ("TLT") went bankrupt in September 2008. TLT was a company founded by Ted and Rebecca LeRoy that expanded, with the assistance of their sons, to become one of the largest private logging contractors on Vancouver Island. By 2008, TimberWest Forest Company was TLT's largest customer. The plaintiffs claim that the TimberWest corporate defendants ("TimberWest") and three of their senior executives, the personally named defendants, fraudulently and deliberately conspired to destroy TLT by causing it to go bankrupt. The plaintiffs seek disgorgement of the profits achieved by TimberWest as a result of TLT's bankruptcy, or alternatively, damages to put TLT back in the position it would have been in if the bankruptcy had not occurred. [2] The defendants deny that they were involved in any conspiracy, fraud, or deceitful actions. They claim that TLT went bankrupt as a result of TLT's weak financial condition, which could not withstand the 2007 strike in the coastal logging industry and the global economic crisis in 2007 and 2008. [3] In August of 2008, a settlement agreement was

reached between TLT and TimberWest that included a release. The parties disagree on whether that release covers the claims advanced in this action, which would act as a complete defence to this action. [4] Since TLT went bankrupt, it could not commence this claim. PricewaterhouseCoopers ("PwC"), the trustee in bankruptcy, purportedly agreed to assign the claims to Ms. LeRoy, who in turn purported to assign the claim to Mr. LeRoy. This is why Mr. and Ms. LeRoy are named as the plaintiffs. The defendants assert that the assignments were not properly proven at trial and on this basis, the claim should fail. [5] To provide context, I shall first set out some facts to provide a better understanding of the parties, their relationship, the logging contracts, the logging industry and specific financial challenges that TLT and TimberWest faced. Since the terms "subdivision plan" and "Bill 13 strategy" form the foundation of the plaintiffs' allegations, I have set out each party's theories and evidence in support of these issues. In order to better grasp the events as they unfolded, I have set out key events that occurred between 2005 and 2008. Next, I remark briefly on the expert evidence tendered. The expert evidence, for the most part, focused on issues relating to damages. [6] I will then consider issues relating to credibility and three evidentiary issues that arose during the trial

and in the closing submissions. Finally, I address each of the substantive issues with the relevant law and positions of the parties, and provide my findings. [7] For the reasons expressed below, I have decided to dismiss the plaintiffs' claims on the basis that the allegations of fraud, deceit and conspiracy were not proven. Factual Background TLT [8] The plaintiffs started in the logging industry in 1968 with a used logging truck. By 1972, TLT was incorporated and had entered into a harvesting contract with Western Forest Industries ("Western Forest"). By 2006, TLT had over 530 employees and contractors. It significantly expanded and acquired extensive assets, such as logging trucks, harvesting equipment, planes and real estate. [9] The majority of TLT's work came from TimberWest; the balance came from Western Forest, Island Timberlands GP Ltd. ("Island Timberlands") and some smaller licensees. TLT and TimberWest had a long and good working relationship, as evidenced by TimberWest asking TLT to assist in difficult harvesting operations created by other operators. [10] TLT was a company looking to innovate in the logging industry. It obtained three certifications from the International Organization for Standardization, an independent, non-governmental, international organization that develops standards to ensure the quality, safety and efficiency of products, services and

systems. Mr. LeRoy also developed a rate model, which was a computer program he devised to calculate the rate on which to bid for a specific project. [11] TLT was a unionized company and all of its crews were unionized. It had operated in the Johnstone Straits, an area located off the east coast of Vancouver Island, since 1978. [12] In 2001, Mr. LeRoy started a company called Fiberica SA in Costa Rica ("Fiberica"). His plan was to harvest in plantations a tree called melina, a very fast-growing tree. In 2004, he expanded Fiberica by building a small sawmill to make value-added products. By 2006, the mill was up and running. When TLT was experiencing financial difficulties in 2007, and Fiberica defaulted on a payment in Costa Rica, Mr. LeRoy was no longer able to go to Costa Rica. Ultimately, the sawmill was leased and a scrap metal company came and cut up the equipment. TimberWest [13] TimberWest Forest Corp. and TimberWest Holdings Ltd. are incorporated under the laws of British Columbia. TimberWest Forest Company is a partnership registered in British Columbia that consists of the other two TimberWest companies. [14] TimberWest is a timber and land management company. It had logging licences on private and Crown, or public, lands. On Crown lands, companies such as TimberWest acquire licences to harvest a pre-determined amount on an annual basis during a five-year cut period.

There are different forms of licences available. One type is a forest licence, which is volume-based, and another type is a tree farm licence ("TFL"), which is area-based. [15] As part of its business, TimberWest contracted out logging operations to various independent operators, like TLT. TimberWest also employed its own unionized workers, known as company crews, to perform operations. [16] TimberWest conducted harvesting operations on Vancouver Island at Nanaimo Lakes, Honeymoon Bay, Oyster River and Cowichan. It also had log sorts at Ladysmith and Shoal Island. Collectively, these are referred to as the "Woodlands Operations". [17] As of 2004, half of TimberWest's harvest was contracted out in contracts of small and medium-sized volumes. The remainder was done by TimberWest's company crews. [18] The personal defendants were all part of the TimberWest management team. Paul McElligott joined TimberWest as a director in 1997 and served as the President and CEO from 2001 to 2011. Mr. McElligott retired in May 2018. David Whiteley began working for TimberWest's predecessor in 1984, and joined TimberWest in 1997. He worked as the operations superintendent until 2003, when he was promoted to general manager of TimberWest's northern operations. In 2005, he became general manager of all TimberWest operations. In June 2007, he was promoted to Vice-President of timberland operations,

serving in that position until he retired in December 2015. Beverlee Park is a chartered accountant who joined TimberWest in 1996. Ms. Park served as TimberWest's Chief Financial Officer from 2000 to 2010. She left TimberWest in March 2013. [19] The other key TimberWest employees from 2004 to 2008 were: a. Gerry Young, general manager of operations and Mr. Whiteley's boss; b. John Mitchell, who was responsible for the Johnstone Straits until late 2007; c. Don Holmes, operations manager of the South Island operations, which ultimately included the Johnstone Straits by late 2007; d. Bob Blanchard, who controlled all of the timberlands operations and reported to Mr. Whiteley; and e. Bruce Storry, operations planner for the Johnstone Straits. The Logging Process [20] The harvesting process includes four general steps: a. development of harvest plans; b. construction of roads to access trees; c. harvesting of the trees (either by hand or mechanized cutting machines); and d. transportation of timber to log sorts where the timber is sorted and graded. [21] Harvesting plans are generated by the logging companies, like TimberWest, and set out the areas of land and kind of lumber to be harvested. The harvesting plans must be approved by the government and are done on a five-year cycle. [22] The timber includes old growth and new (second) growth timber. Old growth timber is timber that is

140 years and older. This type of timber can be more difficult to harvest as it is located on higher elevations and in more remote locations on Vancouver Island. Old growth timber, generally speaking, is more expensive to harvest than second growth timber. [23] The harvest plans are used by the logging contractors to negotiate the annual harvesting rates under the contracts. The plans include information on elevation, grade, timing of the harvest, hauling distance and other topographical features. The plans also include the proportion of old growth timber to second growth timber to be harvested. [24] Mr. LeRoy testified that in order to set a rate, a contractor would have to go out and "walk the block", look at the terrain, consider how the trees would be harvested, consider the phases of yarding or falling systems, and then come up with costs numbers. [25] The term "stump-to-dump" logging refers to operations that start with the cutting of trees in the forest, and continue to the transportation of the felled trees to a log sort. TLT operated as a stump-to-dump operator. [26] Once the harvest plan had been provided, the parties would enter into rate negotiations to agree on the annual timber harvesting rates. If they did not agree on rates for the next year, the harvesting would begin using the previous year's rates, or interim rates. Once the parties had resolved the final

rates, they would be paid retroactively. [27] During the course of harvesting, if circumstances changed, such as an unexpected spike in fuel prices, or a material change to the harvesting plan, the parties could negotiate rate adjustments. [28] Mr. Blanchard testified as to the annual planning process undertaken by TimberWest. Generally, it was a two-phased process. During the first phase the production planners identified the settings, or cut blocks, that they wanted to move to. The production planners then estimated harvest from the settings and identified who the contractor would be and what their estimated rate would be. The planners would build a model in late September or early October. [29] Mr. Blanchard would then extract the information from the planners' model and create a management reporting model. The purpose of the management reporting model was to create an annual operating plan that could be taken to the board for approval. It would then be reviewed by the timberlands executives and once they approved it, it would be taken to the board for approval. [30] In the logging industry, the amount of harvest is generally expressed in cubic metres ("m3"), or "cubes". [31] Licensees, like TimberWest, were required to pay a stumpage fee to the government on harvesting done on public lands. Mr. Storry described it as "a rent due to the people of the Province of British

Columbia" for cutting public trees on public land. The stumpage fee was based on a stumpage equation that included a variety of factors, including actual timber sales. Mr. Storry testified that in a weakening market, stumpage rates lag behind the market and erode a licensee's margins. In a strengthening market, the lagging stumpage can increase a licensee's margins. Stumpage was adjusted quarterly. The Logging Contacts [32] TLT had a number of Bill 13 contracts that it had acquired over the years. Bill 13 contracts are creatures of statute and were enacted in 1991 by way of the Timber Harvesting Contract and Subcontract Regulation, B.C. Reg. 22/96 [Bill 13 Regulation]. These contracts differ from other harvesting contracts in that they are replaceable, meaning renewable, in perpetuity. Subject to satisfactory performance by the contractor, the licence holder must offer a replacement contract for successive five-year terms, on substantially the same terms and conditions as were in place prior to the expiry of the term of the contract, and must negotiate rates in good faith. The Bill 13 Regulation also permits rate disputes to be settled by arbitration if the parties cannot agree on the rate. A Bill 13 contract is an asset and can be assigned. [33] In 1997, TLT had a Bill 13 contract in the Johnstone Straits, which granted it perpetual rights to harvest timber in an area known as

TFL 47 over Blocks 2-12. TimberWest was the licence holder of TFL 47. This contract was a stump-to-dump contract with a unique fibre basket election, which allowed TLT to elect which blocks they would harvest. This meant they could harvest more contiguous blocks, making the harvesting more efficient and the rate more effective. [34] TLT expanded its Bill 13 contract through acquisitions in TFL 47, so as to increase its annual harvesting volume. [35] In 2001, TimberWest approached TLT to consider the purchase of a Bill 13 contract in TFL 47 from Bendickson Logging. This acquisition would add 110,000 m3 of annual harvest plus all subgrade construction in the Johnstone Straits to TLT's operations. In February 2002, TLT entered into a contract to purchase this Bill 13 contract. The sale price was $4 million. TLT only wanted to pay $2 million. TimberWest offered to advance the additional $2 million to facilitate the purchase. According to the plaintiffs, TimberWest agreed to pay TLT an additional $0.87 m3 (over and above the regular harvesting rate) for all harvesting on this contract. The additional payment would be deducted against the $2 million advance only if and when TLT harvested on the contract. According to TimberWest, the deal was that TimberWest provided TLT a $2 million loan repayable through a $0.87/m3 rate reduction on the Bill 13 harvest. The actual terms of the

contract set out the specifics of this agreement, which for the purposes of these reasons need not be canvassed. [36] After purchasing the Bendickson contract, TLT, under the Bill 13 contract, had the right to annually harvest 87% of the annual allowable cut ("AAC"), which amounted to 428,000 m3 in TFL 47 in Blocks 2-12. This was later reduced to 400,000 m3 by a government take-back. In addition, TLT was permitted to construct approximately 40 km of roads each year in TFL 47 in connection with the Bill 13 contract. [37] Under the Forest Act, R.S.B.C. 1996, c. 157, the Chief Forester of B.C. would issue AAC directives for each tree farm licence, setting out the annual volume the licensees were permitted to cut. There was a five-year "cut control" period. Over that cut control period, the licensee had to be within 10% of the cumulative AAC. If a licensee went over 110% of the cumulative AAC at the end of the cut control period, it would be penalized. If it harvested under 90% of the cumulative AAC, the unused AAC could be taken back by the government. [38] In October 2002, TLT and TimberWest entered into a log sorting contract for TimberWest's operations at the North Island log sort ("North Island Contract"). The North Island Contract expired in 2007. This log sort was also known as the Race Point log sort. [39] In 2003, TimberWest entered into a timber harvesting contract with

TLT in TFL 47 in an area known as Beaver Cove and Bonanza (the "Bonanza Contract"). In the same year, TimberWest and TLT entered into a new five-year replaceable Bill 13 contract for TLT's operations in Johnstone Straits (the "Bill 13 Contract"). [40] In the same year, TimberWest's employees went on strike. As already noted, at that time, TimberWest performed approximately half of its harvesting with in-house company crews and equipment owned by TimberWest and the other half by contractors. The provincial government enacted back-to-work legislation and appointed Don Munroe as mediator/arbitrator. TimberWest wanted the right to contract out its in-house harvesting operations. [41] In May 2004, Mr. Munroe issued his award (the "Munroe Award") which allowed TimberWest the right to contract out its Woodlands Operations on certain conditions. TimberWest could only contract out the Woodlands Operations to unionized stump-to-dump contractors. This entailed TimberWest transferring the employees for each of the Woodlands Operations to the relevant stump-to-dump contractor pursuant to the Woodlands Operations seniority list ("the Woodlands Letter of Understanding"). Each operation had a seniority list for the former TimberWest employees, which was to be transferred to the new contractors. This meant that TimberWest could not subdivide these contracts into contracts covering smaller

volumes without the consent of the union. [42] In August 2004, TimberWest began outsourcing its operations to TLT and two other large contractors, Munns Lumber (1956) Ltd. ("Munns"), and Roga Contracting Ltd. Roga's contract was subsequently acquired by Oyster River Logging. [43] In September 2004, TimberWest and TLT entered into a non-replaceable road construction service agreement for the Johnstone Straits operation (the "Johnstone Straits Road Contract"). [44] As of January 1, 2005, TLT and TimberWest had entered into the following further contracts: a. a Non-Replaceable Timber Harvesting and Road Construction Services Agreement (Private Lands - Nanaimo Lakes) (the "Nanaimo Lakes Contract"). b. a Non-Replaceable Log Sorting and Booming Services Agreement (Ladysmith Log Sorting Facility) (the "Ladysmith Contract"). c. a Non-Replaceable Log Sorting and Booming Services Agreement (Shoal Island Log Sorting Facility) (the "Shoal Contract"). (collectively, the "Woodlands Contracts") [45] TLT entered into these contracts following a competitive bid process. In making the bids, Mr. LeRoy did his due diligence in order to come up with offered rates. He used his rate model and the advice of Erik Bentsen, a former Vice-President of TimberWest, who he had retained as a consultant. Mr. Bentsen helped put together the bids on some of the Woodlands Operations. [46] The relevant clauses of

the Woodlands Contracts provided: a. the contract term was five years and the contract was non-renewable (s. 2.1); b. TimberWest made no representation about the area at issue, the quality or the quantity of timber, or the difficulty of work (s. 4.2); c. the volume of work could be adjusted or operations suspended by TimberWest for a variety of reasons, including reasons related to the market or pricing of logs (s. 7.1); d. if contractor operations were suspended, there was no obligation on TimberWest to provide work to the contractor in substitution (s. 7.2); e. each contract was not "cost-plus", but instead provided for a fixed rate/m3 to be negotiated annually after the first year of the contract, which would be performed at the bid rates negotiated in good faith (ss. 11.1, 11.2, and Schedule B); and f. either party could terminate the contract on 90 days' notice if there was a failure to agree upon rates (s. 11.3). [47] The seniority lists attached to the Nanaimo Lakes operation were included in the Nanaimo Lakes Contract. [48] Under the Woodlands Letter of Understanding, the terms of which were incorporated into the Woodlands Contracts, all unionized TimberWest employees would be transferred to the contractors at each of the sites. The employees would revert back to TimberWest if a contract was terminated by the contractor or the contractor went bankrupt. [49] The

Woodlands Contracts did not provide any minimum volume commitments to the contractors; the volume was within the discretion of TimberWest. In addition, the North Island Contract, Johnstone Straits Road Contract, and Bonanza Contract provided for an agreed rate for harvested or sorted wood, but did not impose any minimum volume requirements, nor liability if TimberWest did not provide the estimated or planned volume. Mr. LeRoy testified that he knew that the volume was variable and that the logging contracts were susceptible to any decrease in market demand. [50] All of the contracts, except the Bill 13 Contract, Johnstone Straits Road Contract, and Bonanza Contract, involved operations on private land. The aforementioned three involved operations on public land. [51] After the contracting out process was completed, TimberWest's harvest became completely contracted out, with half of it in small contracts and half of it in large contracts. None of the operations were being done by TimberWest itself. [52] TLT agreed to purchase equipment from TimberWest, to use at some of the operations, for approximately $10 million. The purchase price was due in 2005, but TLT paid $2 million of the purchase price in 2004 on TimberWest's request. [53] In addition to the contacts with TimberWest, Mr. LeRoy testified that TLT had two additional large contracts with: a. Western Forest: a

stump-to-dump Bill 13 contract with five-year renewable terms. The term of the contract was from October 2004 to October 2009 ("Western Forest Bill 13 Contract"). b. Island Timberlands: a five-year stump-to-dump logging and road building contract. The term of the contract was from October 2006 to October 2011 (the "Island Timberlands Contract"). TLT's Financial Condition [54] TLT's financial condition becomes an important factor when dealing with the cause of TLT's bankruptcy and the decisions made by the Royal Bank of Canada ("RBC"). TLT's banker was RBC for many years. TLT primarily dealt with Ron Forster, the commercial account manager at RBC in Nanaimo, from early 2001 until the TLT account was transferred to the special loans department in August or September of 2007. Nearly all of TLT's debt was with RBC. Mr. LeRoy testified to the very good relationship that he had developed with RBC over many years. [55] In 2001 or 2002, RBC prepared a Risk Assessment Framework that reported positively on many aspects of TLT's operations, including that Mr. LeRoy was one of the lowest cost producers and had one of the best operations on the coast. It further noted that TLT had achieved a profit target of approximately 10%. As of 2001, TLT's financial condition was solid and RBC was supportive of TLT with few concerns. [56] RBC noted that TLT had experienced some difficult financial

conditions in 2003 and 2004, including that "[g]rowth and a particularly bad fire season in 2003 created serious spike in this companies [sic] historically strong FD/EBITDA. Distributions to establish a sawmill and plantation in Costa Rica further drained cash during the years ending 03-05". EBITDA is an acronym for "earnings before interest, taxes, depreciation, and amortization". EBITDA is used as a proxy for cash flow and it was an important statistic, or measure, for RBC. [57] In January 2004, RBC reported a downturn, which Mr. LeRoy agreed occurred, in TLT's overall ranking. It explained in its quarterly Credit Comment for TLT: The sharp downturn in financial position since May/03 is the result of various work stoppages in 2003 caused by [Canadian dollar] strength, extreme fire season, IWA strike. All these negative factors struck in a year when TLT was at the peak of leverage due to its investment in Costa Rica and in extraordinary Capex for expansion. [58] The same Credit Comment noted a weak EBITDA. The reference to the Costa Rican investment is to Fiberica. Mr. LeRoy testified that there had been a plan to sell Fiberica, but that plan changed. Fiberica was not sold prior to TLT's bankruptcy. The Credit Comment further noted the company remained "vulnerable to external forces such as log markets, forest policy changes, etc." [59] In 2004, correspondence from Mr. Forster

confirms that RBC wanted TLT to have less involvement in Fiberica and in another company, Profab, run by one of Mr. LeRoy's sons. [60] By the end of 2004, TLT had breached its fixed charge covenant to RBC due to ongoing distributions to Fiberica and Profab. These breaches occurred in 2003 and 2004. RBC placed a covenant on TLT not to make any further distributions to Costa Rica. [61] RBC financed TLT's purchases of various equipment and contracts, including the 2005 purchase of TimberWest's equipment for approximately $10 million, increasing TLT's debt load to roughly $28.6 million in January 2005. [62] In June 2005, Mr. Ferencich, a member of the RBC credit approval group in Toronto from whom Mr. Forster had to obtain credit approval, was of the view that, " TLT has come to the end of its financial flexibility and must work from here on in to reduce debt A continuation of substandard financial performance will result in a BRR [borrower risk rating] downgrade and possibly a referral to SLG [special loans group]." [63] In the summer of 2005, RBC required that Mr. LeRoy provide a $1 million guarantee, and in 2006 required that TLT hire a certified accountant. TLT hired Ron Triemstra as its CFO. [64] By September 2006, TLT had paid down $6 million to RBC and its current debt was just under $19 million. RBC remained concerned about payments being made to Fiberica, with an email

from Mr. Ferencich to Mr. Forster noting that over $250,000 had been paid in the past three months. [65] By early October 2006, RBC had financed the acquisition of the Island Timberlands Contact for $3 million. Mr. Forster testified that he did not expect TLT to be instantly profitable with the acquisition of the Island Timberlands Contract, but that he expected it would get back to a profitable situation over time. [66] At the end of October 2006, an RBC Risk Assessment Framework reports that: a. TLT's borrower risk rating reflects "TLT's high debt levels, weak earnings record and the volume uncertainty inherent in its logging contracts"; b. "The primary risk facing TLT is its unsustainably high debt level"; c. "TLT significantly underperformed relative to expectation on three contracts won from Timberwest in 2005. A financial crisis was imminent until TLT was able to re-negotiate the contract terms with Timberwest "; and d. "TLT's leverage position is extraordinary high and the company is seriously under-capitalized " [67] The October 2006 Risk Assessment Framework records that TLT had breached its financial covenants to RBC for the past three fiscal years. [68] In a December 2006 meeting between Mr. Forster, Mr. LeRoy, and Mr. Triemstra, Mr. Forster recorded in an internal memorandum that: We had a very frank discussion about the Bank's position · I stressed that regardless

of the uncontrollable circumstances in late 2006, it is the leverage and chronic inability to maintain acceptable margins that concerns us. · Management must be pro-active in finding solutions or our ability to maintain a normal relationship is in serious jeopardy. · Talked about the potential merits of Special Loans involvement. · There is no more room to survive a weak quarter no matter what it might be caused by. [69] In response, Mr. Ferencich, the Risk Manager working on the TLT file with Mr. Forster, wrote: Like you, I am concerned with TLT's liquidity and also agree that the Bank cannot be the solution. I would be very uncomfortable with a TAR [temporary accommodation request] out to March as we just significantly increased the operating line. Ted will really need to lean on the timber owners to help him out. As you know the last increase [in the operating line] was difficult to get done and another increase (even if temporary) would be even harder. [70] Mr. LeRoy testified that he had no discussions with Mr. Forster about special loans in December 2006. The first notice of special loans involvement that Mr. LeRoy was aware of came in early September, 2007. [71] On March 5, 2007, Mr. Ferencich advised Mr. Forster by email of his opinion that unless TLT provided at least $1 million in "retroactive payments and suitable '07 rates", then the file may need to be referred to

the special loans group. He further stated: Another concern is the distributions to Fiberica, we've heard Ted tell us this is the end of the support several times before and I no longer believe what he is telling us. I think the way he has conducted himself with respect to this covenant casts a shadow over the entire relationship. [72] In a letter from Mr. Forster to Mr. LeRoy on March 13, 2007, Mr. Forster raised the concern that TLT's EBITDA had eroded by over 30% since 2004, and that TLT had not generated enough cash to meet its obligations. [73] In August 2007, RBC was increasingly concerned about TLT's financial condition. In an internal report, it noted: TLT will have to come to the conclusion that the Nanaimo Lakes contract, at least, is not likely to be viable over the short to mid-term. They will likely have to reconsider all their individual operations and pull together a restructuring plan to downsize operations, assets and debt. Management has the same view. [74] The report further notes that financial covenants were breached as of February 2007. [75] On August 21, 2007, Mr. Forster advised Mr. LeRoy that special loans may be involved in TLT's facility by September 1. Mr. Forster recommended that TLT have a plan for RBC to address its financial circumstances. [76] The plaintiffs assert that on August 22, 2007, RBC increased the valuation of the Bill 13 contracts to

$9.72 million from $8.85 million. This assertion is based on a "Watchlist Profile" document that RBC prepared for TLT. The defendants contest the characterization of this figure as a "revaluation". [77] Connie Watson, senior manager of the special loans group at RBC, testified that Watchlist Profiles were prepared for accounts whose risk rating had deteriorated--meaning that the company could no longer meet the terms and conditions of its loan agreement--to the point that it was put on the bank's "watch list". An initial report is prepared, along with regular ongoing reports. According to Ms. Watson, the August 22 Watchlist Profile was prepared in contemplation of downgrading TLT's risk rating. [78] The Watchlist Profile listed TLT's "Timber Quota" "EMV at $15/m3" as $9.72 million and its "NLV" as $3.4 million. Mr. Forster explained that "EMV" means "estimated market value" and that it was calculated by multiplying the total volume of harvest under all of TLT's contracts by $15/m3. The "NLV" represents the "net lending value", which represents 35% of the EMV. He testified that the EMV would represent the estimated equity in the company or value of its assets, whereas the NLV is based on a lower margin and is "like receivables". Mr. Forster testified that "the realizable value was uncertain, and we were doing our best to come up with some kind of an estimate of market value."

However, he agreed that the realizable market might be zero given the risk of bankruptcy. He agreed that this would have been discussed with TLT. Ms. Watson testified that the expectation of recovery is based on the NLV. [79] On August 28, 2007, Mr. Forster advised Mr. LeRoy that TLT's line of credit had been capped at $2.5 million and recommended that TLT retain an outside consultant. [80] On August 29, 2007, Mr. Forster and Mr. Ferencich recommended the transfer of TLT to the RBC special loans group with immediate effect. Once assigned to special loans, the credit management of the file and the day-to-day supervision of the account was handled by the special loans group out of Toronto. [81] Ms. Watson, who was located in Toronto, was assigned as the senior manager from RBC Special Loans. Although special loans and group risk management were sometimes used interchangeably, there was a separate area of RBC that was called "group risk management". Doug Cheyne was the Vice-President of special loans or group risk management, to whom Ms. Watson reported directly. Ms. Watson was responsible for the TLT file from the end of August 2007 until RBC's debt was sold to Century in March 2008. [82] Ms. Watson testified that TLT's file was referred to special loans because TLT's risk rating had deteriorated substantially, meaning that the company could no longer meet the terms and

conditions of the loan agreement with the bank. In her recollection, the risk rating had deteriorated over a period of 12 to 24 months. [83] The action plan was that a full analysis, or what Ms. Watson referred to as a "complete full drill down financial analysis", was to be completed by September 15, 2007. [84] On September 6, 2007, Ms. Watson met with Mr. LeRoy and TLT's representatives. She discussed the various financial problems that TLT was up against and provided a "wish list" that she wanted TLT to prepare for them so that they could make a further analysis. Ms. Watson testified that at the meeting, Mr. LeRoy talked a lot about Bill 13 and the rights and contracts under Bill 13. Ms. Watson requested that TLT provide a legal opinion on the value, marketability and risks to a regulated Bill 13 contact. This was to come from John McLean of Davis LLP, TLT's lawyer. Ms. Watson requested that RBC's legal counsel, William Skelly of Heenan Blaikie, review Mr. McLean's opinion and provide his own opinion on the Bill 13 rights. [85] As of September 20, 2007, Ms. Watson's views, expressed in an internal email to Mr. Forster, were that: This company is in very bad shape, has not been managed well and requires a lot of work. The Bank's position has steadily deteriorated as sales increased and funds were diverted elsewhere. [86] In respect to the funds being diverted, Ms. Watson

testified that this referred to cash from TLT going to Costa Rica in the amount of $5.5 million. Ms. Watson's view was that the funds should have remained in TLT's account to support the margin on their receivables and to adhere to the bank loan agreement. [87] On September 21, 2007, TLT provided a copy of Mr. McLean's opinion respecting the Bill 13 contracts to RBC, which addressed the potential impact of the Companies' Creditors Arrangement Act, R.S.C., 1985, c. C-36 [CCAA] proceedings on these contracts. [88] Ms. Watson testified that she had assessed the values of the Bill 13 contracts as having no market value. She further testified that the evaluation of the Bill 13 contracts played no role in RBC's eventual decision to call the loans in December 2007. Ms. Watson testified that she never spoke to anyone at TimberWest about TLT or any other topic. She testified that she would never call, and the bank's practice is never to call, a client's client, or contact them in any way. [89] On September 27, 2007, a meeting was held with Mr. LeRoy, TLT's representatives and RBC's representatives, including Ms. Watson and her boss, Doug Cheyne. Mr. LeRoy testified that at this meeting he was advised that the Bill 13 Contract had been ascribed no value, on the basis that TLT was shutdown indefinitely due to labour strikes. The same applied for the Western Forest Bill 13 Contract. RBC

insisted that TLT hire an accountant to develop a business plan and restructure by October 31. [90] In early October 2007, Mike Vermette of PwC was retained by TLT to conduct an independent business review. Mr. Vermette testified that TLT requested that PwC modify its standard retainer agreement to include a provision that PwC would not communicate with RBC without first obtaining TLT's approval. However, Mr. Vermette did not understand the retainer agreement to prohibit all communication with RBC. A term of the retainer agreement between TLT and PwC provided: 4. Reports To and Communication with the Bank While it is anticipated that PwC will assist the Company in formulating a comprehensive business plan to be submitted to the Bank, PwC will not make any substantive reports to or have any substantive written or oral communication with the Bank without the prior agreement of the Company [91] On November 29, 2007, in internal correspondence, Ms. Watson and RBC counsel confirmed that RBC was planning to call TLT's loans prior to the completion and assessment of a draft business plan. Ms. Watson testified that, in her mind, a bankruptcy petition may be the most prudent course to follow. Her evidence was: [I]t was obvious at that point due to the lack of cooperation from the company that there was no level of comfort being provided to the bank that things were going to change. And

that things were being done, plans were being put in place to change what looked like the inevitable outcome that was coming here. So the company was insolvent at that time. It couldn't meet its day-to-day financial commitments. And the payables, my recollection is that they had quite a bit of money outstanding in payables to their suppliers which were threatening to not provide services if they didn't receive some money too. So if the company is insolvent and can't meet its day-to-day commitments, the bankruptcy is really the only course open to them. [92] On December 3, 2007, Mr. Vermette emailed Ms. Watson and Mr. Cheyne stating, "I am hoping that you will keep this message confidential as all reporting is supposed to go through the company first." Mr. Vermette testified that, in his view, he was not providing anything confidential to the bank and was just trying to explain to the bank why the business plan had not been prepared, when it was initially meant to be presented by the end of October. In his email, Mr. Vermette explained that the delays were due to the fact that PwC was waiting for TLT to provide certain information and to make decisions about the future of the company that would impact the results of the report. PwC then needed time to assess the information once it was provided. There was also delay because Mr. Triemstra, TLT's CFO, had unexpectedly left the

company. [93] A draft business plan was prepared by PwC and provided to Ms. Watson in advance of TLT's meeting with RBC on December 10, 2007. Ms. Watson's assessment was that the cash flow projections did not seem realistic or were "overly optimistic". Attached to the draft business plan as appendix 4 was a summary of potential litigation claims totalling $7 million that TLT could have against TimberWest ("Appendix 4"). Mr. LeRoy testified that he did not give permission for the inclusion of Appendix 4 since he had not been able to verify the numbers and he preferred to negotiate with the company. RBC's lawyer sent out a copy of PwC's report with Appendix 4 to TimberWest. [94] On December 10, 2007, TLT held a meeting with RBC in Vancouver. At the meeting, Mr. Vermette of PwC provided the cash flow projections, which Ms. Watson and Mr. Cheyne questioned. Ms. Watson testified that the responses provided were not satisfactory. At the meeting, RBC gave written notice that it would be calling its loans. At this point in time, TLT was indebted to RBC in the amount of $18 million. [95] Ms. Watson testified that the proposed restructuring plan was unacceptable to RBC because: it did not include any additional security from Mr. or Ms. LeRoy; it was proposing to carry on with unprofitable contracts without a defensible business case for doing so, including a very large contract, the

Cowichan operation with Island Timberlands, which had been unprofitable from its start in 2006; and it was premised on unreasonable projections. [96] Ms. Watson testified that she conducted a detailed review of TLT's accounts in the fall of 2007 and, in an affidavit she swore on December 28, 2007, she identified RBC's concerns as follows: a. TLT's contracts "are for fixed rates but not fixed volumes, making TLT susceptible to fluctuating market demand and cost overruns"; b. TLT's business model was "not sustainable, was undercapitalized, and was poorly managed by Ted LeRoy and his management team"; c. the 2007 "coastal worker strike" exacerbated TLT's "tenuous financial situation"; d. "insufficient working capital being generated, due to ongoing losses and negative cash flow, to pay payables and make monthly loan and lease payments"; e. "over-trading and high leverage"; f. "weak management" at TLT, including a "total lack of internal risk management controls", and "no go forward business plan"; g. "outstanding payables" of $7 million; h. "TLT continued to fund an insolvent mill in Costa Rica (they had invested $5 million to mid-October [2007])"; and i. the transfer of title to the LeRoy family home from joint title to Ms. LeRoy alone during Special Loans' review without notice to RBC, which to RBC "indicated a complete refusal by Ted LeRoy to personally contribute to the

sustainability of TLT." [97] As a result of RBC calling the loans, on December 14, 2007, TLT applied for and obtained a court order for protection under the CCAA. The same month, TLT brought in Norm Slavik as TLT's chief restructuring officer. [98] On December 28, 2007, RBC filed an application to force TLT into bankruptcy. [99] On a date that was not clear in the evidence, but appears to have been some time in January 2008, RBC petitioned to court to put TLT into bankruptcy. Ms. Watson testified that RBC had protested the CCAA petition and petitioned the court to put the company into bankruptcy for liquidation, but were unsuccessful. The judge instructed PwC and TLT to come up with a new plan and put a time limit on it. According to an "Advice of Credit Undertaking" document prepared by Ms. Watson dated January 22, 2008, in a section of the report "update[d] since last ACU" on October 10, 2007, Ms. Watson notes: January 11: RBC was unsuccessful in court with a TLT Bankruptcy petition request, due to PWC's continued support of their Plan however the Judge ordered TLT and PWC to prepare and provide a new plan to the court by Feb. 15, for an RBC vote. The Judge has accepted the Bank's Bankruptcy petition will be automatic if the Bank as the majority secured creditor votes no on the new plan. [100] The plaintiffs claim that Mr. Whiteley swore an affidavit, in support of RBC's

application to force TLT into bankruptcy, that references the payments TimberWest made to TLT in 2006 and 2007 as "gratuitous bail-out payments". The defendants claim that the affidavit was sworn to oppose RBC's application to set aside the set-off charges claimed by TimberWest and others. Mr. Whiteley's affidavit was entered into evidence at trial. It was sworn and filed on February 6, 2008 in action VA S078473, which is TLT's CCAA petition proceedings. It seems unlikely that it was sworn in support of RBCs application to put TLT into bankruptcy since it was sworn after the date RBC was unsuccessful in court. As noted at para. 21, Mr. Whiteley states: "I am authorized by TimberWest to swear this Affidavit in response to the application of the Royal Bank of Canada dated February 4, 2008". The particulars of RBC's application dated February 4, 2008 was not put into evidence by either party. [101] In March 2008, TLT found a new lender, Century Services Inc. ("Century"), and RBC sold TLT's debt to Century. As part of the lending arrangement, TLT had to pay higher interest rates and had to provide a $2 million personal guarantee from Ms. LeRoy over the family home. [102] By May 2008, TLT had defaulted under the loan agreement with Century. TLT failed to make its first interest payment. [103] Throughout the spring of 2008, Mr. LeRoy met with TimberWest employees to discuss the

return to harvesting. At the same time, a compromise agreement was being negotiated between TLT and TimberWest. [104] In early June 2008, Mr. Vermette was recommending that TLT downsize to all but the most profitable operations. On June 6, 2008, PwC issued its monitor's update to Century as the secured creditor. The update outlined that TLT did not expect to be able to make any payments until mid-July, but it expected to bring Century current with its interest payments (not principal) by mid-August. It also advised that TLT had revised its management structure, with Mr. Slavik assuming overall responsibility for TLT, and noted that TLT was involved in negotiations with TimberWest to reach a compromise agreement. [105] On July 1, 2008, TLT set out a proposed orderly liquidation plan with an objective to repay Century's debt on or before October 31, 2008. [106] On August 19, 2008, a compromise agreement was entered into with TimberWest that provided for exits from various contracts between TLT and TimberWest (the "Compromise Agreement"). The Compromise Agreement included a mutual release and abandonment of existing claims between the parties. [107] TLT was assigned into bankruptcy, and the Compromise Agreement was approved by the Court, on September 3, 2008. TimberWest's Financial Condition [108] TimberWest was, during the material time, a publicly traded company and was

structured as a trust with its trust units being publicly traded. TimberWest was required to make quarterly distributions to its unitholders. During the material time, TimberWest made annual distributions in the range of $80-$90 million. This distribution was fixed and could only be varied with the approval of TimberWest's unitholders. This required TimberWest to monitor the amount of "distributable cash" it had in order to meet this commitment. [109] In approximately September 2005, TimberWest began a process, known as Project Montreal, to auction the company for sale. A sale did not happen at that time. [110] During 2006, demand for solid wood products, logs, and lumber began to soften, primarily driven by a decline in United States housing starts and a strengthening Canadian dollar. TimberWest's revenues began to decline. [111] The evidence supports that by the second and third quarter of 2007, TimberWest was facing significant financial issues. Mr. McElligott testified that this was due to the declining log market, the strengthening Canadian dollar and the decline in U.S. housing starts. [112] Mr. McElligott testified that TimberWest's sales, earnings and cash flow fell rapidly in the second half of 2007. It was an "ugly" year and TimberWest was losing money. It was the first year that the TimberWest timberland operations were generating losses. He described it as "logging

at a loss". TimberWest had serious concerns about compliance with its distribution obligations to unitholders and debt covenants. [113] The President's Report, which Mr. McElligott used with TimberWest's board to report on what was going on in the company, dated June 30, 2007, the second quarter report, noted the following: a. distributable cash had dropped to $13.6 million from the prior year's $35.5 million, off by more than 50%; and b. "Management has completed a detailed forecast for the remainder of 2007 and is projecting that TimberWest will not earn its distributable cash requirements from forestry operations for 2007. With the strong Canadian dollar, weak US lumber markets, over-supplied Japanese log and lumber markets and contractor cost increases, the timberland and lumber operations are expected to fall well short of their plan numbers for the year." [114] The President's Report dated September 30, 2007, the third quarter report, noted that distributable cash was at negative $5.6 million against the prior year's numbers of $9.3 million. [115] In October 2007, TimberWest had a $195 million bond to repay. TimberWest had challenges finding a lender prepared to take the debt. It ultimately secured refinancing of $325 million, but it was more expensive and came with more covenants. [116] In a press release dated October 30, 2007, TimberWest indicated that: The Company's

operating performance during the quarter was affected by: - the United Steelworkers ("USW") strike which curtailed more than two months of production, - weak log markets in the US and Japan that kept prices low, and - the continued appreciation of the Canadian dollar against its US counterpart. [117] The President's Report dated December 31, 2007, the fourth quarter report, noted that there was a sale of real estate for $65.1 million. Mr. McElligott testified that this sale "saved [the company's] bacon". The timberland operations generated a negative distributable cash of $0.1 million, compared to the prior year's numbers of $14.5 million. [118] In early January 2008, Mr. McElligott advised the unitholders that TimberWest did not expect to generate sufficient distributable cash in 2008 to cover its distribution obligation. Mr. McElligott testified that in 2008 the market had "collapsed". [119] The company's strategy was to reduce the harvest in light of the "extremely poor market conditions". The TimberWest board directed that TimberWest reduce the 2008 harvest by 40%. The rationale was that it would make more business sense to allow the trees to grow in size and value and then harvest them when market conditions improved, than to harvest logs that either could not be sold or could only be sold for less money than it cost to harvest them. Mr. McElligott testified that

TimberWest's decision to curtail harvesting was made to preserve TimberWest's financial condition given the market realities. [120] Ultimately, 2008 saw the lowest volume ever harvested in the costal B.C. forest industry. TimberWest, and other timber companies, took significant losses. [121] In July 2008, TimberWest sought a private placement bid. The British Columbia Investment Management Corporation ("BCIMC") submitted a bid in July 2008 at $15.25 per unit. This bid was rejected by the TimberWest board. [122] On August 14, 2008, TimberWest released a press release for its second quarter financial results, which stated that: "As a result of weak business conditions, TimberWest has not been generating sufficient distributable cash to meet distribution requirements and expects this to be the case through 2009." [123] In October 2008, TimberWest's lender, the Bank of Montreal, referred the account to special loans. TimberWest was facing a financial crisis. It had $45 million cash, which gave it nine months of liquidity. [124] In the same month, TimberWest reached out to BCIMC for financing. BCIMC and TimberWest discussed BCIMC providing funding through a convertible debenture arrangement. The financing documents were signed and the investment arrangement was finalized on December 12, 2008. [125] In November 2008, after year-to-date cash losses of $13.4 million, TimberWest

announced it was deferring distributions to unitholders and proposed modifications to distribution levels, which were approved. There was a concern that in the final quarter of 2008, and through the third quarter of 2009, TimberWest would be in breach of bank covenants. [126] Mr. McElligott testified that 2008 was a "very difficult" year. As he put it: I describe it as sort of the perfect storm, because sales realizations were at an all-time low. Stumpage was at an all-time high. We were on strike. We were struggling with high contractor costs. We saw continuing declines in US housing starts. We saw continuing strength of a Canadian dollar, and you put that together, and it was just sort of the perfect storm. [127] In 2008, TimberWest ended up losing $25 million. Mr. McElligott testified that TimberWest lost money in every quarter of 2008. [128] After the December 2008 convertible debenture arrangements, in February 2009, TimberWest and BCIMC entered into an investors' rights agreement whereby TimberWest could raise $150 million by way of a private placement of convertible debentures. [129] In April 2011, TimberWest, BCIMC, and the Public Sector Pension Investment Board entered into an agreement in which all the issued and outstanding units of TimberWest were sold and the company went private. The Munns Trial [130] It is of note that this Court has previously decided a case

involving TimberWest and another logging company, Munns, indexed as 0856464 BC Ltd. v. TimberWest Forest Corp., 2014 BCSC 2433 [Munns]. This action, which came before Justice Sigurdson, involved a claim for damages arising from the allegedly unlawful termination of timber harvesting contracts between Munns and TimberWest due to TimberWest's failure to negotiate the annual logging rates in good faith, as the contracts between them required. Munns claimed that this was part of TimberWest's strategy to terminate their existing contracts so that they could subdivide their logging contracts into smaller, less expensive contracts. Munns also claimed that TimberWest fraudulently misrepresented its position by concealing its intention to implement its subdivision strategy. [131] Munns was ultimately successful in proving its breach of contract claim and was awarded damages on the basis that TimberWest breached its obligation to negotiate 2008 rates in good faith with a view to continuing the contracts. Justice Sigurdson found that TimberWest's strategy was to use rate disputes to terminate its contracts. This, in turn, would cause out-of-work union members to put pressure on the union to agree to TimberWest's subdivision strategy, which would provide significant cost savings to TimberWest: Munns at paras. 258, 262, 308. Absent the subdivision strategy, the parties would have been able

to reach an agreement on rates as contemplated by the contracts: at para. 296. [132] Justice Sigurdson dismissed Munns' fraudulent misrepresentation claim, finding that it was not established on the evidence: at para. 316. [133] Although there are similarities between the Munns case and the case before me--in particular, the fact that they both involve disputes brought by larger contractors for TimberWest's Woodlands Operations and impugn actions that took place at similar times--I must assess the conduct of TimberWest as it relates to TLT, not Munns, based on the evidence that is before me in this trial, not that which was before Justice Sigurdson. Subdivision Plan and Bill 13 Strategy [134] What the plaintiffs describe as TimberWest's "subdivision plan", which is similar to that described in the Munns decision, is the foundation for the conspiracy and fraud claims the plaintiffs advance. There is a dispute on what the "subdivision plan" was and how it was implemented. There is also a dispute about when TimberWest put in place a "Bill 13 Strategy", and for what purpose. Since these are essential components of the plaintiffs' claims, I will individually set out the parties' corresponding theories and factual assertions in support. Plaintiffs' theory and factual assertions [135] The plaintiffs define the "subdivision plan" as a corporate plan to obtain the right to subdivide

existing large contracts on both private (Woodlands) and public (TFL 47) lands. This was extremely important to TimberWest, as it expected the plan to save at least $10 million per year, which it needed in order to meet its annual cash distribution requirements and to market the company to prospective buyers. [136] The goal was to replace the three large operators, being TLT, Munns, and Oyster River, with smaller contractors who would contract to harvest smaller volumes. However, TimberWest could not implement the plan before 2009, when the larger contracts expired, without the contractors' consent. In addition, the terms of the Munroe Award were such that union approval was required to subdivide the Woodlands Contracts. [137] The plaintiffs assert that TimberWest implemented its strategy without the contractors' consent through rate disputes and by causing their business to fail. [138] Since TLT was much larger, more efficiently run, and better capitalized than Munns, subdivision could not just be implemented by a rate dispute. Moreover, TLT had, through the Bill 13 Contract, the legislatively guaranteed right to harvest in TFL 47. As such, the steps taken to destroy TLT had to include eliminating the Bill 13 Contract. TLT was the only large contractor that had a Bill 13 contract with TimberWest. [139] The plaintiffs' theory on TimberWest's Bill 13 Strategy was that TimberWest

planned to first acquire TLT's Bill 13 Contract, then subdivide harvesting and road contracts in TLT's portion of TFL 47 into smaller contracts, and then de-unionize them. The Bill 13 contracts were viewed as a threat to TimberWest because they were too high-cost. [140] The plan had to be executed by individuals within TimberWest. Those individuals were the individually named defendants. [141] The plaintiffs say that the lack of production of documents relating to the subdivision plan and Bill 13 Strategy can be explained by the fact that either the defendants knew what was going on and purposively avoided committing the plan to paper, or the defendants deliberately avoided producing documents in the litigation in order to try to avoid the consequences of their actions. [142] The plaintiffs assert that the September 30, 2007 President's Report (the "President's Report") set out the plan as follows: If a negotiated solution is not possible, then the company will attempt to achieve its subdivision plan, operation by operation, as commercial agreements with stump-to-dump contractors are terminated (as a result of rate dispute with contractors or contractor business failures). (the "Subdivision Plan Provision"). [143] The plaintiffs argue that Mr. Whiteley's and Mr. McElligott's evidence at trial, explaining that portions of the Subdivision Plan Provision were a "mistake" since

subdivision could only be achieved with the union's agreement, was not true. The plaintiffs rely on Mr. McElligott's testimony recounting that he would draft these reports on a quarterly basis for the board of directors. He would request information from each department to insert in the reports. Once compiled, he would proofread them and circulate to other senior officers, including Ms. Park and Mr. Whiteley, for review and comment. Mr. McElligott testified that these reports were very important tools for the board to have for their deliberations. [144] Further, the plaintiffs rely on the fact that when Mr. Whiteley and Mr. McElligott testified in the Munns trial, neither of them brought up the fact that this was a mistake in this President's Report. Their counsel did not argue it was a mistake at that trial. The plaintiffs' theory is that the explanation for the mistake was concocted by Mr. Whiteley and Mr. McElligott through collusion prior to the commencement of this trial. [145] The plaintiffs point to TimberWest's 2010 Timberlands Operating Plan as a document that demonstrates how TimberWest implemented the Bill 13 Strategy and the benefits it provided. [146] The plaintiffs assert that TimberWest's definition of subdivision, which relates to the splitting of union seniority lists rather than the splitting of contracts, does not make sense and was not supported by the

evidence of the defendants, who all agreed that subdivision meant a greater number of contractors harvesting smaller volumes. The splitting of seniority lists could not occur unless and until the contracts themselves were split. [147] The plaintiffs point to several other communications made by TimberWest executives in support of their argument. First, they rely on an email from Ms. Park dated July 29, 2007, in which she states, " we have to break up this business." The plaintiffs argue that "this business" was a reference to TLT's business. [148] Second, on August 10, 2007, the three individual defendants emailed about a "managed exit" for TLT. The plaintiffs' theory is that the "managed exit" refers to a plan to impose terms on TLT through the use of unlawful economic pressure. [149] Third, the plaintiffs rely on a labour relations memorandum compiled by Mr. Whiteley and legal counsel, sent to the executive committee on April 19, 2007, which they say contained language similar to the Subdivision Plan Provision. This memorandum stated that the subdivision plan would see a single operator go down if a contractor went into receivership or if there was an unresolved rate dispute. The plaintiffs also refer to a PowerPoint presentation where the points outlined in the memorandum state that subdivision could arise when an "individual operation closes as a result of rate disputes or

a contractor going into receivership". Defendants' theory and factual assertions [150] In 2001, TimberWest developed a strategy called "Operations Excellence", which Ms. Park testified was an overarching strategy to reduce cost and improve productivity. TimberWest denies the plaintiffs' theory that part of Operations Excellence involved a strategy or plan to achieve subdivision or extinguish Bill 13 rights. [151] TimberWest claims that the concept of subdivision did not arise until after the contracting out following the Munroe Award, when it became clear to TimberWest that the three large contractors were struggling with the large volume Woodlands Contracts, as they were coming to TimberWest seeking rate increases and other financial assistance. TimberWest had hoped that the harvesting rates would come down after the contracting-out, but they did not. Mr. McElligott testified that, rather than delivering savings, the Woodlands Contracts were driving TimberWest's harvesting costs up. [152] Pursuant to the Munroe Award, the harvest volumes for the Woodlands Operations could not be broken up as each operation was subject to a seniority list of union member employees, called a "crew". Only by dividing the crews into smaller crews, while maintaining each employee's particular seniority within the union, could TimberWest contract out smaller volumes at the Woodlands Operations. The

subdivision of crew seniority lists required union consent. This, the defendants say, was the plan: to subdivide union employee seniority lists in order to contract out smaller volumes of work at the Woodlands Operations. [153] By the first quarter of 2007, TimberWest concluded that the "Munroe model [was] broken." There was too much volume being handled by too few operators who did not have the management and financial systems adequate to handle the scale of the operations. Mr. McElligott testified that TimberWest was not having similar problems with the smaller bid contractors on the other half of its private operations. These contractors were performing the same type of work for lower rates and they had better safety records. Mr. McElligott was of the view that if TimberWest obtained the ability to subdivide the Woodlands Contracts, it would lower costs by a minimum of $10 million, and maybe even $15 million, per year. Mr. Whiteley agreed that this was his "crude" estimate of the potential savings. It is of note that this plan only applied to harvesting operations, because, as a practical matter, log sorting operations could only be operated by one crew. [154] Mr. McElligott developed a detailed strategic analysis and plan regarding subdivision and presented it to the TimberWest board. His view was that acquiring the right to subdivide the seniority list would be difficult

to achieve and was not likely to occur in 2007. [155] TimberWest decided that in the 2007 labour negotiations, it would pursue a labour strategy to achieve the right to subdivide the seniority lists attached to the harvesting Woodlands Operations. This would allow TimberWest, following the expiry of the Woodlands Contracts, to bid out smaller volumes of work for the Woodlands Operations. [156] Other than the union members agreeing through a "final offer vote", this plan had to be achieved by the union consenting to a new collective agreement permitting subdivision of the seniority lists. Without a new collective agreement, TimberWest could not contract out smaller volumes of work at the Woodlands Operations. [157] The final offer vote was not successful and the Labour Relations Board ruled against it. This left TimberWest with the need to negotiate with the union. [158] Mr. Whiteley testified that, although a collective agreement permitting subdivision of the seniority lists was required prior to awarding smaller subdivided contracts, TimberWest began to plan for subdivision implementation while still negotiating with the union. Mr. McElligott testified that this was "contingency planning" and something that "any good business" would do prior to a potential change. The contingency planning included canvassing the market for potential contractors interested in subdivided

contracts, planning how the volume of the Woodlands Operations would be split, and planning how seniority lists would be divided. The subdivision implementation planning process commenced in the summer of 2007. [159] TimberWest claims that despite this planning process, it would have honoured the existing contracts or, if contractors were interested, negotiated a "managed exit", which was a mutually agreed upon early termination. If the Woodlands contractors were not interested in a managed exit, TimberWest intended to carry on with its contracts for the rest of their terms. The only contract that TLT had that would be subject to the subdivision was the Nanaimo Lakes Contract, as its other Woodlands Contracts were for log sorting operations that could not be subdivided. [160] Mr. Whiteley testified: Well, you know, clearly the subdivision strategy was, you know, first step was to get the concession from the union. The second step was to either see the Woodlands contractors through to the end of their five-year term or in the best-case scenario we would be able to negotiate a managed exit [161] Mr. Holmes, the operations manager for the South Island operations, which included the Nanaimo Lakes Contract, described the term "subdivision" as the splitting of seniority lists within a Woodlands logging contract. [162] Ms. Park testified that she viewed "subdivision" as a sort of

labour relations term as it related to the mechanism by which seniority lists would be subdivided within an operation. Her understanding was that once the seniority lists were subdivided, that would allow TimberWest to break up the harvest volumes. [163] Mr. LeRoy testified that he was aware that TimberWest required the subdivision concession from the union prior to implementing subdivision, and that TimberWest had discussed the plan with him. Mr. Whiteley testified that he arranged a meeting with each of the Woodlands contractors "so that each one of those owners had an understanding of what TimberWest was doing with the union and so that they weren't hearing about it third-hand." [164] TimberWest's subdivision labour strategy was made known publicly. In July 2007, TimberWest issued a press release announcing its intentions to pursue the subdivision of seniority lists during the upcoming collective bargaining with the union. Mr. McElligott testified that subdivision was discussed during the quarterly investor calls, and a further press release was issued on October 30, 2007, reporting on TimberWest's efforts to achieve subdivision. Mr. LeRoy had seen this press release. [165] Mr. LeRoy testified that Mr. Whiteley told him in July 2007 that TimberWest's goal was to subdivide. Mr. LeRoy understood that it was an important issue and was keeping track of it. He received

information from a variety of sources and had discussions about subdivision with other contractors, union personnel and industry members. [166] TimberWest did not obtain the union's agreement that the seniority lists for the Woodlands Operations could be subdivided into separate lists until December 13, 2008. [167] At the time the union's concession was obtained, both Munns and TLT were in bankruptcy. The remaining contractor, Oyster River, provided terms upon which it would agree to a managed exit or an agreed early termination. TimberWest did not agree to the terms, and the Oyster River operation was not subdivided until after the five-year term of its contract expired in 2009. [168] Mr. McElligott testified that the union's consent would be the beginning step for TimberWest to operate with a collective agreement involving subdivision. The longer-term objective was that the existing Woodlands contractors would become subdivided contractors for TimberWest. [169] TimberWest claims that there was no Bill 13 Strategy until after TLT's Bill 13 rights were extinguished under the Compromise Agreement. Mr. Whiteley testified that, after paying $3 million for the Bill 13 rights at a time that TimberWest was experiencing financial difficulty, a Bill 13 strategy was developed to justify having spent the money and to ensure that their next steps would be implemented in a responsible,

diligent way. [170] I turn now to some of the key events that took place during the material years of 2005 to September of 2008, when TLT declared bankruptcy. Developments in 2005 [171] In 2005, TLT began operations for the Woodlands Contracts, as well as operations in the Johnstone Straits, on the Bill 13 Contract and the Bonanza Contract. [172] Mr. LeRoy testified that after TLT started harvesting based on the 2005 plan in Nanaimo Lakes, TimberWest made a number of changes that significantly increased the number of old growth trees that had to be harvested. This resulted in more difficult harvesting and road construction to access, cut and transport the old growth timber, which resulted in higher costs. Mr. Whiteley testified that he did not recall that occurring. [173] TimberWest provided TLT with high volumes in 2005. The rates paid for the Woodlands Contracts were TLT's bid rates. [174] TLT had problems with the unionized workers that it took over at Nanaimo Lakes. The particular union local was very upset about the contracting out and working continuous shifts. These particular challenges at the Nanaimo Lakes operations were anticipated by Mr. LeRoy. [175] Mr. LeRoy testified that from 2003 to 2006, the price of fuel skyrocketed. In early October 2005, TimberWest implemented a fuel formula payment for each of TLT's operations. Mr. LeRoy testified that this did not address

the higher fuel rates incurred from 2003 to 2005, which were not resolved until 2006. [176] As of October 2005, TLT was struggling and reported to TimberWest that it was losing money, "needed to stop the bleeding", and wanted to renegotiate all of its contracts. [177] Mr. LeRoy testified that by the end of 2005, TLT was performing poorly because of the various cost challenges. As a result, TLT breached the covenants it had with RBC several times in 2005. Developments in 2006 [178] By January 15, 2006, TimberWest and TLT had negotiated and agreed on 2006 rates for all operations except Nanaimo Lakes. TimberWest paid an interim rate on Nanaimo Lakes. Mr. LeRoy testified that TimberWest paid TLT's asking rates. Mr. McElligott testified that the Woodlands contractors were all requesting significant rate increases, which came as a surprise to TimberWest as they had anticipated that the rates would be lower in the second year of operations. [179] On January 18, 2006, Mr. LeRoy contacted TimberWest regarding a "cash flow crisis" at TLT. Mr. LeRoy wanted TimberWest to contact his banker to confirm the financial difficulty. Ms. Park spoke to TLT's bankers at RBC, who confirmed that TLT had a serious cash liquidity problem. [180] By February, TLT sought to renegotiate the 2006 rates it had agreed to in January. Mr. LeRoy wrote to convey the "seriousness" of TLT's financial situation and

that, without some kind of support, TLT would "have trouble keeping things together this year." Mr. LeRoy testified that in approximately March of 2006, TimberWest agreed to an increased frequency of payment with no corresponding rate adjustment in favour of TimberWest. TimberWest had also agreed to a separate rate for road construction. [181] Ms. Park and Mr. Whiteley testified that TimberWest agreed to pay the higher rates on a bi-weekly basis, and provided the requested assistance, because it thought TLT was having transitional issues and TimberWest wanted to help it stabilize. Mr. Whiteley testified that the cost of the higher rates was $4.1 million. TimberWest was of the view that the rates paid were "premium rates", meaning above-market rates. [182] On March 8, 2006, Mr. LeRoy wrote requesting further revised rates and stated: We believe as does our bank that TimberWest will have to supply some monetary consideration in order for us to move forward to enable us to be able to put our accounts payable within at least a sixty day window. There is not enough margin in any of the rates to cover these past amounts that we have had to absorb. We believe that at the very least that this consideration should be two million dollars. [183] TimberWest requested that TLT provide financial statements prior to a meeting that was planned for March 21 to discuss the financial request.

TimberWest's position is that the purpose of the request was to justify granting the financial assistance that had been requested. Mr. McElligott testified that he asked Ms. Park, as the CFO, to become involved. He felt that he had a responsibility to do this since TimberWest was a public company and it could not "just cut a cheque for $2 million" without doing some due diligence. Mr. Whiteley also testified that there was a level of due diligence required since TimberWest was a public company; it could not simply write cheques on request and needed to try to understand "what on earth was going on". Mr. McElligott testified that the request came as a surprise as they had a long business relationship with TLT and had never received a request like this before. On March 17, 2006, TLT provided some financial documents to TimberWest. [184] On March 21, 2006, Ms. Park met with Mr. LeRoy. Ms. Park testified that she recalled Mr. LeRoy advising her about the accounts payable over 60 days and the accounts payable zero to 60 days. Mr. LeRoy told Mr. Whiteley that he needed the money "in order to survive." [185] At the end of March 2006, TimberWest paid TLT a lump sum payment of $2 million. The parties dispute the nature of this payment. [186] Mr. LeRoy testified that this payment related to TLT seeking compensation adjustments, which were provided for in the contracts, on the Nanaimo

Lakes Contract for 2005 and on TLT's other contracts with TimberWest for the years 2003 to 2005. Mr. LeRoy's evidence was that TLT's request stemmed from the increase in the price of fuel, labour costs, and changes made to harvesting plans and road construction. TLT was initially seeking $2.351 million. [187] TLT advised his banker that TimberWest had paid a one-time adjustment of $2 million for 2005 fuel and other expenses. On April 6, 2006, Mr. LeRoy wrote a letter to Mr. McElligott stating, "I would like to thank you for your speedy response to a satisfactory solution that will enable our company to move forward in the difficult business world that we are currently facing. Your rapid action helped avoid a financial situation that could not be reversed if left much longer." [188] TimberWest viewed the payout as a bailout made to stabilize TLT's business. Mr. McElligott testified that the $2 million payment was to help Mr. LeRoy stabilize his business and to give him the opportunity to move forward. Mr. Whiteley testified that the company viewed the request as a request for a bailout because there was "really no other way" to describe it. [189] Mr. McElligott explained his rationale for authorizing the lump sum payment as follows: the view that we had was, it's a terrible situation to be in, but we want these contractors to be successful. We've only got one year under our

belt. This is going to stabilize their business. It was a - it was a big year of transition, and let's start fresh again. This is going to stabilize their business and get them on a stable financial footing and skate them back on side with their banks. [190] Mr. McElligott also described the $2 million payment as "a lifeline" that was "unprecedented" and "truly an extraordinary payment." Mr. Whiteley testified that it was "a genuine attempt to give [Mr. LeRoy] the ability to stabilize his company." He referred to it as financial aid. Both Mr. Whiteley and Mr. McElligott testified that TimberWest was not under a contractual obligation to make the payment. [191] Ms. Park testified that a decision to provide some financial assistance to Mr. LeRoy at this time made sense, since they wanted to stabilize his business. She testified that the payment was categorized as being an "indirect sundry expense", which was a miscellaneous account used for payments that were unusual or outside a specified contract or agreement. Ms. Park testified that her understanding was that the request made by TLT for $2 million was outside of the contract and as such, some higher level of approval was needed. [192] After the $2 million payment was received, TLT wrote to TimberWest asking about the treatment of the payment. Mr. McElligott denied that he agreed to call the payment a rate adjustment. He

advised Mr. LeRoy that he would let Mr. Blanchard, the timberland operations controller, and Mr. Young, figure out what to call it and how TimberWest would account for it. [193] Mr. Blanchard testified that he was not involved in the negotiation of the payment, but his understanding at the time was that it was a bailout to help Mr. LeRoy get through some financial difficulties. Mr. Blanchard wrote a letter on June 8, 2006, advising that the payment represented a "negotiated agreement" to cover: incremental transitional harvesting costs at Nanaimo Lakes, incremental road building costs in 2005 at Johnstone Straits, and incremental fuel costs incurred across all operations over 2003 to 2005. Mr. Blanchard testified that he used the word "incremental" to indicate that it was above the normal rate. He recalled that the letter was prepared at the request of Jason LeRoy, Mr. LeRoy's son, so that TLT could categorize the payment for tax purposes. The 2006 payment included a portion for GST. [194] TLT had a lot of difficulties and costs relating to logging Nanaimo Lakes. It had trouble keeping employees and had a high turnover rate. TLT later reported that it lost $3 million at Nanaimo Lakes in 2006. Mr. LeRoy testified that Nanaimo Lakes was the "big loser" for TLT and had created a "huge problem". He testified that he had threatened to walk out of Nanaimo Lakes a number of

times. [195] In September 2006, TimberWest wanted to get more volume out of the Johnstone Straits, so they had arranged to shut down work on the Bonanza Contract and transfer its 180,000 m3 volume to the Johnstone Straits. Mr. LeRoy testified that this created a problem because TimberWest was not able to get harvesting approvals fast enough, so TLT was only to cut one block at a time. This increased TLT's cost by cutting down on efficiencies. [196] In September 2006, TimberWest advised TLT to build as much road as possible in the Johnstone Straits in order to prepare for the 2007 harvesting ahead of the strike that was expected to occur. TLT invested in significant inventory and staff to perform this work and assumed all costs until it was able to bill TimberWest. [197] In October 2006, TLT entered into the Island Timberlands Contract to harvest 350,000 m3. Mr. LeRoy testified that he saw this as an opportunity to lesson TLT's reliance on TimberWest. [198] According to a January 5, 2007 email from Mr. Mitchell to Mr. Whiteley, TLT was told on November 1, 2006 that the Woods and Brooks area (which is in TFL 47) second growth had been removed from the Bill 13 harvest plan due to "economics". [199] On November 2, 2006, TimberWest instructed TLT to shut down road construction in the Johnstone Straits except for some clean-up work. Mr. Whiteley testified that this information would

have been relayed to Mr. LeRoy in the fall of 2006, but he recalled that it would have been before November. According to Mr. LeRoy, the reason he was given for the shut-down was related to stumpage fees. Mr. LeRoy testified that he was never advised that the shutdown was as a result of markets or species mix. [200] On November 14, 2006, Mr. Whiteley recorded in his notes: "cause a contractor to fail - large". The plaintiffs assert that this is a reference to TLT and was foreshadowing what would happen to TLT as a result of TimberWest's subdivision plan. Mr. Whiteley testified that this note had nothing to do with TLT or the subdivision plan. It related to a safe certification initiative that was ongoing at the time, and referred to a large contractor possibly failing a safety certification audit. [201] Mr. LeRoy testified that TimberWest offered some mitigation for shutting down operations in the Johnstone Straits by offering up to 150,000 m3 at Oyster River. However, TimberWest treated this as bid work, and Mr. LeRoy asked that his name be taken off the bid package as TLT was not interesting in competing. [202] Mr. LeRoy testified that despite the large volumes TLT had in 2006 and being paid asking rates, TLT continued to struggle with costs throughout the year. Developments in 2007 [203] In January and February 2007, there were meetings between TLT and TimberWest to discuss

rates for the coming year and TLT's financial circumstances. [204] In early 2007, TLT raised the need for financial assistance from TimberWest. On February 1, 2007, TLT asked for a $300,000 advance, which TimberWest provided. Two weeks later, TLT asked for another advance, which TimberWest declined. [205] On February 16, 2007, Mr. LeRoy wrote to Gerry Young, general manager of operations, Mr. Whiteley's boss, advising that TLT was in a "difficult financial situation" and that it needed TimberWest's help "to continue with any viability." Mr. McElligott testified that his understanding was that the financial relief request was urgent and that if TimberWest did not bail out the contractors, being TLT and Munns, the contractors would be out of business. [206] In February 2007, TLT, through Mr. Triemstra, offered to arrange for TimberWest to discuss TLT's financial and banking situation with RBC, and to provide further financial information. [207] In 2007, TimberWest provided lower volumes to TLT than in 2005 and 2006. TimberWest claims this was due to two factors: the deteriorating market conditions and an industry strike. Since a strike was anticipated in June 2007, TimberWest front-loaded volume to the first half of 2007. [208] On February 19, 2007, Mr. LeRoy and Mr. Whiteley met and Mr. LeRoy advised that the "bank is going to take over". Mr. LeRoy further advised that he had

lost $3 million at Nanaimo Lakes. In March 2007, Mr. LeRoy advised Mr. McElligott that TLT had "immediate pressing financial issues" and that "the challenge [TLT has] is remaining financially viable through this process." [209] On March 2, 2007, the parties met to discuss 2007 rates and TLT's financial situation. Mr. McElligott requested financial documentation from TLT. Mr. McElligott testified that the purpose of the financial records was to see TLT's overall financial condition, its obligations to its lenders and the potential for breaches. Mr. Blanchard testified that the request for the TLT financial information was to try to assess the whole viability of TLT's business since they were constantly coming back "with asks" because of financial difficulties. [210] In early March, TimberWest offered to pay all contracts on a weekly payment schedule and to pay by zones with separate second and old growth project rates, as Mr. LeRoy had requested. Mr. LeRoy testified that the blended rates caused problems because they did not reflect the increased cost that TLT faced from increasing the rate of old growth lumber being harvested. [211] On March 5, 2007, TLT asked for a $1 million advance to address "pressing financial issues". Mr. McElligott advised that any further payment would only be made after TimberWest had reviewed the information requested and done its due diligence. [212]

On March 7, 2007, Mr. LeRoy reiterated his request for a $1 million advance and higher interim rates so that TLT could be viable in the short term. The $1 million advance was not provided at that time. [213] TimberWest insisted on the production of the financial records, prior to agreeing to any relief, in order to conduct their due diligence. Ms. Park testified that she was looking to understand what TLT's debt situation was, what obligations it might have had and whether there were any bank or loan repayments coming up that may place some additional financial strain on the business. [214] On March 8, 2007, TLT provided certain financial information to TimberWest pursuant to a confidentiality agreement. On the same date, TimberWest made a rate offer for a two percent increase from the 2006 rates it had paid TLT. Mr. Whiteley testified that he took the premium rates of 2006, adjusted them for the different harvest mix factors and added two percent. [215] On March 16, 2007, TLT countered, seeking significantly higher rates. By this time, TLT had also provided further financial information, including balance sheets and cash flow statements. [216] On March 26, 2007, TimberWest agreed to pay higher rates on an interim basis, retroactive to January 1, 2007. Mr. Whiteley testified that these were above the rates that TimberWest had planned to pay, and TimberWest agreed to this

arrangement in order to provide financial relief. Mr. LeRoy testified that he understood this was the basis on which the higher rates were being agreed to. Mr. McElligott testified that his view was that the agreed rates were above-market, premium, "outrageously high" rates, but TimberWest agreed to them because TLT was indicating that it was in trouble with its lenders and needed higher rates to survive. Ultimately, the interim rates became the final rates on June 15th. After June 15th, the rates were revised post union settlement and collective agreement settlement. The rates were raised to incorporate the increased wages. [217] TimberWest agreed to provide the interim higher rates on TLT's agreement that it would provide unaudited financial statements and audited financial statements. Mr. LeRoy agreed to provide the unaudited statements by April 30, 2007 and the audited statements by June 30, 2007. Ms. Park testified that she never did receive the audited financial statements for 2004, 2005 and 2006. She did receive extracts of balance sheets and of cash flow statements. She testified that these documents were not very useful for her to assess the condition of TLT, as they did not provide a complete picture. [218] From January to April 2007, according to TLT, it performed some minimal clean-up harvesting in the Johnstone Straits. According to TimberWest, the volume of

harvest was 84,081 m3 under the Bill 13 Contact in 2007, which is something more than "minimal clean-up". TLT also harvested old-growth in Bonanza starting around the end of March, 2007. [219] TLT claims that in mid-April 2007, without any notice, TimberWest shut down operations in the Johnstone Straits. Mr. LeRoy testified that he received a phone call advising that the Johnstone Straits operation was temporarily being shut down. He was told that this was due to stumpage rates that had to be paid to the government. He was further advised that this issue should be resolved by June. Mr. LeRoy claims that the stumpage reason was simply a "ruse" since TimberWest was allowing other contractors to harvest on the non-TLT portion of TFL 47. The plaintiffs claim that the underlying purpose of the shutdown was not due to stumpage, but to assist in the implementation of the subdivision plan. This is denied by TimberWest. [220] Mr. LeRoy proposed that a company called Perforex be retained to review the operations at Nanaimo Lakes. On April 10, 2007 TimberWest and TLT jointly retained Perforex. The engagement letter confirms that: "For clarity, it is agreed between TimberWest and TLT that Perforex is not involved in any type of rate arbitration as part of this engagement". [221] Mr. McElligott testified that Perforex would be assessing the operations to investigate why they were having

problems and to determine what TLT's costs were. Mr. Blanchard's understanding was that Perforex's review was an assessment of TLT's cost and cost structure; it was not an assessment against an average efficient operator. Mr. LeRoy claims it was to provide a recommendation on reasonable costs; this was disputed by Mr. Whiteley. Mr. Whiteley testified that Perforex was establishing what the costs were, and was not providing an opinion on whether they were reasonable. [222] Perforex attended at both TLT and TimberWest operations in Nanaimo Lakes to assess the efficiencies of these operations and evaluate costs. The report was delivered in two presentations. One was on May 4, 2007, which Ms. Park and Mr. McElligott were unavailable to attend. Mr. Whiteley was in attendance. A second, truncated presentation took place on May 28, 2007 with Ms. Park and Mr. McElligott in attendance. The plaintiffs' theory is that TimberWest sought to delay the Perforex presentation in the hopes of delaying it past the start of the expected strike, with the knowledge that TLT would be impacted by the strike. This allegation is denied by TimberWest, who says that the meeting was scheduled as soon as it could be arranged with the executive members. [223] According to the plaintiffs, the Perforex report found that TLT's operations at Nanaimo Lakes were performed more efficiently than those performed

in-house by TimberWest employees. [224] The plaintiffs claim that the costs outlined by Perforex as being reasonable for the job were identical to the rates that had been proposed by TLT. Mr. LeRoy and his son testified that one of the problems identified was that TimberWest was only following its harvesting plans approximately 30% of the time. Mr. Whiteley denied this. Mr. Blanchard, who attended both Perforex presentations, does not recall this. [225] The Perforex report concluded that TLT could save $1.5 million in costs. Mr. Whiteley testified that the cost information that Perforex was able to establish for TLT was extremely high. [226] After the May 28, 2007 Perforex presentation, TLT again requested a rate adjustment at Nanaimo Lakes based on the costs finding in the Perforex report and adding 10% profit. Mr. LeRoy testified that he was fundamentally proposing a cost-plus analysis. Mr. McElligott testified that his view was that Mr. LeRoy was treating this as a cost-plus contract in which he would be entitled to recovery of all of his costs plus a guaranteed profit, which "wasn't what this contract was about." Mr. Whiteley and Mr. Blanchard shared the view that Mr. LeRoy was assuming this was a cost-plus contract, when it was not and never had been. [227] Ms. Park testified that by May 2007, the contractors' costs were already $3.6 million above the board's plan. By July

2007, they had increased another $6.648 million. [228] On June 1, 2007, Mr. LeRoy advised Ms. Park that TLT would be curtailing falling and road construction, in anticipation of the strike, in order to realize cash. Mr. LeRoy testified that the bank was putting intense pressure on him to get a cash infusion or get rid of Nanaimo Lakes. [229] On June 4, 2007, Mr. Whiteley learned from the union that TLT was shutting down operations at Nanaimo Lakes. Mr. Whiteley contacted Mr. LeRoy, who advised him that he was not leaving or quitting, but only "taking a pause" at Nanaimo Lakes. [230] On June 4, 2007, Mr. LeRoy spoke with Mr. McElligott and Ms. Park and advised that in order to bring TLT's current payables over 60 days, to get its overall debt ratios to a one-to-one ratio, and to resolve its breach of covenant, it needed $2.4 to $2.5 million. Mr. McElligott phoned back to advise that TimberWest would send $2.3 million, which was sent on June 5, 2007. Ms. Park testified that she recalls Mr. McElligott saying words to the effect of, "we will come to your rescue". Mr. Triemstra of TLT recorded in his notes that TimberWest agreed "to come to [TLT's] rescue". [231] Ms. Park testified that she was involved in the discussion of a bailout payment because the payment was outside of committed contracts. She would have no involvement in negotiating rate adjustments. [232] Mr. McElligott

testified that the payment was to rescue TLT on its overdue payables and to stabilize TLT's business. In his words, it was: "another lifeline", "a bailout", and TimberWest was under no contractual obligation to make it. Ms. Park testified that the payment was made for financial assistance related to TLT's overdue payables. She advised Mr. Triemstra that they could apply it how they wanted to. It was not tied to any particular operation. Mr. Whiteley testified that it was his understanding that the payment was made to TLT to help stabilize the "fragile financial condition" of the company. Ms. Park agreed that the payment was made in spite of not having adequate financial information. She testified the reason it went ahead was because TimberWest accepted Mr. LeRoy's plea that his business was in trouble and there was a cash flow and liquidity crisis brewing, and if Mr. LeRoy "carried out with his plan to curtail, that would be very disruptive to [TimberWest]". [233] The plaintiffs' position is that this payment was for 2006 rate adjustments for Nanaimo Lakes. The plaintiffs' theory is that this payment was made because TimberWest was concerned with having the Nanaimo Lakes employees return to it. It was not yet ready to implement its subdivision plan. [234] The $2.3 million was recorded by TimberWest to its internal accounting system as an "indirect sundry expense". Ms. Park

testified that this was reflective of the nature of the payments as bailouts that were made outside of the contracts and not part of rates. Mr. Blanchard testified that the $2.3 million was treated the same way as the $2 million payment in 2006, as an indirect cost and not as a rate adjustment, but as a bailout. [235] Mr. LeRoy testified that the 2007 payment was solely allocated to Nanaimo Lakes and TimberWest refused to make adjustment payments for any other operations. [236] On July 6, 2007, the Forest Industrial Relations ("FIR"), an association that bargains on behalf of member companies, of which TLT was a member, went on strike. There was no work being done as a result of this strike. [237] On July 29, 2007, Ms. Park sent the email to Mr. McElligott that was discussed earlier in these reasons, containing the statement: "we have to break up this business." [238] Mr. LeRoy testified that in the summer of 2007, he was aware that TimberWest required the concession from the union prior to implementing subdivision, and TimberWest had discussed the plan with him. As previously mentioned, Mr. Whiteley testified that he arranged a meeting with each of the Woodlands contractors to advise them of this notion of subdivision so they learned about it from TimberWest and not third-hand. Mr. Whiteley advised Mr. LeRoy that his contract would be honoured until the end of the term in

2009. [239] In August 2007, TimberWest served a lawful lockout notice on the union and started negotiating with the union on a new collective agreement. TimberWest was seeking the ability to subdivide the seniority lists. The TimberWest employees then went on strike (the "TW Strike"). [240] On August 8, 2007, Mr. Triemstra advised TimberWest that approximately $2.1 million would be needed to meet the bank's covenant ratio. [241] On August 10, 2007, Ms. Park spoke to TLT's bankers at RBC. On the same day, she reported to Mr. McElligott and Mr. Whiteley about their conversation. In the email she stated: "They're very supportive of TimberWest's labour strategy and believe that it is in the best interests of Ted and the contracting fraternity, they definitely understand our tactic." Ms. Park testified that the reference to labour strategy was trying to obtain subdivision and the particular tactic was the final offer vote, which TimberWest was in the midst of at the time. The plaintiffs assert that in this call, Ms. Park provided information to RBC that TimberWest would be shutting down the Johnstone Straits operations. Ms. Park denies that she advised RBC of this. Ms. Park testified that she did speak with Mr. Forster, but did not recall speaking to Connie Watson or Doug Cheyne of RBC. [242] On August 10, 2007, Mr. LeRoy advised TimberWest that it needed $2.5 million. This was up

from the $2.1 million that Mr. Triemstra had indicated was needed on August 8. This was confirmed on August 17, 2007, when Mr. LeRoy advised TimberWest that TLT needed $2.5 million before the end of the month or RBC would "take over" and TLT would hand back the Woodlands Contracts to TimberWest. TimberWest did not agree to provide further payment. Mr. McElligott's explanation for this was because the requests were coming "far too often" and the intervals were getting shorter. TimberWest was also facing their own financial challenges and the timberlands business was losing money. In addition, the market was "pretty ugly in terms of demand for wood." [243] In the same month, TLT requested approximately $900,000 from Island Timberlands, which was not provided. [244] On August 10, 2007, the TimberWest executive committee emailed about a "managed exit" for TLT. The plaintiffs assert that this is the plan that was set out in the President's Report. The defendants assert this was referencing a negotiated resolution. [245] On August 15, 2007, TimberWest had its application to have a final offer vote of the proposed new collective agreement dismissed by the Labour Relations Board as being contrary to the Labour Code. [246] On August 17, 2007, Ms. Park advised the executive committee that she had spoken with "Ted's bankers" again and she did not think RBC would "do anything" without

calling TimberWest first. Mr. Forster recorded that Ms. Park expressed TimberWest's support for and desire to work with TLT. [247] On August 29 or September 1, 2007, RBC referred TLT's account to the Special Loans department and requested that TLT work with a restructuring advisor to prepare a business plan. In early September, Mr. LeRoy advised TimberWest that TLT wanted to terminate the Nanaimo Lakes Contract and TimberWest asked that two to three days' notice be provided. [248] On September 18, 2007, a meeting took place with TimberWest employees and TLT employees to discuss the harvesting plan for 2008 for the Johnstone Straits. At this meeting, the TimberWest employees again raised the concern over stumpage rates making operations difficult. [249] On September 29, 2007, Mr. Storry of TimberWest met with Shawn Munson, safety and compliance supervisor with TLT, who TLT had asked to assist with the stumpage issue. Mr. LeRoy testified that he suggested Mr. Munson to assist TimberWest since he was someone Mr. LeRoy knew was knowledgeable about stumpage issues. [250] On September 30, 2007, TimberWest's President's Report, discussed earlier in these reasons, was released, including the reference to the Subdivision Plan Provision. [251] In early October, TLT retained PwC to prepare an independent business review. [252] On October 9, 2007, Mr. LeRoy acknowledged in an email to Mr.

Whiteley that on October 3, they had discussed, among other things, how to address the stumpage issue in the Johnstone Straits, since TimberWest was paying more than others. [253] On October 15, 2007, the FIR strike ended, which allowed TLT to resume operations. [254] On October 17, 2007, a meeting took place between Mr. LeRoy, TLT employees, and TimberWest to discuss start up plans if the FIR agreement was ratified, with Mr. Whiteley reporting that the market outlook did not look positive. There were volumes available in Bonanza and in the Johnstone Straits. [255] On October 26, 2007, Mr. Whiteley agreed with the rates proposed by Mr. LeRoy for the North Island and Shoal Island log sorts, but the parties could not agree on a rate for Nanaimo Lakes. [256] Mr. LeRoy testified that, in the fall of 2007, he became aware that TimberWest was seeking to recruit new contractors to come to the coast to take over the subdivided Woodlands Contracts. [257] In November 2007, PwC was working on a restructuring plan with TLT. Mr. Vermette testified that his view was that TLT had to scale back significantly, but Mr. LeRoy did not agree. Ultimately, it was Mr. LeRoy's plan that was presented to RBC in December 2007. Mr. Vermette's view was that the plan was too optimistic. It created a very significant profit, while the plan that PwC had prepared showed very significant losses. Mr. Vermette

recalls that the swing was $13 million. Mr. Vermette's view was that Mr. LeRoy was prepared to "make tweaks, but not do wholesale changes." [258] Mr. LeRoy testified that on November 28, 2007, he met with Mr. Holmes to discuss 2008 harvesting. Mr. Holmes told Mr. LeRoy that the Johnstone Straits approvals were in and they were looking to start with approximately 100,000 m3. Mr. LeRoy had not yet received the plan for Nanaimo Lakes. [259] On November 29, 2007, TimberWest sent a letter to TLT setting out suggested rates for Nanaimo Lakes for 2008 and attaching the harvesting plan. The plaintiffs dispute that all of the relevant harvesting information was provided. The rates used were the original 2005 contract rates, adjusted to reflect inflationary factors and logging chance. TimberWest was of the view that these proposed rates were fair since the original 2005 rates had been ones set by TLT and accepted by TimberWest. Mr. Whiteley testified that these rates would be a "reality check" for Mr. LeRoy. Mr. LeRoy testified that the suggested rates would have been impossible to operate under, and there was no way TLT could agree to the rates in the November 29 letter. [260] Mr. Whiteley testified that stumpage was an issue in the Johnstone Straits. As he explained, TLT was not logging in the Johnstone Straits at the end of 2007 because TimberWest could not find profitable logs to

harvest there, mainly because of stumpage. [261] By early December, the TLT restructuring plan involved the termination of the Nanaimo Lakes Contract and the Ladysmith Contract. [262] According to the plaintiffs, TimberWest shut down harvesting operations in Nanaimo Lakes on December 1, and TLT never did work there again. [263] On December 10, 2007, RBC called TLT's loans and on December 14, TLT sought CCAA protection. At that point, PwC's role as a consultant to TLT ended. PwC was then appointed as a monitor by the court. TLT then worked to develop a new plan to present to the court. [264] On December 19, 2007, Mr. LeRoy agreed to rates proposed for Bonanza Lake. The rates for Nanaimo Lakes offered in the November 29 letter were not accepted by TLT. As Mr. LeRoy put it: " we hadn't committed that we could harvest for that rate. We didn't think it was a proper rate for that job. And that's how it was left at that point." [265] Mr. McElligott testified that, on the union front, by the end of 2007 there had been a significant shift in the union's position and they were discussing how they were going to allow subdivision. [266] Mr. McElligott explained that normally, the board would approve the plan before the end of the year. In mid-December 2007, Mr. Whiteley made a presentation to the board outlining the proposed logging plan for 2008. The board did not accept the plan. Mr.

Whiteley explained that the board believed that TimberWest was harvesting too much volume for the "extremely gloomy" market forecast and would be wasting the resource. They asked for a plan with much less volume. Ms. Park testified that the board was questioning whether TimberWest should be harvesting the amount of volume that was in the plan rather than leaving the trees to grow out. The plan was adjusted and went back to the board, who approved the revised plan in the first week of February 2008. Mr. McElligott testified that the normal process--in which the contractor would receive the plans sometime in the fall--did not take place since these were not "normal times". [267] As noted above, the TimberWest board had agreed to defer harvest levels in 2008 since, as Mr. McElligott testified, TimberWest was "logging for losses". The decision was made that it would be better to let the trees continue to grow on the stump and increase in size and in value so that there would be bigger, more valuable trees to sell when the market recovered. The 2008 plan involved a 40% reduction to the company's traditional harvest level because of unacceptably low margins, meaning unacceptably low profits. [268] On December 31, 2007, in an email exchange between Mr. Whiteley and Mr. McElligott, Mr. McElligott asked if they were "going to be able to deal with both Munns and LeRoy at the same time".

Mr. Whiteley responded: "Yes, I think the timing is right to get the subdivision concession. I think it is in our best interests to deal with them both now. We need to discuss expectations on how long it will take to put it back together." Mr. McElligott testified that this email was a question about whether TimberWest would be able to satisfy its harvest volume commitments to its customers if both Munns and TLT failed. Mr. Whiteley also testified that they were particularly concerned because TimberWest and Munns had reached a "rate impasse", TimberWest was planning to serve notice to end Munns' contracts, and TLT had just filed CCAA proceedings. Developments in 2008 [269] On January 3, 2008, Mr. LeRoy sent to Mr. Whiteley a summary of information that PwC had prepared. It included the information that formed the basis for TLT's projections and forecasts for 2008 based on the restructuring plan dated December 7, 2007. Mr. Whiteley testified that Mr. LeRoy was seeking to have TimberWest support the restructuring plan in court. Mr. Whiteley referred the plan to Mr. Holmes to review. The proposed plan did not include any volume or revenue for Nanaimo Lakes or the Ladysmith log sort. [270] On the same day, Mr. Holmes of TimberWest compared the assumptions, forecasts and projections in the summary that Mr. LeRoy had provided to TimberWest's projections, and concluded that there was

a possible total reduction of $13.1 million. Mr. Holmes provided evidence that he reviewed TLT's cash flow statement with "what [he] knew to be the current planning and information pertaining to rates and other conversations that had been had with Mr. LeRoy." Mr. McElligott testified that he had the same understanding. As he put it: "What I recall is Dave or Bev or both of them, one of them saying to me, 'Oh my god, you realize that the volume that Ted, TLT has in their restructuring plan is like 40 percent higher than what we have in our harvesting plan for his contract.' That's what I remember." [271] On January 3, 2008, Mr. LeRoy was advised that there had been a material change of TimberWest's plans and that this change would only be brought forward to PwC, as TLT's monitor, and to TLT, if a confidentiality agreement was signed. This agreement was signed and a meeting was held on January 7, 2008. Mr. McElligott explained the reason for the confidentiality agreement was that there was sensitivity over discussing upcoming plans when the board of directors had not yet approved the plan. Mr. Whiteley explained that since the board had not yet approved the plan, it was not appropriate to divulge it to the public without a confidentiality agreement. [272] At the January 7 meeting, Mr. Holmes advised that the volume in the Johnstone Straits was being reduced to 50,000 m3 and the

plan to start was in April, May, and June. This would start up after operations at Bonanza were completed. Mr. LeRoy testified that he could not afford to start-up in the Johnstone Straits for only 50,000 m3. Mr. Holmes advised that the road program in Bonanza would be reduced from 45-50 km to 7 km. The Shoal Island log sort was reduced to 550,000 m3. Bonanza was cut from 260,000 m3 to 234,000 m3. Mr. LeRoy testified that he was told that the total impact on TLT arising from these reductions amounted to $13.1 million. [273] Mr. LeRoy testified that once the loss of revenue from the Ladysmith log sort, Nanaimo Lakes, and the Johnstone Straits were factored in, the amount of actual cash flow that TLT was deprived of was $35 to $38 million. As he testified: " it's a complete impossibility to ever go ahead when that much cash flow has been taken out." [274] TimberWest's position is that the 40% reduction was relative to the rates and volumes that TLT had projected for itself as part of its restructuring plans; they were not reductions imposed by TimberWest. [275] Mr. LeRoy testified that at the January 7, 2008 meeting, Mr. Whiteley confirmed that the rate for Nanaimo Lakes would be the rate set out in the November 29 letter. [276] Another meeting between TLT and TimberWest took place on January 25, 2008. Mr. LeRoy testified that at this meeting, Mr. Whiteley said there was "no rate

that we could go to Nanaimo Lakes", meaning that "there was no rate [TLT] could give [TimberWest] that we could be harvesting". Jason LeRoy testified that "it was communicated prior to the meeting", on January 25, that TLT "couldn't accept the rate. But at the meeting we had told them that we were going to re-look at it and possibly do it." He testified that Mr. Whiteley responded that "there was no rate in Nanaimo Lakes that would be acceptable for [TimberWest]." [277] The defendants dispute this. Mr. Whiteley testified that it was "completely false" that TimberWest had refused to allow TLT to log at Nanaimo Lakes regardless of the rate. There was a rate provided in the November 29 letter and Mr. LeRoy never countered, accepted, or responded to that suggested rate. Mr. McElligott testified that he never instructed Mr. Whiteley to tell TLT that no rate would be accepted. [278] Mr. Whiteley testified that at the January 25 meeting, he addressed the issue of TimberWest supporting the TLT restructuring on the conditions of TLT abandoning any potential legal claim that it might have against TimberWest, which had been referenced in the draft PwC report, and TLT consolidating and downsizing its business. [279] On January 17, 2008, the parties agreed to extend the North Island Contract to the end of March of that year. In April 2008, the North Island Contract was again extended. There

were a series of three-month extensions until the Compromise Agreement was entered into. As part of that agreement, Ms. LeRoy got to keep operating the Shoal log sort under a different company. [280] On February 6, 2008, Mr. Whiteley swore an affidavit in the CCAA proceedings. As noted above, the parties disagree over the purpose for which this affidavit was sworn and the truthfulness of the statements contained in it. [281] In March and April, the parties agreed to rates at the Shoal Island log sort. On April 21, 2008, TimberWest approached TLT about working out a "global solution". This was ultimately achieved on August 19, 2008 with the Compromise Agreement. [282] Mr. LeRoy confirmed that in April 2008, for the operations that were running, the logging volumes from TimberWest were slightly ahead of plans in terms of volume. For the dryland sort operations, it was substantially ahead of pace for Race Point (North Island log sort) and marginally behind the plan at Shoal Island. [283] In May 2008, TimberWest advised that the 50,000 m3 for the Johnstone Straits may be increased to 148,000 m3. In the same month, TimberWest agreed to increase the Race Point volumes for the next couple of months. [284] TimberWest continued to work with TLT and provided work from January 2008 until TLT's bankruptcy in September 2008 on the Bonanza Contract, North Island Contract, and Shoal Contract.

TLT did not perform any work at Nanaimo Lakes. The volume that TimberWest provided was less than in previous years since it cut back its traditional harvest levels significantly to provide for harvesting only that amount for which there were available buyers. [285] In May 2008, Western Forest announced a six-week shutdown of all of its operations. This meant that TLT was forced to abandon its operations with them during this period. [286] By May 2008, TLT had defaulted on its first interest payment to Century. [287] At the end of May 2008, TimberWest advised of a one-week corporate shut-down. Mr. Whiteley testified that the one-week shutdown was due to the company having difficulty selling logs and because their inventory was too high. A further consideration was "just cash flow". [288] On August 19, 2008, TimberWest and TLT executed the Compromise Agreement. [289] On September 4, 2008, TLT was assigned into bankruptcy. [290] The TW Strike was resolved on December 13, 2008, when TimberWest and the union entered into a Memorandum of Settlement that permitted subdivision of the seniority lists as part of the new collective agreements. [291] The next day, TimberWest publically announced that it had reached an investment agreement with BCIMC for a $150 million convertible debenture. The plaintiffs say the resolution of the strike and the investment agreement was not coincidental.

The defendants disagree. The plaintiffs' theory is that the BCIMC investment was contingent on the implementation of subdivision. The defendants and the BCICM representatives dispute this allegation. [292] Lincoln Webb, former Vice-President of private placements and current Vice-President of infrastructure at BCIMC, and Doug Pearce, the CEO and CIO of BCIMC between 2008 and 2011, testified at trial. Mr. Pearce testified that the debenture deal was not tied in any way to TimberWest's settlement with the union or achieving the ability to subdivide. Mr. Webb testified that he had no discussions with Mr. McElligott regarding the delays in concluding the debenture agreement being attributable to the implementation of TimberWest's subdivision plan. He confirmed the agreement was not conditional on TimberWest achieving subdivision with the union. Harvesting volume [293] The volume of harvesting is an issue both in respect of whether TLT had expanded too quickly, and in respect of the impact that reduced harvesting had on TLT's financial situation. In 2001, TLT's annual harvesting volume was approximately 650,000 m3, which was the highest volume of TLT's history. [294] Between 2002 and 2006, TLT expanded its volume for logging, road building and dryland sorting. [295] In 2005, TLT's overall harvest volume for TimberWest was 1,202,339 m3. Its combined harvest and sort volume, excluding

road construction, was 4,531,000 m3. Mr. LeRoy described 2005 as TLT's "record year" in terms of volume. [296] In 2006, TLT's overall harvest volume for TimberWest was 1,063,711 m3, as well as 944,273 m3 at the Shoal Island log sort, and 409,467 m3 at the Ladysmith log sort. [297] In 2007, TimberWest provided TLT with 605,156 m3 of harvest volume and 1,957,168 m3 of sort volume. [298] In 2008, TimberWest provided TLT with approximately 800,000 m3 of sort volume at North Island and approximately 260,000 m3 at Shoal Island. The amount of harvest volume was approximately 180,000 m3 at Bonanza. [299] TimberWest had a five-year cut control period from January 1, 2005 to December 31, 2009. On March 4, 2008, TimberWest was given the option, which it exercised, to terminate the cut control period at the end of 2007 and begin a new cut control period on January 1, 2008. As a result, TimberWest had a three year cut control between 2005 and 2007. During this period, the AAC for TFL 47 was 1,943,523 m3. TimberWest harvested 2,130,111 m3, which represented 109.6% of the AAC. TLT harvested the vast majority of this volume. Between 2005 and 2008, TimberWest harvested 103.7% of the AAC and 1,928,250 m3 from TFL 47. Expert Evidence [300] Both sides called expert evidence, primarily on the issues related to damages. The plaintiffs called John McLaughlin, a professional forester, and I accepted

he had the necessary expertise to give an opinion on the valuation of harvesting and road construction contracts and associated parts and equipment needed for these types of contracts. Mr. McLaughlin provided an expert report dated November 2, 2018. His report focused on a valuation of the Bill 13 contracts that TLT had with TimberWest and Western Forests, and the road construction contracts. He also provided a valuation of the Bonanza Contract, Nanaimo Lakes Contract, Island Timberlands Contract, the three log sort contracts, and road construction contracts. He then provided his opinion on the gross revenues that TLT would have achieved assuming contract renewals from 2008 to 2018. Finally, he provided an opinion on the fair market value of the equipment and machines that TLT had in or around 2008, as well as an estimate of parts and inventory that a logging contractor on Vancouver Island would have in camp. [301] The defendants called Mr. McEwen, a professional business valuator, who prepared two reports. The first report, dated October 26, 2018, provides a quantification of the economic gain or loss to TimberWest resulting from the Compromise Agreement. The second report, also dated October 26, 2018, opines on the financial position and estimated fair market value of TLT as of January 31 and July 31, 2007; the financial position of TLT resulting from the "gratuitous bailout

payments" made to TLT in 2006 and 2007; and a projection of TLT's income derived from TimberWest between 2005 and 2008. A third report, dated December 7, 2018, replies to Mr. McLaughlin's report. I accepted Mr. McEwen had the necessary expertise to provide the opinions in the three reports. [302] The defendants also called Stanley Coleman, a Registered Professional Forester of B.C., who provided a report dated October 26, 2018. Mr. Coleman's report canvassed the reasonableness of the logging plans, harvesting, and road building rates provided by TimberWest to TLT between 2005 and 2008, and the means by which prices for Bill 13 contracts were set in 2005 to 2008. I accepted that he had the necessary expertise to opine on areas relating to the coastal logging plans, coastal harvesting and road building rates. His expertise to opine on the valuation of Bill 13 contracts was limited to his opinion that the value of a Bill 13 contract is set by a willing buyer and a willing seller. [303] Mr. Coleman concluded that TimberWest had met both its forest tenure commitment to the government under the Forest Act, and its commitment to TLT under the Bill 13 Regulation. [304] I will next turn to some comments on the issues of credibility that were specifically raised by the parties in their submissions. Credibility Legal Principles [305] The parties agree on the legal principles that apply in

assessing the credibility of witnesses. [306] The factors to be considered when assessing credibility were summarized in Bradshaw v. Stenner, 2010 BCSC 1398 at para. 186, aff'd 2012 BCCA 296, leave to appeal ref'd [2012] S.C.C.A. No. 392: [186] Credibility involves an assessment of the trustworthiness of a witness' testimony based upon the veracity or sincerity of a witness and the accuracy of the evidence that the witness provides (Raymond v. Bosanquet (Township) (1919), 59 S.C.R. 452, 50 D.L.R. 560 (S.C.C.)). The art of assessment involves examination of various factors such as the ability and opportunity to observe events, the firmness of his memory, the ability to resist the influence of interest to modify his recollection, whether the witness' evidence harmonizes with independent evidence that has been accepted, whether the witness changes his testimony during direct and cross-examination, whether the witness' testimony seems unreasonable, impossible, or unlikely, whether a witness has a motive to lie, and the demeanour of a witness generally (Wallace v. Davis, [1926] 31 O.W.N. 202 (Ont.H.C.); Farnya v. Chorny, [1952] 2 D.L.R. 152 (B.C.C.A.) [Farnya]; R. v. S.(R.D.), [1997] 3 S.C.R. 484 at para.128 (S.C.C.)). Ultimately, the validity of the evidence depends on whether the evidence is consistent with the probabilities affecting the case as a whole and shown to be in

existence at the time (Farnya at para. 356). [307] Justice Mayer echoed these principles and provided further guidance in Youyi Group Holdings (Canada) Ltd. v. Brentwood Lanes Canada Ltd., 2019 BCSC 739, aff'd 2020 BCCA 130 [Youyi]: [89] Credibility involves an assessment of the trustworthiness of a witness' testimony based upon the sincerity of a witness and the accuracy of the evidence that the witness provides. In some cases it becomes apparent that a witness has made a conscious decision not to tell the truth. In other cases, a witness may be sincere but their evidence may not be accurate for a number of reasons. [90] Evaluating the accuracy of a witness' evidence involves consideration of factors including the witness' ability and opportunity to observe events, the firmness of their memory, their objectivity, whether the witness' evidence harmonizes with independent evidence that has been accepted, whether the witness changes his pre-trial evidence by the time of trial or their testimony at trial during direct and cross-examination, whether the witness' testimony seems implausible, and the demeanor of a witness generally. [91] An acceptable methodology for assessing credibility is to first consider the testimony of a witness on its own followed by an analysis of whether the witness' story is inherently believable in the context of the facts of the entire case. Then, the

testimony should be evaluated based upon the consistency of the evidence with that of other witnesses and with documentary evidence, with testimony of non-party, disinterested witnesses being particularly instructive. At the end, the court should determine which version of events is the most consistent with the preponderance of probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions. [92] Some additional factors which may impact credibility include the following: a) A series of inconsistencies, considered in their totality, may become quite significant and cause the trier of fact to have a reasonable doubt about the reliability of the witness' testimony: see paras. 57-59, 86 of F.H. v. McDougall, 2008 SCC 53, adopting the comments of Rowles J.A. at paras. 28-29 in R. v. R.W.B. (1993), 24 B.C.A.C. 1. b) Where a witness is found to have lied under oath, their credibility may be wholly undermined: Le v. Milburn, 1987 CarswellBC 2936 (W.L.) at para. 1; Jones v. Jones, 2008 BCSC 1401 at paras. 31, 32 and 60; Hardychuk v. Johnstone, 2012 BCSC 1359 at para. 9. c) Collusion and deception between two or more witnesses in the course of a litigation may taint the entirety of a witness's evidence: Bradshaw at para. 190; d) Credibility will be undermined when a witness seeks to rely on false documents regarding the

issues at trial: Osayande v. Canada (Minister of Citizenship And Immigration), 2002 FCT 368 at paras. 19 and 21; e) Credibility will be undermined when a witness (or party) has failed to produce documents: Bradshaw at para. 188; Pacific West Systems Supply Ltd. v. Vossenaar, 2012 BCSC 1610 at paras. 84 to 86; f) Credibility will be in doubt when a witness's explanation defies business logic or common sense: R. v. Storey, 2010 NBQB 86 at para. 78; Wang v. Wang, 2017 BCSC 2395 at paras. 45-46 and 89-90; and g) Credibility may be impacted when a witness is evasive, longwinded and argumentative in their responses to questions: Bradshaw at paras. 191 to 192. [Emphasis in original] Positions of the Parties Position of the Plaintiffs [308] The plaintiffs submit that the central aspects of the evidence of Mr. LeRoy and Jason LeRoy were not undermined in cross-examination. These witnesses were not combative or argumentative during their evidence. They were prepared to acknowledge adverse facts where it was necessary. The plaintiffs submit that where these two witnesses' evidence diverges or contradicts that of the personal defendants, their evidence should be preferred. [309] The plaintiffs argue that the evidence of David Shaw, a former manager at TimberWest responsible for the Bill 13 Contract, and Erik Bentsen, former Vice-President of TimberWest, was credible and provided an

objective view of TimberWest's operations and structure. Mr. Shaw left TimberWest at the end of March 2007 and Mr. Bentsen in January 2002. [310] The plaintiffs submit that the individual defendants' evidence was not reliable for the following reasons: a. inconsistencies in their evidence; b. Mr. Whiteley swearing a false affidavit with respect to the "gratuitous bailout payments" TimberWest claimed it made to TLT; c. Mr. Whiteley and Mr. McElligott colluding on the "mistake" in the President's Report; d. failing to produce documents; e. explanations that defy business logic or common sense; and f. Mr. McElligott was frequently argumentative and evasive in his answers. [311] With respect to point (e), the plaintiffs point in particular to Ms. Park's explanations about what she meant by needing to "break up this business" and to her August 10 email about TimberWest's "tactic" as defying business logic or common sense. They also point to Mr. Whiteley's evidence about his belief that TLT's rates were premium, above-market rates, and his explanations about the subdivision plan. Position of the Defendants [312] The defendants argue that the individual defendants and the BCIMC witnesses, Mr. Pearce and Mr. Webb, are all respected and highly qualified current and former executives. Their testimony was reliable, credible and "inherently believable". Their testimony was consistent with

the broader factual picture established in the evidence. [313] The defendants point out that Mr. Storry, Mr. Blanchard, Ms. Watson, and Mr. Forster are all neutral, disinterested parties in this litigation. Mr. Storry and Mr. Blanchard are former TimberWest employees who are long retired. Ms. Watson is also retired and was an RBC employee from Toronto. Mr. Vermette continues to work at PwC. All of these witnesses gave clear, professional, and forthcoming testimony. [314] The defendants submit, in response to the allegation of collusion on the "mistake" in the President's Report, that Mr. Whiteley and Mr. McElligott both testified that they had only recently "discovered" the mistake as such, so it was therefore not specifically referenced in the Munns trial. They both gave forthcoming, consistent and credible responses on this issue. [315] The defendants submit, in response to the allegation that Ms. Park gave false evidence about the purpose of her call to RBC on August 10, 2007, that Ms. Park was entirely forthcoming. Ms. Park testified that she could not recall who she spoke to at RBC but suspects it would have been Mr. Forster. She believed that the "tactic" referenced in her notes referred to TimberWest's pursuit of the final offer vote and not to any other tactic. This was a widely-known tactic that was being discussed. At the time of the phone call, TLT's operations were

shut down due to the industry wide strike, so it could not have referred to a tactic to shut down TLT's operations. [316] The defendants submit that that the plaintiffs' fact witnesses, with the exception of Mr. Shaw, did not give credible evidence consistent within the broader factual matrix. They submit that the evidence of Mr. LeRoy and Jason LeRoy was unreliable in certain instances since it conflicted with contemporaneous documentary evidence and their testimony was self-serving. [317] The defendants give the following examples of inconsistent evidence and testimony of Mr. LeRoy that defies business logic or common sense: a. inconsistency between Mr. LeRoy's trial evidence that weak logs sales would not have a chilling effect on TLT's performance, and statements he made in his affidavit sworn January 7, 2008; b. failing to disclose evidence that Mr. LeRoy told Mr. Whiteley that TLT was prepared to accept rates on Nanaimo Lakes in an affidavit sworn April 7, 2008; c. giving evidence that he and the other two major TimberWest contractors were not sharing rate information, and then agreeing that his diary entries confirm that they were; and d. in Mr. LeRoy's 2008 affidavit and in the plaintiffs' closing, they assert that TLT's contracts with TimberWest provided for rights to harvest specific volumes each year, when in testimony Mr. LeRoy confirmed that there were no minimum

volume requirements on TimberWest. [318] Finally, the plaintiffs failed to disclose documents, including withholding relevant redacted diary entries until the trial, and destroying about 363 boxes of documents that TLT had received from PwC. Analysis [319] Credibility is a central issue in this case as the allegations made by the plaintiffs are that the individually named defendants lied to them and lied in their court testimony. [320] I start with the observation that when assessing testimony of a witness, there are two aspects to consider: the credibility of their testimony and the reliability of it. These are not the same, as the Court of Appeal noted in R. v. Plehanov, 2019 BCCA 462: [51] To begin, it is important to keep in mind that credibility and reliability are not the same. Credibility is concerned with a witness's veracity. Reliability is concerned with the accuracy of a witness's testimony; it involves consideration of a witness's ability to accurately observe, recall, and recount the events in issue: R. v. Khan, 2015 BCCA 320 at para. 44, 374 B.C.A.C. 262, leave to appeal ref'd [2016] 1 S.C.R. xii; R. v. H.C., 2009 ONCA 56 at para. 41, 241 C.C.C. (3d) 45. As Judge Doulis stated in R. v. P.M.M., 2019 BCPC 92 at para. 67, "credibility addresses whether a witness is lying, whereas reliability is about honest mistakes." [321] I have no hesitation in accepting the

credibility of all of the witnesses. I am not convinced that any of the witnesses were lying or attempting to deceive the court. I do have some concerns about the reliability of some the evidence, in particular due to the passage of time. In some instances, the witnesses were testifying to events that occurred over a decade ago, and even earlier. It is understandable, in my view, that some of the details may be lost due to the years that have gone by. It is well accepted that every day that passes, the memory fades: R. v. Staples, 2007 BCCA 616 at para. 36. [322] I start with Mr. LeRoy and his son. They were both credible witnesses. My view is that Mr. LeRoy had a distinct advantage in his ability to recollect details of certain events since he kept extensive diary notes. I trusted what he had to say. In many aspects he was candid about issues relating to TLT's poor financial situation and the lack of financial systems. In my view, the examples that the defendants provided to attack the reliability of his evidence can be explained by the passage of time and his lack of memory of some details. At no time did I find that he was trying to mislead the court. [323] Over 10 days of testimony, Mr. LeRoy presented as a helpful, calm, non-argumentative witness whose evidence, for the most part, was not shaken during cross-examination. Listening to him, I developed an immense

appreciation of the passion he had for TLT and the logging industry. I do not doubt that Mr. LeRoy hoped to continue to develop TLT and, in turn, leave it as a legacy for his two sons. [324] I agree there were some inconsistencies in Mr. LeRoy's evidence. For example, he claimed that he did not discuss rates with the other Woodlands contractors, but his evidence changed when he was taken to his diary entries documenting that he did have such conversations. I do not view this as an attempt by Mr. LeRoy to mislead the court, but rather an example of the length of time that had passed from when the conversations took place and when he was testifying. I further note that during the period of time between 2006 and 2008, Mr. LeRoy was under incredible strain and pressure. He was dealing with multiple issues and trying to keep TLT viable. The examples provided by the defendants do not shake my faith in Mr. LeRoy's testimony. [325] Mr. LeRoy zeroed in on certain phrases or sentences in various emails, notes, reports, and other documents with his perspective that he was a victim of a fraud perpetrated by the defendants. I am not convinced that his perspective, and honestly held belief that TLT was destroyed by the actions of the defendants, casts a shadow on the totality of his evidence. In assessing this case, I have to consider the extracts of the documents relied on, which the

plaintiffs say show the fraudulent plan, in the context of the entirety of the factual matrix, including the documentary evidence as a whole and the testimonial evidence that I accept. I am cognizant that honest witnesses can misperceive events, have poor memories, or just be wrong: R v. Wolff, 2019 SKCA 103 at para. 38. [326] That said, much of this case does not rely on the evidence of Mr. LeRoy. Instead, it rests on the credibility of the individual defendants, and the evidence they provided before me in this trial, assessed in the context of the entirety of the evidence, documentary and otherwise. [327] I have no hesitation in finding that the other witnesses that the plaintiffs called provided credible testimony. Mr. Shaw and Mr. Bentsen both testified in a forthright and objective matter. I put no weight on the suggestion by the defendants that the personal friendship that Mr. Bentsen developed with Mr. LeRoy impacted his evidence. I do agree with the defendants that the relevance of Mr. Bentsen's testimony is minimal considering he left TimberWest in January 2002 and the key events occurred from 2006 to the summer of 2008. [328] As part of the plaintiffs' case, Mr. Pearce and Mr. Webb were called. The plaintiffs raised three issues respecting these two witnesses' testimonies. None of these issues have any merit. Mr. Pearce was the Chief Financial Officer and Chief

Executive Officer for BCIMC from 2008 to 2011. He testified in a forthright, concise, clear and believable manner. I have no hesitation in accepting the veracity of all of the evidence he gave. The same assessment applies to Mr. Webb, who was the Vice-President of Private Placements for BCIMC. They both appeared as highly professional and honest. The key evidence they gave was that the subdivision savings that TimberWest hoped to achieve played no role in the provision of the 2008 debenture. I accept that evidence as true. [329] Turning to the witnesses called in the defence case, I had no concerns on the credibility and reliability of the evidence given by Mr. Storry and Mr. Blanchard. They both provided helpful evidence and were candid in admitting when they could not remember details as a result of the passage of time. [330] Neither party raised a concern respecting the evidence given by Mr. Forster or Ms. Watson, and rightly so. I have every confidence in the evidence given by the RBC witnesses. Mr. Forster clearly was trying to advocate for TLT, his former client, but at no time did he sway from being an honest and helpful witness. Ms. Watson, who testified via video conferencing, came across as a no-nonsense bank official who had a job to do when the TLT account was referred to the special loans group. She presented as a very qualified professional who readily admitted

when she could not recall facts, but was equally firm in the assessment she did give of TLT's financial circumstances. I have no reason to doubt her testimony. [331] I agree with the plaintiffs' submission that Mr. Vermette was argumentative in the witness box during some parts of his testimony. During other parts, he presented as a qualified professional. Overall, I accept the credibility and reliability of his testimony. It is understandable that he reacted negatively when it was suggested to him that he acted in a manner that was contrary to his obligations to his client, TLT, given the importance of his duty of loyalty to his clients as a professional. [332] Turning to the three individual defendants, Mr. McElligott, Mr. Whiteley and Ms. Park, I conclude they were all honest and attempted to do their best to answer the questions asked of them. The three of them testified in a clear, direct and balanced manner. I do not accept the plaintiffs' submission that Mr. McElligott was argumentative and evasive on the stand. I do agree that at times Mr. McElligott was frustrated by what he perceived as repetitive questions, and was offended when accused of being a liar in order to avoid a claim of disgorgement in this action. I did not find, in light of the nature of the questions, that Mr. McElligott was being confrontational or evasive. His upset was understandable. [333] The

plaintiffs suggested that there were a large number of inconsistencies in the answers provided by the three individual defendants. I am not persuaded that these are issues that detract from the veracity of their evidence on the core issues. Some of the inconsistencies can be explained by the passage of time--for example, the payment to Oyster River that Mr. McElligott did not remember, but agreed must have happened after seeing some documents. Some of the inconsistencies related to the witnesses' perception, such as Mr. McElligott's view that Mr. Blanchard could "slice and dice" harvesting rates. It was clear that Mr. McElligott held Mr. Blanchard's abilities in high esteem and that this evidence portrayed Mr. McElligott's perception of Mr. Blanchard's abilities. Another example given was Mr. Whiteley's evidence that TLT was being paid above-market or "premium" rates. That was, and no doubt still is, Mr. Whiteley's view of the rates that were paid--a view shared by others at TimberWest at the time. I do not view this as an inconsistency that "defies business logic or common sense" when the totality of the evidence is viewed. In some cases, what the plaintiffs describe as inconsistencies in the evidence of the defendants I have accepted as true, such as the meaning of the President's Report of March 31, 2007 and the state of the markets, issues relating to the timing of the

subdivision plan and Bill 13 strategy, and the intentions of the defendants. [334] I will address the three key credibility issues that the plaintiffs submit impeach the credibility of these three witnesses. [335] The plaintiffs submit that Ms. Park's credibility is put into question because of her explanation of the words "break up this business" in an email from 2007, and her explanation of what she meant when speaking to "Ted's bankers" on August 10, 2007. I have concluded, and will explain why in detail later in these reasons, that I accept Ms. Park's explanations on both of these issues. [336] I now turn to the testimony of Mr. Whiteley and Mr. McElligott regarding the "mistake" in the President's Report. The plaintiffs suggest that Mr. Whiteley's testimony that he spoke to Mr. McElligott about this prior to the trial supports the serious allegation that these two witnesses colluded together and as such, their evidence is tainted. The inference from this submission is that they colluded to provide false evidence to the court. It is a very large leap to make from Mr. Whiteley's candid admission in cross-examination that he had spoken to Mr. McElligott before the trial and told him that it "was an obvious mistake", with which Mr. McElligott agreed, to the conclusion that the two of them colluded together to come up with a false explanation. I do not find that such collusion

took place. I will extensively address the issue of the subdivision plan and the import of the words in the President's Report later in these reasons. [337] The plaintiffs submit that Mr. Whiteley's statement in his affidavit sworn February 7, 2008, regarding "gratuitous bailout payments", was false. I have and will further canvass the evidence of the parties on the nature of the payments made in 2006 and 2007 later in these reasons. However, in my view, Mr. Whiteley believed at the time, as he does today, that the payments made were not required under the contract and since they were made over and above the contractual requirements, they were gratuitous payouts. [338] Both parties suggested that the other side had failed to produce documents that ought to have been produced. I give no weight to any of these submissions. I accept that Mr. LeRoy had a large number of boxes returned to him from PwC and that he and his wife ultimately burned their contents. Ms. LeRoy, through discovery evidence read in at trial, commented that some of the documents were "old stuff" such as time cards and first aid reports. I am not convinced that the destruction of these documents reflects adversely on the evidence provided by Mr. LeRoy. In any event, I do not see how those documents would have assisted the defendants in defending the claims against them. [339] The plaintiffs suggest that there

was a failure to produce critical documents respecting the 2001 Operations Excellence plan and the planning documents for subdivision. Based on the testimony of the individual defendants, which I accept, I see little relevance in the contents of the 2001 Operations Excellence plan. I accept the defendants' submission that extensive documentation was produced respecting the subdivision plan. Other Evidentiary Issues [340] The defendants raised, during the trial or in their closing submissions, three other evidentiary issues, being: 1. the use of Mr. LeRoy's diaries at trial; 2. the relevance of evidence of activity related to the Hells Angels; and 3. the Browne v. Dunn issues raised by the plaintiffs in their closing submissions. Use of Mr. LeRoy's Diaries [341] Mr. LeRoy kept extensive diaries throughout the time in question. He would record in the diaries his own observations of events, notes of meetings and telephone conversations he had, notes to himself, and what he was told by others. As Mr. LeRoy put it, the reason he kept a diary was because: I can't recall the exact date without referring to my dairy. It is too much to remember. It's too many meetings, too many things happened. That's basically why I wrote a diary. [342] The Supreme Court of Canada's decision in R. v. Khelawon, 2006 SCC 57, is instructive on the hearsay issues raised by the use of Mr. LeRoy's

diaries: 34 The basic rule of evidence is that all relevant evidence is admissible. There are a number of exceptions to this basic rule. One of the main exceptions is the rule against hearsay: absent an exception, hearsay evidence is not admissible. 35 At the outset, it is important to determine what is and what is not hearsay. The essential defining features of hearsay are therefore the following: (1) the fact that the statement is adduced to prove the truth of its contents and (2) the absence of a contemporaneous opportunity to cross-examine the declarant . 36 The purpose for which the out-of-court statement is tendered matters in defining what constitutes hearsay because it is only when the evidence is tendered to prove the truth of its contents that the need to test its reliability arises. 37 [T]he traditional law of hearsay also extends to out-of-court statements made by the witness who does testify in court when that out-of-court statement is tendered to prove the truth of its contents. 38 When the witness repeats or adopts an earlier out-of-court statement, in court, under oath or solemn affirmation, of course no hearsay issue arises. The statement itself is not evidence, the testimony is the evidence and it can be tested in the usual way by observing the witness and subjecting him or her to cross-examination. The hearsay issue does arise, however, when the witness does

not repeat or adopt the information contained in the out-of-court statement and the statement itself is tendered for the truth of its contents [Emphasis added] [343] As Justice Charron explains, if the witness's testimony in court contradicts the out-of-court statement, or if the witness has no memory of making the statement or of the events described in the statement, and a party seeks to rely on the statement as evidence that its contents are true, then hearsay concerns again arise: Khelawon at paras. 39-40. [344] In order for hearsay evidence to be admissible, it must fall under a previously recognized exception and/or meet the criteria of necessity and reliability under the "principled approach": Khelawon at para. 42. [345] During the course of the trial, extensive reference to the diaries was made while Mr. LeRoy was on the stand. The defendants assert that they were not being used as a tool to refresh Mr. LeRoy's memories, but as an assertion of the truth of their contents. I disagree. Much in the same way that emails or reports can be used by witnesses when testifying about events that occurred many years ago, there is nothing wrong with Mr. LeRoy using the dairies to assist him when testifying. [346] I disagree with the defendants' blanket statement that the diaries "are not after-the-fact descriptions of events that Mr. LeRoy experienced first-hand." Many of the

entries are precisely that. While giving his evidence, Mr. LeRoy used the diary entries to refresh his recollection of the particulars of events. On many occasions, he read his diary entry and then confirmed that the notes he took were accurate and adopted the contents as true. [347] I agree that the diary entries themselves are hearsay evidence. However, as Khelawon makes clear, in circumstances where the witness repeats or adopts the earlier out-of-court statement during their testimony, no hearsay issue arises. In my view, this is an accurate description of how Mr. LeRoy's diaries were used when he gave his evidence. In making my findings of fact, I rely on Mr. LeRoy's evidence at trial repeating or adopting the statements made in his diaries, not on the diary entries themselves. The defendants had plenty of opportunity to test Mr. LeRoy's evidence, and they took full advantage of that opportunity. I do not rely on any statements in Mr. LeRoy's diaries that he did not adopt during his testimony or that he did not have any recollection of while giving his evidence for the truth of their contents. [348] Another issue that arises is that certain diary entries that Mr. LeRoy testified about during the trial record Mr. LeRoy's interpretations of events or statements that he was told about second-hand. I agree with the defendants that evidence in Mr. LeRoy's diaries, or that Mr.

LeRoy testified to about third-party statements, violate the hearsay rule and are inadmissible. I have not relied on any such evidence for the truth of its contents. Those individuals did not give evidence, and the defendants were deprived of an opportunity to test the reliability of the original statement made out of court. I am not persuaded that any exceptions apply, or that the evidence is necessary and reliable. Hells Angels Issue [349] At the trial, the plaintiffs adduced evidence of a connection between TimberWest and the Hells Angels through another one of TimberWest's contractors. It was never clear to me during the trial what the purpose of this evidence was. In the plaintiffs' closing submissions, reference was made to a connection that Mr. Newton, one of the three Woodlands contractors, had with the Hells Angels. It appears that the plaintiffs are seeking to make some connection between Mr. Newton being a member or former member of the Hells Angels, and some type of "residual benefits" that they imply Mr. Newton received out of the subdivision plan. [350] As noted by the Ontario Court of Appeal in R. v. Evans, 2019 ONCA 715 at para. 183, "[r]elevance exists as a relation between an item of evidence proposed for admission and a proposition of fact the proponent seeks to establish by its introduction." It remains unclear to me what proposition of fact the plaintiffs

seek to establish by the introduction of this evidence. If it relates to some benefit Mr. Newton received for renegotiating his contact with TimberWest, the relevance of this is of no importance to the issues in this claim. In my view, there is no relevance to any connection that Mr. Newton had as a TimberWest contractor to the Hells Angels and the issues in this trial. Browne v. Dunn issue [351] The issue of the application of Browne v. Dunn (1893), 6 R. 67 (U.K. H.L.) came up during the direct examination of Mr. Whiteley. The plaintiffs' counsel rose to "alert the court" to potential Browne v. Dunn issues. I advised counsel as follows: THE COURT: Well, there's another way of addressing an issue dealing with Browne v. Dunn, is that if it comes up during the - if there's a crucial issue which was not put to Mr. LeRoy, and if it's identified, there is a remedy that Mr. LeRoy can be called again to address that issue. In some ways that allows for a more fair assessment of his evidence. So I think it would be helpful, if it is identified before the closing, the issues which the plaintiff says should have been put to Mr. LeRoy but was not, so that there can be a discussion if that is the case how to best remedy that issue. MR. CRABTREE: Agreed, yes. MS. YATES: [I]f my friend believes there were crucial issues not put to Mr. LeRoy, I would welcome understanding what those are for

the reasons that the court has identified. If further cross-examination needs to happen in respect of those, obviously we'd like to know what those are, if they're going to be argued at closing. [352] The issues relating to Browne v. Dunn did not come up again until referenced in the plaintiffs' written submissions at para. 487, where under the heading of Credibility of Witnesses, it states: The Plaintiffs raised the prospect of an issue with the Browne v. Dunn rule because certain important aspects of Ted and Jason's direct evidence were not squarely challenged in cross-examination, including: a) The findings of the Perforex report, particularly the finding that TimberWest only followed their harvesting plans 30% of the time, and the meetings and phone calls that took place with TimberWest in connection with the report and Perforex presentations; b) Ted's evidence relating to the context and circumstances leading up to the execution of the release; c) Stumpage being the reason Ted was told for the shutdown of Johnstone Straits; d) Description and characterizations of the 2006 and 2007 rate adjustment negotiations; e) Description and characterizations of the 2008 rate negotiations for Nanaimo Lakes; f) Ted's meetings and phone calls with McElligott, Whiteley and Park and any of the representations made to Ted by those Defendants, including: a. January 7, 2008 meeting where

Whiteley and Holmes remove $13.1 million from TLT's plans; b. January 27, 2008 meeting where Ted accepts the rates and Whiteley outlines there is no rate TimberWest will agree to; g) Ted's meetings and phone calls with other TimberWest personnel, including Tomlinson, Holmes, Clifton Lumb, Bruce Storry and John Mitchell. [353] The principle stated in Browne v. Dunn is that if one intends to impeach a witness by calling contrary evidence, one must give an opportunity to the witness to explain the contradiction by telling the witness the nature of the evidence that is intended to be called: XY, Inc. v. International Newtech Development Incorporated, 2012 BCSC 319 at para. 149. [354] Upon review of the various items raised by the plaintiffs, I conclude that they were all adequately raised with Mr. LeRoy in his evidence. Although it is true that there are conflicts in the evidence on these points, it is not essential that every conflict in the evidence be put to the plaintiffs. In a case of this nature, this would result in exceedingly long trials. In my view, Mr. LeRoy and his son were fairly questioned on these points and the plaintiffs were not caught by surprise by the evidence tendered that sought to undermine these witnesses' credibility. [355] I put no weight on the plaintiffs' submissions that a violation of the rule in Browne v. Dunn took place. I further note that if the

plaintiffs were of the view that this was a crucial issue, they should have raised it with me as the trial judge in accordance with the direction given during the direct examination of Mr. Whiteley and not as part of their closing submissions. [356] I now turn to a consideration of the substantive issues in this case. Issues [357] The pleadings, evidence and submissions raise the following issues: a. Have the assignments been properly proven at trial? b. Does the release include the claims for fraud, conspiracy, and deceit alleged in this action? c. Did the defendants, or any of them, conspire to cause TLT to go bankrupt? d. Did the defendants, or any of them, engage in fraudulent or deceitful conduct to cause TLT to go bankrupt? e. Are the individually named defendants liable to the plaintiffs? f. Was TLT's loss or damage caused by the defendants? g. What is the appropriate remedy if liability is found? Issue 1: Have the assignments been properly proven at trial? [358] The tort claims in this action originally belonged to TLT. PwC became TLT's receiver in bankruptcy. As indicated in the introduction, the plaintiffs say that PwC assigned its choses in action against TimberWest to Ms. LeRoy (the "first assignment"), and then Ms. LeRoy assigned her choses in action against TimberWest to Mr. LeRoy (the "second assignment"). [359] At trial, the plaintiffs introduced both the first

and second assignments into evidence through Mr. LeRoy. With respect to the first assignment, Mr. LeRoy gave evidence that the document was the assignment agreement Ms. LeRoy obtained for the choses in action against TimberWest. Mr. LeRoy said that the agreement was signed by "Rick Pell"--presumably Richard Pallen--and his wife, Ms. LeRoy. Mr. LeRoy did not give evidence that he was present when the document was signed, or how he came to know who signed it. The document is dated December 28, 2010, and states that Ms. LeRoy provided $295.68 as consideration to be assigned the TimberWest choses in action. [360] Mr. LeRoy also identified a second document at trial as the second assignment, in which Ms. LeRoy assigned her choses in action against TimberWest to Mr. LeRoy. This document is undated. Mr. LeRoy said that the claims were initially assigned to his wife because he had a personal claim against TLT, but after those claims were resolved, his counsel thought it better for Mr. LeRoy to advance the claims. Mr. LeRoy did not confirm any of the signatures on the document nor the date it was made. [361] The defendants argue that the plaintiffs have adduced insufficient evidence that either assignment agreement is valid under s. 36 of the Law and Equity Act, R.S.B.C. 1996, c. 253 [Act]. Therefore, they argue the plaintiffs are precluded from advancing their claims. [362] The

defendants' counsel was specifically asked if there was any objection to the marking of the two assignments as exhibits and no objection was made. [363] The only submission made by the plaintiffs respecting the assignments was that the claims were validly assigned, as the bankruptcy trustee received a fee and there was no evidence from the bankruptcy trustee of any dispute about the validity of the assignment. The plaintiffs made no written or oral submissions on the validity of the assignments. [364] For an assignment of choses in action to be valid, it must comply with section 36(1) of the Act. Section 36(1) provides: Assignment of debts and choses in action 36 (1) An absolute assignment, in writing signed by the assignor, not purporting to be by way of charge only, of a debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, is and is deemed to have been effectual in law, subject to all equities that would have been entitled to priority over the right of the assignee if this Act had not been enacted, to pass and transfer the legal right to the debt or chose in action from the date of the notice, and all legal and other remedies for the debt or chose in action, and the power to give a good discharge for the debt

or chose in action, without the concurrence of the assignor. [365] Section 36(1) of the Act puts the onus on the assignee to prove on a balance of probabilities that the assignment has been made, in writing, and signed by the assignor: Link v. Texas Oil & Gas, 2007 BCSC 1205 at para. 51. [366] With respect to the first assignment, between PwC and Ms. LeRoy, the defendants argue that the evidence led was insufficient as it was introduced through Mr. LeRoy. There was no evidence adduced from the parties to the assignment: Ms. LeRoy did not testify and Mike Vermette of PwC was not questioned on the assignment at trial. [367] With respect to the second assignment, where Ms. LeRoy purportedly assigned her interests to Mr. LeRoy, the defendants argue that the assignment is invalid because Mr. LeRoy did not confirm whose signatures were on the document or testify to the date that the assignment was made. The defendants contend that the failure to confirm his signature violates an express requirement of the Act, and evidence of the date the second assignment was made is necessary. These arguments raise a valid issue on whether the proper steps of authenticating both of the assignments were taken at the trial. [368] In Link, this Court concluded that an agreement containing an assignment was valid even though the plaintiff was unable to provide a signed copy of the agreement. The Court

inferred that the agreement had been signed by both parties to the assignment on the basis that (at para. 51): a. it had been drafted months prior to the commencement of the action; b. the plaintiff testified that he sent the $10 of consideration mentioned in the agreement and that he knew the assignor agreed to the assignment; c. lawyers were involved in the process; and d. a representative of the assignor confirmed the assignment years after the action was commenced. [369] What is clear from Link is that the formal requirements from s. 36(1) of the Act are flexible and not strictly applied, but the assignment must nevertheless be authenticated in accordance with the law of evidence. [370] In S. N. Lederman, A. W. Bryant and M. K. Fuerst, The Law of Evidence in Canada, 5th ed. (Markham: LexisNexis, 2018), the authors note at page 1359 that: Before a private document may be admitted into evidence, something more than its mere production is required. Proof of a private document when it is produced generally involves two elements: (1) the signature of the person who signed it; and (2) the authority of the person signing it where a document is being proved against a party other than the person signing it, for example, proving that a letter signed by an individual was sent by a company, or proving an assignment of a mortgage executed by the executor of the owner of certain

property. The court must be satisfied by evidence that it was duly executed. [Emphasis added] [371] Circumstantial evidence of identification is also permitted (e.g. a witness who did not see the making or signing of the document may testify to the identity of the handwriting and this evidence may be used for the purpose of identification): Canada Evidence Act, R.S.C. 1985, c. C-5, s. 8. [372] In Link, the assignor confirmed the assignment, and the assignee gave evidence that consideration passed to the assignor. The Court found that this was sufficient to authenticate the document and that it was valid. [373] In this case, the authenticity of the first assignment could have been proven by direct evidence of Ms. LeRoy or Richard Pallen, or someone who witnessed them signing the document. Neither was done in this case. Mr. LeRoy did not testify that he witnessed the signing of this document, and no parties to the documents authenticated them. [374] While the parties have a document agreement in which they agree that all documents in the Joint Book of Documents are authentic, and signed by the person whose signature the document bears, the first and second assignment agreements are not part of the Joint Book of Documents and therefore are not covered by the document agreement. [375] Ultimately, given my conclusions below on the merits of the substantive claims, the issue of the

insufficiency of the evidence of the assignments is a moot point. However, in my view, had the plaintiffs sought to re-open the trial to provide the necessary evidence, I would likely have exercised my discretion, pursuant to Rule 12-5(3) of the Supreme Court Civil Rules, B.C. Reg. 168/2009, and allowed such a re-opening. The overarching concern of the court must be to do justice between the parties and to prevent a miscarriage of justice: Mitsubishi Heavy Industries Ltd. v. Canadian National Railway Company, 2011 BCSC 1536 at para.

39. In my view, it would not be in the interests of justice to allow an otherwise meritorious claim to fail on this basis. Issue 2: Does the release include the claims for fraud, conspiracy, and deceit alleged in this action? [376] On August 19, 2008, TLT and TimberWest entered into the Compromise Agreement. It provided, in part, that the parties "release eachother [sic] from any and all actions, causes of action, claims whether known or unknown, existing as of the Commencement Date " [377] As the plaintiffs' claims arise from the commercial relationship between TLT and TimberWest, and the plaintiffs seek damages for losses allegedly suffered by TLT, the defendants argue that all of the plaintiffs' claims are barred by the release that TLT entered into with TimberWest. TimberWest says this release operates as a full defence to the plaintiffs' claims. [378] The plaintiffs contend that the release does not apply to the claims they advance in this action as they were not in the contemplation of the parties prior to the release being signed. [379] When interpreting a release, the general principles governing the interpretation of contracts apply. These principles are, as articulated by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 47 and 57 [Sattva], as follows: [47] [T]he interpretation of contracts has evolved towards a

practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding" (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning: No contracts are made in a vacuum: there is always a setting in which they have to be placed. . . . In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. ([Reardon Smith Line Ltd. v. Hansen-Tangen, [1976] 3 All E.R. 570 (H.L.)], at p. 574, per Lord Wilberforce) [57] While

the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement ([Hayes Forest Services v. Weyerhaeuser Co., 2008 BCCA 31], at para. 14; and [Geoff R. Hall, Canadian Contractual Interpretation Law, 2nd ed. (Markham, Ont.: LexisNexis, 2012)], at p. 30). The goal of examining such evidence is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62 (B.C.C.A.). [380] In addition to these general principles, however, releases are subject to the interpretive principle originally articulated by Lord Westbury in London and South Western Railway v. Blackmore (1870), L.R. 4 H.L. 610 at 623, and since adopted widely by Canadian courts (see e.g. Keefer Laundry Ltd. v. Pellerin Milnor Corporation, 2009 BCCA 273 at paras. 61-65; Bank of British Columbia Pension Plan v. Kaiser, 2000 BCCA 291

at para. 17). That principle is as follows: The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given. But a dispute that had not emerged or a question which had not at all arisen, cannot be considered as bound and concluded by the anticipatory words of a general release. [381] In Hill v. Nova Scotia (Attorney General), [1997] 1 S.C.R. 69, Justice Cory cited this principle with approval and then referred to the comments of Justice La Forest (as he then was) in White v. Central Trust Co. (1984), 7 D.L.R. (4th) 236 at 247 (N.B.C.A.), discussing the principle from London and South Western Railway: What the statement quoted means is that in determining what was contemplated by the parties, the words used in a document need not be looked at in a vacuum. The specific context in which a document was executed may well assist in understanding the words used. It is perfectly proper, and indeed may be necessary, to look at the surrounding circumstances in order to ascertain what the parties were really contracting about. [382] In White, La Forest J.A. further clarified that: Like other written documents, one must seek the meaning of a release from the words used by the parties. Though the context in which it was executed may be useful in interpreting the words, it must be

remembered that the words used govern. As in other cases, too, the document must be read as a whole. This is particularly important to bear in mind in construing releases, the operative parts of which are often written in the broadest of terms. Thus reference is frequently made to recitals to determine the specific matters upon which the parties have obviously focused to confine the operation of general words. (See also Kaiser at para. 18.) [383] In determining what was in the contemplation of the parties, the court cannot consider the parties' subjective understandings. Rather, as in regular contractual interpretation, evidence of surrounding circumstances should only consist of objective evidence of the background facts at the time of the execution of the release, or "knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting": Sattva at para. 58; see also Hannan v. Methanex Corp. (1998), 46 B.C.L.R. (3d) 230 at 240-42. [384] While the principle from London and South Western Railway will often mean releases are construed narrowly, it does not preclude parties from agreeing to a release that bars unknown claims or antecedent claims of fraud, provided the parties contemplate such claims at the time the release is given: see Bank of Montreal v. Irwin, [1995] 6 B.C.L.R. (3d) 239 (C.A.); Metcalfe & Mansfield

Alternative Investments II Corp., 2008 ONCA 587. [385] In this case, the release in the Compromise Agreement provides: Mutual Release and Abandonment of Claims 9.1 With effect as of the Commencement Date the parties hereby release eachother [sic] and their respective predecessors, subsidiaries, affiliated and related companies, and their respective successors, administrators, directors, officers, employees, servants, agents and assigns, and each of them, of and from any and all actions, causes of action, claims, complaints, demands, damages, interest, costs, expenses and compensation of whatsoever kind and howsoever arising, whether known or unknown, existing as of the Commencement Date, with the sole exception of amounts for which TimberWest or its affiliates may be or become liable after the Commencement Date as a result of TLT's failure to pay wages or make employment related remittances, for which amounts TimberWest may seek to be compensated from its remaining share of the setoff charge. (the "Release") [Emphasis added] [386] The recitals of the Compromise Agreement provide, in relevant part: F. The parties wish to resolve various disputes that have arisen among them, as more particularly set out in this agreement. [387] The claims are not further defined other than what is found in the Release. [388] The defendants argue, first, that this Court need not look past the

express wording of the Release. In support of this proposition, the defendants point to Hannan and Gwininitxw v. British Columbia (Attorney General), 2013 BCSC 1972. They say that because the express wording bars the plaintiffs from bringing "known or unknown" claims, the Release operates as a full defence. [389] I cannot accept this proposition. First, the Court of Appeal in Hannan and this Court in Gwininitxw did not rely exclusively on the express language of the releases. In both cases, the courts note that intention is assessed objectively: Hannan at para. 41; Gwininitxw at para.

25. More importantly, both cases were decided before Sattva, where the Supreme Court of Canada held that the surrounding circumstances will be considered in interpreting the terms of a contract, so long as they do not overwhelm the words themselves: at para.

57. In my view, assessing the factual matrix may be particularly essential in construing the scope of a release because, as La Forest J.A. notes in White at 248, releases are often worded "in the broadest of terms". The issue is what the parties contemplated when the Release was signed. [390] As noted above, although it is possible for parties to agree to release unknown claims, courts will only give effect to these words where the objective evidence--including the contract as a whole, the impugned words in their ordinary meaning in the context of the agreement, the parties' relationship, and the relevant facts surrounding the transaction--supports this intention. As Justice Bennett explained in The Owners, Strata Plan BCS 327 v. IPEX Inc., 2014 BCCA 237 at para. 26: The law is very clear. While releases signed in the course of a settlement of a dispute are often worded in a broad and general fashion, appearing to cover the end of the world, they must be considered in the context of the dispute. This context often provides a limiting background from which an inference that the parties meant to apply it to the claims from the dispute may readily be made (see Bank of Credit and Commerce International SA v. Ali and others, [2000] 3 All E.R. 51 at 55, [2000] I.C.R. 1410 (C.A.) aff'd on other grounds, [2001] UKHL 8, [2001] 1 All E.R. 961). [391] Justice Bennett's comments were made in the context of a release that discharged IPEX "from any and all actions, causes of action, claims, [and] suits whether known or unknown": at para.

5. The Court of Appeal held that the trial judge had erred in failing to consider the correspondence between the parties leading up to the release, which made it clear that the release was intended to relate to specific claims for water damage done to condominiums in 2007 and 2008: at paras. 36-38. As I will explain, in my view, the objective evidence does not support the parties' intention to release unknown claims or claims of conspiracy and fraud. Does the Release cover the claims in this action? [392] The defendants argue the objective extrinsic evidence demonstrates that the claims at issue here were in the contemplation of the parties before the Release was executed, and that the Release should bar the plaintiffs' claims. [393] Specifically, the defendants point to the following as evidence that the claims were in the contemplation of the parties at the time: i. TLT and Mr. LeRoy knew of TimberWest's goal to subdivide and contract out smaller volumes at the Woodlands Operations: 1. TimberWest publicly announced in July 2007 that it was seeking a simplified contractor model that would allow it to "sub-divide operations", and the announcement was sent to Mr. LeRoy; 2. in a diary entry from July 2007, Mr. LeRoy recorded a meeting he held with union representatives, noting that TimberWest's goal "is to break up the coast", and he noted that the subdivision "would be the end

of large contractors"; 3. in October 2007, TimberWest publicly announced its "goal of subdivision" and that "a larger pool of smaller contractors would allow [TimberWest] to be more competitive", which Mr. LeRoy agreed would have been sent to him; and 4. in emails from July to November 2007, which Mr. LeRoy agreed he had been sent, TLT employees reported comments allegedly made by the defendants to Mr. LeRoy that "two of the three" TimberWest contractors were "too big", that TimberWest was "trying to get rid of the LeRoys", and that TimberWest believed that "the LeRoys are too big" and "cannot handle/manage what they have anymore"; ii. Mr. LeRoy testified that he received and likely would have read an email in July 2007 in which a union representative told him that TimberWest was "planning on destroying your contracts"; iii. Mr. LeRoy testified that he received an email in October 2007 from Mr. Triemstra, who he acknowledged was acting as an officer for TLT, where Mr. Triemstra wrote that he suspected that TimberWest's "plan" may be to "get rid of LeRoy in Nanaimo and Ladysmith"; iv. Mr. LeRoy confirmed that he had heard and that he received an email in November 2006 where Mr. Triemstra wrote that TimberWest was trying to achieve subdivision of its contractor operations, including TLT, on a "no holds barred" basis; and v. between November 2007 and July 2008, Mr. LeRoy made

several diary entries that TimberWest was trying to break up or bankrupt TLT, get rid of TLT's Bill 13 Contract, break up the larger contractors, and bankrupt TLT to get rid of the union--he confirmed at trial that this was his subjective belief at the time. [394] Moreover, the defendants say that TLT received legal advice about the alleged conduct. In the fall of 2007, TLT sought legal advice to see what claims were available to TLT. Part of the legal opinion provided to TLT provides: There is a broader concern held by TLT that TimberWest, having had exhaustive access to TLT's financial statements for 2006 and portions of 2007, has used this information as part of a larger plan to either force TLT into bankruptcy/insolvency or otherwise remove TLT from TimberWest's ongoing negotiations. This conduct needs to be explored and may give rise to additional claims for intentional interference with contractual relations and/or conspiracy, depending on the evidence TLT can acquire in support of its allegations. [Emphasis added] [395] This opinion provides evidence that Mr. LeRoy was alerted to possible claims in conspiracy prior to the execution of the Release. Mr. LeRoy agreed during the hearing that, amongst other things, he was getting legal advice on the conspiracy issue. [396] The defendants further point to evidence of Mr. Whiteley, who recalled repeatedly hearing about Mr.

LeRoy's view that TimberWest was trying to put him out of business. Mr. Whiteley recalled that, during the negotiations for the Release, Mr. Slavik (who is deceased so not able to testify) used the word "conspiracy" and the possibility of a court battle, union issues, and risks to TimberWest's reputation. The defendants argue that this is supported by contemporaneously recorded notes of the negotiations, in which Mr. Whiteley noted "Slavik-LeRoy combination - conspiracy". [397] It is in this context, argue the defendants, that the intentions of the parties are clear. TimberWest wanted to obtain a broad, all-inclusive release that covered all potential claims or theories, including conspiracy and any related claims such as fraud or deceit. [398] Ultimately, the defendants argue that the extrinsic evidence of the circumstances before the parties executed the Release, and the understandings of the parties during the negotiations leading up to the Release, demonstrate that the claims advanced by the plaintiffs were in the contemplation of both parties, and is therefore a bar to the plaintiffs' claims. [399] The defendants rely on two cases in support of their argument: Bank of Montreal, cited above, and Fotini's Restaurant Corp. v. White Spot Ltd., [1998] 38 B.C.L.R. (2d) 251 (S.C.) [Fotini's]. [400] In Bank of Montreal, the Court of Appeal considered a release of claims "whether

known or unknown, suspected or unsuspected .". The agreement in that case was dealing with debt of Ms. Irwin to a bank, and the issue was whether it barred an action taken by the bank against her and her husband. The thrust of the action was the allegation that Ms. Irwin was hiding her husband's assets. The bank argued that the release only referred to claims in existence at the time of execution, not to its claim in the action, which only could have arisen after Mr. Irwin's assignment in bankruptcy. The Court of Appeal held that the bank would have contemplated when it released Ms. Irwin that, in the event of bankruptcy, it would be a creditor: at 247. Ultimately, the Court concluded that "lying at the heart of this suit is the same debt of Mr. Irwin to the Bank which is detailed in the Release", therefore, the claim was in the contemplation of the parties and the claim was barred: at 248. [401] In Fotini's, the plaintiff alleged that the defendant fraudulently misrepresented the profitability of the restaurant she purchased from the defendant. The plaintiff had previously executed a general release in favour of the defendant to terminate their franchise agreement and end its obligations under a lease. That release provided a release of all claims "known or unknown, suspected or unsuspected, arising on or before the date of this release, or hereafter": at para.

5. While the plaintiff initially swore an affidavit that she was unaware she had been defrauded before she executed the release, she later admitted that she had concerns about the truth of financial information provided and that she distrusted the defendant and "anticipated it would continue to cheat [her]": at para.

11. This Court held that because the plaintiff was aware of these circumstances before the release, her claims in fraudulent misrepresentation and negligence were in the contemplation of the parties at the time the release was executed. [402] The instant case, the defendants argue, is like both Bank of Montreal and Fotini's because the claims for fraud and conspiracy were within the contemplation of the parties. [403] The plaintiffs argue that the Compromise Agreement does not bar their claims in this case. While the Release refers to "unknown" claims, it is also limited to "disputes" that have "arisen" among the parties. They argue that there were no discussions between TLT and TimberWest about fraud or conspiracy; their discussions were focussed exclusively on contract disputes arising from TimberWest's actions in 2006 and 2007. The plaintiffs contend that the facts underlying these claims were not in Mr. LeRoy or TLT's contemplation at the time that the Compromise Agreement was signed. [404] Mr. LeRoy testified as to his state of mind when he executed the Release, which, the plaintiffs argue, was not challenged in cross examination. Mr. LeRoy's evidence was that he did not know of any conspiracy or fraud at the time the Compromise Agreement was executed. [405] In support of this argument, the plaintiffs point to various aspects of TLT and TimberWest's working relationship,

which included: the fact that TLT and TimberWest had, up until 2006, a good relationship marked by good faith negotiations; TLT had never resorted to arbitration or litigation; the parties successfully negotiated issues as they arose; and the parties continued to conduct business together. [406] The plaintiffs also point to representations and assurances made by TimberWest to TLT from the summer of 2007 to December 2007 that although TimberWest was seeking to subdivide the contracts, TLT did not have to worry. TimberWest intended to live up to its contracts and none of the actions would cause TLT harm. Finally, the plaintiffs note that the parties continued to have a working business relationship throughout and after the negotiations, where TimberWest continued to grant TLT contracts and hire them to engage in harvesting. [407] Finally, the plaintiffs argue that the facts on which the plaintiffs' claim is based could not have arisen, because the defendants deny that there was a conspiracy or that the allegations of fraud are well-founded. Therefore, they say, these claims could not have been in the contemplation of the parties when the Release was executed. [408] I cannot agree with the plaintiffs' final argument. The defendants are entitled to deny liability for claims, while entering into a settlement, or Compromise Agreement, in this case. The focus of the assessment in

determining whether the claim is barred by a release is not whether the parties agreed to the substance or merit of the claims, but whether the facts on which the claims would arise were in the contemplation of the parties prior to signing the Release. [409] A review of the surrounding circumstances, including the negotiations between the parties, the various drafts of the Compromise Agreement, and the language of recital F of the Compromise Agreement, demonstrate that the focus of both parties was the various disputes that had "arisen among them". These disputes were the contractual issues that had arisen. The defendants argue that the meaning of disputes should be extended to include the "conspiracy theories" that Mr. LeRoy had expressed. [410] However, if one examines the statements recorded by Mr. LeRoy, predominantly in his diary entries, they only go so far as to explain what TimberWest's overall subdivision plan was: in TimberWest's words, to subdivide and that "a larger pool of smaller contractors would allow [TimberWest] to be more competitive", and in Mr. LeRoy's words, break up the operations into smaller contractors. These statements do not support that Mr. LeRoy contemplated that TimberWest was going to implement this strategy with a goal of forcing TLT out of business or into bankruptcy through the use of unlawful means. [411] The defendants argue that the legal

opinion that Mr. LeRoy received from Harris & Co. in the fall of 2007 supports that "conspiracy" was a claim in his contemplation. [412] The legal opinion consists of six pages, with the first five pages dealing with the various contractual disputes that have arisen between the parties. These disputes largely mirror the disputes that were later listed in the draft PwC report under Appendix 4. [413] On the last page under the heading "Misuse of Confidential Information/Defamation" the author has included the word conspiracy in respect to TimberWest conduct in using information as part of a larger plan to "either force TLT into bankruptcy/insolvency or otherwise remove TLT form TimberWest's ongoing negotiations". [414] The evidence suggests that Mr. LeRoy had some discussions with Mr. Harris about his concerns that there may exist a larger plan by TimberWest to force TLT into bankruptcy. What the evidence does not show, however, is that this had arisen to the level of a "dispute", which is referenced in recital F of the Compromise Agreement. [415] The negotiations leading to the Compromise Agreement took place in the spring and summer of 2008. A review of the documents relating to the negotiations does not suggest that any discussion of conspiracy, fraud, or deceit took place except for the one entry in Mr. Whiteley's notes of August 8, 2008, which reads: "Slavik-Leroy

combination - conspiracy." The plaintiffs point out that in Mr. Whiteley's discovery evidence, he stated that he could not recall the words conspiracy, fraud and deceit being used in the negotiations with Mr. Slavik. Mr. Whiteley said that his recollection at trial was based on a detailed review of his notes regarding the negotiations, and refreshing his memory in preparation for trial. [416] The thrust of the documents demonstrates that the discussions between the parties centered on the various contractual disputes that had arisen between them. Initially, the disputes were those described in Appendix 4 of the draft PwC Report dated December 7, 2007. During the negotiations, other contractual issues were raised and, as a result, Mr. Whiteley set out in his letter of June 17, 2008, the following wording under the Abandonment of Claims clause: TLT agrees that it will not pursue any of the claims described in Appendix 4 to the Draft PWC Report dated December 7, 2007 that is attached as Exhibit A to the affidavit of Nashila Premji, filed in the CCAA proceeding, nor will it pursue any other claims originating from the business conducted with TimberWest prior to the signing-off on this Agreement. At signing of this Agreement, and in a manner acceptable to TimberWest, TLT will have executed a full release from the above captioned claim and filed it in a mutually agreed-upon

location. [417] Both parties argue that the lack of a specific reference to conspiracy supports their arguments. The defendants argue that if the plaintiffs wanted to carve out the claims for conspiracy they could have done so with express wording; conversely, the plaintiffs argue that if the defendants wanted conspiracy to be included they could have made specific reference to it. [418] I am not convinced that the claims for fraud, deceit, and conspiracy were in the contemplation of the parties prior to the Release being signed. Nor am I convinced, based on an assessment of the evidence relating to the negotiations between the parties leading up to the Compromise Agreement and the language in the recitals, that the parties contemplated a release of all claims, including unknown ones. The weight of the evidence favors the position of the plaintiffs in this regard. I find that the Release does not include the claims being pursued in this action. [419] Under the next section, in relation to the conspiracy and fraud claims, I have set out the legal principles, and then each of the parties' positions to focus on the issues in dispute between them, before making my findings. Issues 3 & 4: Did the defendants, or any of them, conspire to cause TLT to go bankrupt or destroy its business, or engage in fraudulent or deceitful conduct? [420] Because of the significant overlap between the

unlawful acts alleged in furtherance of the conspiracy claim and the allegations of fraudulent or deceitful conduct, I have decided to address these issues together to avoid duplication. Legal Principles [421] The plaintiffs must establish their case on a balance of probabilities. There is no special standard of proof for fraud or conspiracy: F.H. v. McDougall, 2008 SCC 53 at paras. 42-46. Conspiracy [422] There are two types of actionable civil conspiracy: a. predominant purpose conspiracy -- where, whether the means used by the defendants are lawful or unlawful, the predominant purpose of the defendants' conduct is to cause injury to the plaintiff; or b. unlawful act conspiracy -- where the conduct of the defendants is unlawful; the conduct is directed towards the plaintiff (alone or together with others); and the defendants should know in the circumstances that injury to the plaintiff is likely to, and does, result. Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57 at paras. 73-74, 80 [Pro-Sys], citing Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452 at 471-72 [LaFarge]. [423] The elements of the tort of predominant purpose conspiracy are: a. an agreement or concerted action between two or more persons; b. with the predominant purpose of causing injury to the plaintiffs; and c. overt acts committed that cause damage

to the plaintiffs. Watson v. Bank of America Corporation, 2015 BCCA 362 at para. 125. [424] The elements of the tort of unlawful act conspiracy are: a. the defendants acted in combination by agreement or common design; b. the defendants committed an unlawful act; c. the defendants' conduct was directed towards the plaintiffs; d. the defendants knew or ought to have known that injury to the plaintiffs was likely to result from their unlawful act; and e. the defendants' unlawful conduct in furtherance of their conspiracy caused injury to the plaintiffs. LaFarge at 471-72; Watson at para. 56. [425] In either type of conspiracy claim, the defendants must act in combination--that is, in concert--by agreement with a common design. At least two parties must have agreed to conspire together: Pro-Sys at para. 72, Golden Capital Securities Ltd. v. Rempel et al, 2004 BCCA 565 at paras. 47, 56 [Golden Capital]. [426] The agreement does not have to be "an agreement in the contractual sense" and there does not have to be direct evidence of the agreement, so long as there is evidence from which an agreement can be inferred: Golden Capital at para. 47, Bernstein et al v. Stoytcheva-Todorova et al, 2007 BCSC 14 at para.

38. An agreement by inference can be established from the totality of the evidence, which may include a consideration of several isolated incidents: Youyi at para. 120. [427] With respect to unlawful act conspiracy, the type of conduct that constitutes an "unlawful" act is not fixed. The Ontario Court of Appeal in Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, explained that "unlawful" acts can include criminal or quasi-criminal conduct, or privately actionable conduct: [37] It is clear from [the jurisprudence on unlawful conduct] that quasi-criminal conduct, when undertaken in concert, is sufficient to constitute unlawful conduct for the purposes of the conspiracy tort, even though that conduct is not actionable in a private law sense by a third party. The seminal case of Canada Cement LaFarge is an example. So too is conduct that is in breach of the Criminal Code, R.S.C. 1985, c. C-46. These examples of "unlawful conduct" are not actionable in themselves, but they have been held to constitute conduct that is wrongful in law and therefore sufficient to be considered "unlawful conduct" within the meaning of civil conspiracy. There are also many examples of conduct found to be unlawful for the purposes of this tort simply because the conduct is actionable as a matter of private law [38] What is required, therefore, to meet the "unlawful conduct" element of the

conspiracy tort is that the defendants engage, in concert, in acts that are wrong in law, whether actionable at private law or not. In the commercial world, even highly competitive activity, provided it is otherwise lawful, does not qualify as "unlawful conduct" for the purposes of this tort. [428] For predominant purpose conspiracy, to prove that the defendants' predominant purpose was to inflict harm on the plaintiffs, it is "not enough if harm is the collateral result of the acts pursued predominantly out of self-interest": Harris v. GlaxoSmithKline Inc., 2010 ONCA 872 at para. 39; Canadian Bedding Company Ltd. v. Western Sleep Products Ltd., 2009 BCSC 1499 at para.

146. For unlawful means conspiracy, it is "not necessary that the predominant purpose of the defendants' conduct be to cause injury to the plaintiff but, in the prevailing circumstances, it must be a constructive intent derived from the fact that the defendants should have known that injury to the plaintiff would ensue": LaFarge at 472. Fraud/Deceit [429] The tort of deceit, also known as civil fraud or fraudulent misrepresentation, has four elements: a. the defendant made a false representation; b. the defendant had some level of knowledge of the falsehood of the statement, either through knowledge or recklessness; c. the false representation caused the plaintiff to act; and d. the plaintiff's actions resulted in a loss. Bruno Appliance and Furniture Inc. v. Hryniak, 2014 SCC 8 at para. 21 [Hryniak]. [430] Under the first element, mere silence is generally not enough to constitute a misrepresentation, but active concealment can be: Sidhu Estate v. Bains, [1996] B.C.J. No. 1246 at paras. 30-31 (C.A.); Manning v. Dhalla, 2018 BCSC 2148 at para. 34. [431] The second element is concerned with the representor's state of mind and their knowledge that the representation was false or recklessly made. A claim in deceit cannot be made out where the representor had an honest belief in the statement: Freeman v. Perlman, 1999 BCCA 40 at paras. 15-18. As the Court of Appeal confirmed in

Catalyst Pulp and Paper Sales Inc. v. Universal Paper Export Co. Ltd., 2009 BCCA 307 at para. 57, the representor must have intended to deceive the person to whom it is made--in other words, to cause that person to believe in the truth of the statement and act accordingly. [432] The third element, reliance, requires that the representation caused the plaintiff to act to his or her detriment: Catalyst at para.

59. Once the plaintiff has established that the defendant made a misrepresentation calculated to induce the plaintiff to act to his detriment and loss consistent with the plaintiff's having acted on the misrepresentation, the onus then shifts to the defendant to prove that the plaintiff did not in fact rely on the misrepresentation: Catalyst at para.

58. Positions of the Parties Position of the Plaintiffs [433] The plaintiffs assert that the facts support a finding of both predominant purpose conspiracy and unlawful means conspiracy. Their particular claim, as described in their closing submissions, is that "all or some of the defendants entered into an agreement or common design to destroy TLT's business through the use of unlawful acts, with the foreseeable result that TLT would suffer significant economic harm." The goal was to destroy TLT and Munns in order to "circumvent the need for negotiations with TLT or wait for the Woodlands contracts to expire" so that they could implement the subdivision plan in order to save TimberWest from its financial difficulties. The particular strategies used to destroy TLT were: starvation of work at the Johnstone Straits, starvation of harvesting work at Nanaimo Lakes through bad faith negotiations and contacting RBC to exert pressure on TLT's loans. [434] The plaintiffs rely on the following evidence to support that a common plan among Mr. McElligott, Ms. Park and Mr. Whiteley to destroy TLT existed: a. the Subdivision Plan Provision in the President's Report; b. Ms. Park's July 29, 2007 "break up this business" email; c. emails between Mr. McElligott, Mr. Whiteley and Ms. Park discussing a "managed exit" for TLT; d. Mr. McElligott's December 31, 2007 email to Mr. Whiteley asking if

they could "deal with both Munns and LeRoy at the same time"; and e. a labour relations memorandum presented to the board on April 19, 2007. [435] The plaintiffs submit that the predominant purpose of the subdivision plan was to harm TLT by causing it to fail. It was necessary for TimberWest to harm TLT in order to achieve its goal of subdivision. TimberWest's plan was not to end contracts through negotiations that respected their contractual obligations to TLT, but through rate disputes or business failures. [436] The plaintiffs say that the defendants engaged in the following unlawful acts that were directed against TLT: a. unlawfully shutting down harvesting on the Bill 13 Contract from April 2007 onwards; b. negotiating in bad faith on rates and rate adjustments; c. filing a false affidavit for RBC's bankruptcy application; d. "slandering the title of the Bill 13 Contract to RBC", triggering TLT's bank default; and e. defaming TLT. Position of the Defendants [437] The defendants' position is that the plaintiffs have failed to present compelling evidence of the requisite elements of either form of conspiracy. [438] They submit that the claim must fail because the evidence fails to show any agreement among the defendants to cause TLT to fail as alleged, or at all. TimberWest's subdivision plan and Bill 13 Strategy, devised after TLT's Bill 13 rights were extinguished, were

legitimate and lawful corporate objectives pursued by TimberWest in its own self-interest. In addition, the individual defendants acted in their capacities as officers or directors of TimberWest and, as such, were some of TimberWest's directing minds. The directing minds of a company causing that company to act does not constitute an agreement to do so, nor can it be evidence of an agreement between the directing minds and the company: Bernstein at paras. 38-40. [439] The defendants argue that there is no evidence to establish that the defendants conspired together with the predominant purpose of harming TLT. The evidence supports that TimberWest acted in its own legitimate self-interest in pursuing subdivision and in its contractual dealings with TLT. Contrary to the plaintiffs' assertions, TimberWest wanted TLT to succeed and attempted to help stabilize TLT's business. [440] The individual defendants, as senior officers of TimberWest, had a legal duty to act in TimberWest's interest, and they lawfully did so. Any collateral harm that resulted from an act TimberWest pursued out of self-interest is not enough to meet the requirements of predominant purpose conspiracy: Harris at paras. 39-41, Nicholls v. Richmond (Municipality), (1984) 52 B.C.L.R. at 302 at paras. 48-50. [441] The defendants deny that any unlawful acts or overt acts that caused the plaintiffs harm have been

proven. TimberWest reduced the volumes at the Johnstone Straits in the beginning of 2007 as a result of market conditions. The reduction of harvesting was lawful and in the best interests of TimberWest and its unitholders. The defendants further deny that they "froze out" TLT at Nanaimo Lakes, refused to discuss rates with TLT or thwarted TLT's restructuring efforts under CCAA. Analysis [442] As noted, there is a great deal of overlap respecting the unlawful acts alleged in support of the claim of an unlawful act conspiracy and the allegations of fraud and deceit. To avoid duplication, I have addressed the fraud claims under the "unlawful means" analysis. I have concluded that the claims of conspiracy and fraud alleged by the plaintiffs have not been proven on the evidence before me. Was there an agreement or common design? [443] The first component of both predominant purpose conspiracy and unlawful act conspiracy requires that there was an agreement between two or more individuals to act in concert. [444] The plaintiffs assert that the defendants had an agreement to destroy TLT's business so that they could implement the subdivision plan. The plaintiffs' submissions clarify that "the conspiracy is not TimberWest's subdivision plan", but the agreement among the defendants about how to implement that plan as against TLT. As the plaintiffs put it, TimberWest could have

implemented the subdivision plan legally by either negotiating new agreements with TLT or waiting for the Woodlands Contracts to expire. Instead, the plaintiffs assert, the defendants chose to circumvent the need for negotiations and chose to "break up [TLT's] business", by which they mean to destroy TLT or cause it to go bankrupt. [445] I accept that the defendants had a subdivision plan. I further accept that the ultimate goal of that plan was to allow them to subdivide the Woodlands Operations into smaller parcels. In order to achieve this plan, there was a first crucial step to be accomplished: obtaining the union's agreement to subdivide the seniority lists. If TimberWest did not achieve this union concession, then their plan to subdivide the operations could not be implemented. [446] The evidence supports that each Woodlands Contract had a seniority list. The seniority lists were attached as schedules to the contracts. [447] Mr. LeRoy conceded in his evidence that union consent was needed to implement subdivision. The documents that have been produced all support that union consent was needed. [448] As described in Pro-Sys at para. 72, the question is whether the parties agreed "to do an unlawful act, or to do a lawful act by unlawful means." I find that the defendants had an agreement to try to achieve the union concession to allow for the splitting of the seniority

lists, and ultimately to divide the Woodlands Operations into smaller contracts. The issue is whether, in order to achieve this, part of the plan was to cause TLT to fail in order to put pressure on the union to agree to the subdivision concession. [449] I will first address what the plaintiffs have described as one of the key pieces of evidence in support of the conspiracy: the Subdivision Plan Provision in the President's Report. [450] In considering the meaning to be given to the words of this provision, the two sentences that the plaintiffs rely on have to be put into the context of the entire document. The two sentences appear under the heading, "Labour Negotiations with USW (Update)". This section reads: The company's second application for a final offer vote was dismissed by the BC Labour Relations Board on October 12, 2007. In that same ruling, the Board advised that the hourly timber harvesting employees who were previously employed by TimberWest and who are now working for stump-to-dump contractors under the Munroe Woodlands Letter of Understanding are entitled to a vote on a new TimberWest collective agreement when their interests may be adversely impacted. These rulings were unexpected and they effectively defeated the company's principal bargaining strategy in this round of negotiations. While we believe the rulings will be overturned as a result of a judicial

review, the results of same will take some 4 to 8 months to obtain. TimberWest must therefore modify its approach to achieving subdivision. The company's first preference is for a negotiated solution and we will attempt to negotiate subdivision with the union with the assistance of mediator Vince Ready. While there is a possibility that subdivision can be successfully negotiated, the chances in today's environment are slim. A previous attempt was made during the strike, before the Board ruled on TWF's application for a final offer vote and when no other industry negotiating tables were open. At the time, TimberWest had the leverage of its Board application and it also offered the union movement on alternate shifting and partial severance, two of their key strike issues, so as to break the impasse that existed. This could have set the pattern for an industry wide settlement. While the union acknowledged the current contractor model is broken and that too much volume is in the hands of too few contractors, the exploratory talks failed because the local USW Presidents were unwilling to divide the former TimberWest crews. The union management relationship has since deteriorated with labour's public relations campaign to discredit TimberWest in the marketplace. If a negotiated solution is not possible, then the company will attempt to achieve its subdivision goal, operation by

operation, as commercial agreements with stump-to-dump contractors are terminated (as a result of rate disputes with contractors or contractor business failures). This process would take one to two years to complete and it would see TimberWest continuing the strike of its foresters and engineers and proceed with stumpage sales (i.e. selling trees on the stump, where the buyer arranges for his own harvesting). There will no doubt be a series of legal challenges by labour and some potential business disruptions in pursuing this strategy, making it a challenging one to implement. After former TimberWest employees have been without work long enough, especially after a lengthy strike in the summer/fall of 2007, and they see work traditionally performed by them going to stumpage sales, the hope is that they will exert sufficient pressure on their union executive to sit down with TimberWest and settle on a new contractor model. [Emphasis added] [451] The reference to achieving the "subdivision goal" in the context of this document is clearly referencing the goal of subdividing the seniority lists, as the previous paragraph referenced that the union was "unwilling to divide the former TimberWest crews". As both Mr. McElligott and Mr. Whiteley testified, the subdivision goal could not be achieved by the failure of the contractors. Even if a contractor failed, TimberWest would still not

be able to subdivide the operations since the union's consent was always required. [452] I accept Mr. McElligott and Mr. Whiteley's evidence that the words "achieve [the company's] subdivision goal, operation by operation" was a mistake, since the reality was that the subdivision goal could not be achieved without the union concession. [453] The words in the President's Report caused me concern since, on the plain meaning of them, in isolation, they support that the subdivision goal would be achieved as the Woodland Contracts were terminated, with the termination to be achieved through rate disputes or business failures. However, I accept that on the totality of the evidence, there was no plan by the TimberWest executive team to achieve the subdivision goal by unlawfully forcing TLT into bankruptcy. [454] I accept that bankruptcy of any one of the Woodlands contractors could put pressure on the union since the employees of that contractor would be returned to TimberWest. Those employees would be temporarily out of work. However, the key issue I have to determine is whether the defendants conspired to cause TLT's bankruptcy in order to make this happen. [455] The second document relied upon by the plaintiffs in support of the plan to cause TLT to fail is Ms. Park's email of July 29, 2007, in which she states, "it reinforces to me that we have to break up this business." The

plaintiffs assert "this business" is TLT's business. They point out that the thrust of the email exchange has to do with TLT. Ms. Park's explanation was that the reference to "this business" was to the Woodlands business, and she was referring to the need to break up the Woodlands Operations. [456] The email that the plaintiffs point to is the last email in an email chain that commences with an email dated July 27, 2007 from Brenda Blue, Controller & Corporate Secretary of TimberWest, to Mr. Blanchard, asking him to prepare a table that compares the contractor costs and increases to the 2007 plan rates. Mr. Blanchard responded the same day with the subject being: "LT Contractor Costs", LT meaning long term, and the details on the contractor costs. The schedule that was attached sets out all three Woodlands contractors--Munns, TLT, and Oyster River--and the various costs incurred to date. Ms. Park was copied on this email. [457] Ms. Park then emailed Mr. McElligott advising that she would prepare some slides for the Audit Committee setting out the cost increases. She notes that out of the $10.2 million in LT contractor costs anticipated in 2007, $5.8 million is attributed to TLT. Mr. McElligott responded that, "[w]e can't go on like this with TLT". That comment no doubt related to the amount of cost increase attributed to TLT, and that TimberWest could not continue along the

same path. [458] Ms. Park replied with her review of TLT's draft financial statements. Her complete comment to which the plaintiffs rely on is: "However, now that we have the full set of financial statements, it reinforces to me that we have to break up this business". [459] I accept the plain language of these words could be read to support that she was referring to TLT's business. However, I am persuaded by Ms. Park's explanation of what she meant by "this business", being the Woodlands business, and that she was concerned that the operations were too large and could not be carried out efficiently by the Woodlands contractors. This had been a consistent topic in discussions among the executive committee. This concern was supported by the analysis that Mr. Blanchard completed of the $10 million plus in additional costs that had been incurred to date by all three contractors, not just TLT. [460] The plaintiffs further point to the use of the words "managed exit" by Mr. Whiteley in his email of August 10, 2007, arguing it supports a plan to use "unlawful economic pressure" on TLT. The term "managed exit" first appears in the email chain when Mr. Whiteley was advising of his plan to meet with Mr. LeRoy. Mr. Whiteley set out four items he intended to discuss, which are: Will not be providing further financial assistance beyond what has already been provided. The contracts rates in

Bonanza and Nanaimo are not competitive and we intend to put them out for bid rather than extend them beyond the present term. Discuss a managed exit with him. The North Island Log Sort Rates are competitive, are pleased with their performance and would like to negotiate a three year extension. 2006 Johnstone Straits contract was negotiated and signed. Will not be negotiating financial assistance based on his alleged issues - pleased to exchange information to establish the facts. [Emphasis added] [461] Ms. Park then asked: "What if he disagrees with the managed exit?". Mr. Whiteley set out his view that if Mr. LeRoy was uninterested in a managed exit, he would be likely to provide notice of termination. He also set out the incentive Mr. LeRoy would have for a "managed exit." There is nothing in this exchange to support that the words "managed exit" referred to a plan to unlawfully force TLT into financial distress so as to cause it to declare bankruptcy. [462] I accept that Mr. Whiteley was referring to "managed exit" in terms of a negotiated exit, hence the reason why it was part of his plan to discuss it with Mr. LeRoy. This is consistent with the understanding of Mr. McElligott, Ms. Park and Mr. Blanchard. I accept their collective testimony as to its meaning. The concept of a negotiated exit is the term that Mr. Whiteley used when describing the plan to the Board of

Directors in presentations made in December 2007. In the Timberlands 2008 Operating and Capital Plan presented to the board on December 12, 2007, Mr. Whiteley set out the following points in the 2008 plan for Subdivision Implementation: · Achieve USW concession · Optimum contractor structure · Develop bid packages · Ensure a competitive environment · Market the TWF opportunity · Screen contractors to meet our criteria · Negotiate the exit of existing long term contractors (supported by legal counsel) [463] This supports that what Mr. Whiteley meant by "managed exit" for the Woodlands contractors was a negotiated solution. I accept Mr. Whiteley's evidence that if a managed exit could not be achieved with TLT, TimberWest's intention was that the Nanaimo Lakes Contract would have continued until its end. This is what took place with Oyster River after the union concession was achieved. Mr. Newton was not prepared to agree to the offer made by TimberWest and as a result the Oyster River contract continued to the end of its term. The allegation made by the plaintiffs that somehow Mr. Newton, the principal of Oyster River, was a "subdivision partner" of TimberWest was not supported in the evidence before me. [464] The plaintiffs also point to what they describe as the "pulling the trigger" email, being the email exchange between Mr. Whiteley and Mr. McElligott dated December 31,

2007. To understand what is meant by Mr. McElligott's comment, "are we going to be able to deal with both Munns and LeRoy at the same time?", one needs to consider Mr. Whiteley's response, being: "Yes, I think the timing is right to get the subdivision concession. I think it is in our best interests to deal with them both now. We do need to discuss expectations on how long it will take to put it back together." [465] At this time, Mr. Whiteley was convinced that the union concession was going to be achieved within a few months. As it turned out, he was wrong, since it took until December 2008 to be accomplished. The rest of the email exchange specifically references the timeline to get the union to agree to subdivision. [466] The problem TimberWest faced was that if both Munns and TLT failed, there remained the need for TimberWest to fulfil its customer commitments. The email exchange confirms this, with Mr. Whiteley advising Mr. McElligott that, "With the low production volumes in our 2008 plan we have flexibility". I am not convinced that this email exchange supports any type of conspiracy. [467] The plaintiffs also point to a note Mr. Whiteley made in his notebook on November 14, 2006 that reads: Cause a contractor to fail - large Re org under existing contracts [468] The plaintiffs interpret these words to refer to a plan to cause TLT to fail, being that it was one of the

large contractors that TimberWest worked with. TLT's failure would then apply pressure to the union, helping TimberWest move its subdivision plan forward. [469] Mr. Whiteley explained what these notes meant in the context of the other notes on the page. He testified that they referred to a safe certification initiative and the different categories of contractors, being large, medium, or small. A failure of a safety audit would require the contractor to have to reorganize. Mr. Whiteley testified that Phil Hackett, whose name is mentioned later on the same page, was someone involved in meeting the various contractors to discuss their safety program. I accept Mr. Whiteley's explanation for these notes. His explanations make sense when considered in the context of the surrounding notes. [470] The final document the plaintiffs rely on in support of their theory is TimberWest's Contractor/Labour Relations Issues memo that Mr. McElligott and legal counsel drafted for the board. The purpose of the memo was to explain the labour relations issues that TimberWest was facing as of April 2007. The document is 14 pages long and is broken down into various headings: Backgrounder, Current Situation Analysis, Status of Negotiations with the Steelworkers (the union), Strategic Alternatives, Analysis of Strategic Alternatives, and Recommended Course of Action. The plaintiffs have pulled out some

phrases from item (5) of the Strategic Alternatives. [471] I do not read any of the phrases they point to as supporting a plan to cause one of the Woodlands contractors to fail. The sentences refer to the possibility of a contractor failing by use of the word "if", for example, "if" a contractor goes into receivership or "if" there is an unresolved rate dispute. These were always potential risks for TimberWest, considering the knowledge that TimberWest had of the financial issues the Woodlands contractors were having. The use of the word "if" is simply referring to the potential reality that TimberWest would have to address if that happened. [472] The very issue of the concern over the Woodlands contractors' financial viability had been addressed under the Current Situation Analysis section of the same memo, where Mr. McElligott wrote: "The financial condition and profitability of TWF's large, stump-to-dump contractors is poor and deteriorating." The further concern was that: "None of them are capable of withstanding a lengthy strike without additional support from TWF and/or their lenders". It was reasonable for Mr. McElligott to be advising the board on the future of what would happen if one of these contractors did go into receivership or if there was an unresolved rate dispute. As the CEO, he had to put contingency plans in place and ensure the board was updated on the

current and potential situations. [473] I accept that this memorandum does outline a strategy that would take advantage of any circumstances where work on a particular operation was put on hold because of contractors going into receivership or unresolved rate disputes to put pressure on the union to agree to subdivision with respect to that particular contract. In this way, it would slowly achieve subdivision, one contract at a time. However, the memorandum itself notes that this plan would be undesirable for several reasons and the plan is ultimately not recommended in the "Recommended Course of Action" section. There is no indication, express or implied, that TimberWest planned to destroy its contractors' businesses in order to implement this plan, or that this plan was ever a real option for TimberWest. [474] I am not convinced that the plaintiffs have proven that the defendants had an agreement to cause TLT's business to fail, as alleged. In light of this finding, I need not turn to the other elements of conspiracy that must be proven, but I will still do so. Predominant purpose to cause injury [475] The evidence does not support that the primary purpose of the defendants' actions was to cause harm to TLT by causing it to fail. I find that the predominant purpose of the actions taken by TimberWest and its executives was to act in the best interests of TimberWest and its

obligations to its unitholders. The consequences of the steps taken may have adversely impacted TLT and its operations, but any such consequences were unintentional. I accept that the decision made to cut back harvesting in the Johnstone Straits directly impacted TLT's cash flow. However, the issue is not what impact it had on TLT, but why the decision was made and whether it was made with the predominant purpose of harming TLT. [476] The plaintiffs argue that the predominant purpose of harming TLT was implemented in 2007 through the steps of shutting down TLT's operations in the Johnstone Straits and Nanaimo Lakes, and by contacting RBC to try to exert pressure on TLT's loan situation. I do accept that TimberWest initially restricted, and then, by April 2007, shut down harvesting in the Johnstone Straits. However, I conclude that the purpose of this shut down had everything to do with the stumpage rates and the state of the markets, and was not implemented for the purpose of "starving" TLT of work. [477] With respect to the RBC issue, the plaintiffs allege that Ms. Park advised RBC in August 2007 that TimberWest would be shutting down all harvesting in the Johnstone Straits. As a result, this impacted RBC's valuation of the Bill 13 Contract that TLT had with TimberWest. I find that neither of these assertions have been proven in the evidence before me. I will consider both of

these issues in detail below. Unlawful conduct/means [478] For unlawful act conspiracy, the plaintiffs have to show that the impugned conduct--being the actions taken to destroy TLT's business--is unlawful. The impugned actions alleged as unlawful with respect to the conspiracy claim have significant overlap with the allegations of fraud or deceit. Because the remainder of the conduct that constitutes the alleged unlawful acts and the fraudulent misrepresentations are so factually related, I will consider all of the allegations, and my findings of fact with respect to them, together. In my view, the evidence does not support the commission of the unlawful acts alleged by the plaintiffs. [479] The plaintiffs allege, at paras. 153-154 of the amended notice of civil claim, that the defendants engaged in the following unlawful acts--which include fraudulent and deceitful conduct, bad faith contractual performance, defamation and breach of contract--all with the intent to cause TLT's insolvency in order to implement their subdivision plan and eliminate the Bill 13 Contract: a. fraudulently refusing to permit TLT to carry out work under the contracts and unlawfully shutting down operations; b. fraudulently interfering with TLT's lending relationship with RBC and misrepresenting the value of the Bill 13 Contract to RBC; c. making fraudulent and defamatory statements about Mr. LeRoy

and TLT; d. delaying, refusing to discuss or failing to negotiate rate adjustments in good faith, including by requiring TLT to provide audited financial statements, ignoring the Perforex study and unilaterally fixing rates; e. fraudulently misrepresenting the true intentions and consequences of the implementation of the subdivision plan in respect of TLT; and f. filing a false affidavit sworn by Mr. Whiteley. [480] I will deal with each of the allegations separately, setting out the positions of the parties, my findings of facts, analysis and decision. There were other claims advanced in the notice of civil claim, which were not argued in the plaintiffs closing submissions. Counsel for the plaintiffs stated in his oral reply submissions that the plaintiffs were only relying on the allegations contained in their written closing submissions with respect to the alleged unlawful acts. I have not addressed the other claims in this judgment for that reason. (a) Fraudulently refusing to permit TLT to carry out work under the contracts and unlawfully shutting down operations [481] The plaintiffs argue that in the fall of 2006 and in 2007, TimberWest falsely told TLT that its operations were shut down in the Johnstone Straits because of stumpage. In support of this allegation, the plaintiffs point to the fact that there was no "stumpage issue" reported by the 2007 Q1 President's

Report. Further, TLT argues that under the Bill 13 Contract and the Bill 13 Regulation, TimberWest was not entitled to shut down because of stumpage. The real reason for the suspension was to cause TLT to fail, as the Johnstone Straits were TLT's "cornerstone" operation. [482] In addition to the operations in the Johnstone Straits, TLT also alleges that in 2007-2008, TimberWest breached the contracts by fraudulently suspending and reducing work, in furtherance of the conspiracy. [483] The plaintiffs also point to the following statements as being false representations that were made to TLT in order to lull it into believing that there was no conspiracy: a. Mr. Whiteley falsely told TLT on October 17, 2007 that all TimberWest operations, aside from the Ladysmith Dryland Sort and Nanaimo Lakes, were expected to start up again after the strike ended, knowing that TimberWest was planning rate disputes to cause TLT to fail; and b. Mr. Holmes falsely advised Mr. LeRoy in November 2007 that TimberWest was thinking of starting the Johnstone Straits with 100,000 m3 of volume in 2008, knowing that the plan was to transition to a subdivided contractor model. [484] The defendants submit that TimberWest's harvest plans in the Johnstone Straits were reduced lawfully as a result of market conditions, not out of an intention to harm TLT. Each of the contracts permitted TimberWest to reduce

harvest volumes based on market conditions. A combination of the global recession and specific challenges facing the logging industry caused TimberWest to decide to reduce its volumes in 2007 and 2008. Despite these unfavourable conditions, TimberWest provided TLT with significant work under the Bill 13 Contract in 2007 and at Shoal, North Island and Bonanza in 2008. (i) Stumpage and Market Conditions [485] I cannot accept the plaintiffs' argument that stumpage was a "ruse" used to shut down the Johnstone Straits operations in order to cause TLT to fail. The evidence supports that stumpage was a legitimate concern in the fall of 2006 and 2007. The evidence also supports that in 2007 and 2008, the logging market was experiencing significant difficulties that led to TimberWest having to decrease the volumes at various operations in response to the realities it faced. I accept that the defendants' decisions to reduce volumes and to stop certain operations in 2007 and 2008 related to issues that they faced from the market conditions and, in the Johnstone Straits, the stumpage fees. Volumes were reduced in accordance with the terms of the contracts out of a concern for TimberWest's best interests, and not as part of a plan to destroy TLT. [486] The plaintiffs' submissions centred on the 2007 Q1 President's Report as support for their claim that the markets remained "hot". I agree

with the defendants that the plaintiffs' interpretation of this report mischaracterizes the reality of what was taking place. [487] The 2007 Q1 President's Report was prepared for the end of the first quarter of 2007, being March 31, 2007. The plaintiffs rely on the following portions: a. the price of "NBSK", which Mr. Whiteley testified refers to a kind of pulp chip, was at decade high levels; b. pulp logs were at a premium; c. hemlock was in demand, including small diameter hemlock sawlogs which were being used for pulp; d. TimberWest was going to increase harvesting; e. TimberWest was harvesting extra volume from Oyster River; f. TimberWest's costs were below plan; and g. stumpage rates decreased to an average of $17.74, which was $5.63 below TimberWest's plan. [488] In cross-examination, it was put to Mr. Whiteley that this report supported that there was an extremely hot market for everything except fir. Mr. Whiteley's evidence was that this suggestion "mischaracterized the President's Report" and "misrepresented the reality of what was going on." A reading of the entire report in light of the other evidence of the market conditions in early 2007 supports Mr. Whiteley's evidence. [489] Mr. Whiteley testified that TimberWest lost money on pulp and it was the lowest grade of timber, which attracted a low sale price. He explained that, "pulp product was a money loser even in

good markets" and was "a by-product of our business". Even with higher prices of pulp products, TimberWest would be paying the full harvesting rate for a product that was selling at significantly below costs. For this reason, TimberWest brought in a penalty pay program to constrain pulp log production. This is supported by the evidence of Mr. LeRoy, who testified that TimberWest brought in a pulp deduction in which an automatic $8/m3 would be deducted from the contractor for any pulp log that arrived at a dryland sort. Mr. LeRoy described a pulp log as "a poor quality hemlock log" that is used to make wood chips. They go to the pulp mill and are not "adequate to make lumber out of". Mr. LeRoy testified that there was no value in putting pulp logs on trucks and they would be left by the roadside. [490] Mr. Storry testified that pulp logs were a low-quality log in the harvest profile. He described them as "low quality and low value." He explained that in the past, TimberWest would just leave the pulp logs behind if they could, since the cost of "like $60 at an operating level to produce a $20 pulp log is not feasible." [491] Mr. Storry's evidence was that this commentary in the 2007 Q1 Report related to a shortage of pulp logs for the mills. However, as he explained, it was not feasible to harvest pulp logs. He testified that if the market is strong for pulp logs, it does not

equate to it being strong for other logs. He explained, " if you are not getting the logs to sell in the market, you are not getting the pulp that goes with it." [492] The plaintiffs drew attention to the reference to the increase in harvesting in Oyster River. The entire sentence reads: "This will result in an increase in hemlock pulp log production of 80,000 m3 above planned levels". The harvesting of pulp logs did not assist viability in the Johnstone Straits. As Mr. Storry explained, a strong pulp market would not have made the Johnstone Straits operation economically viable, since it was not a high pulp producing area. [493] The evidence consistently pointed to stumpage being a problem particularly with the Johnstone Straits operations. With respect to the numbers in the 2007 Q1 Report, Mr. Whiteley explained that the stumpage reference of $17.74 was the rate for all public lands. The problem was that stumpage in the Johnstone Straits was higher. [494] Mr. Whiteley testified that suspension of logging activity at the Johnstone Straits was caused by economics. The log market was bad and stumpage on Crown land in that operation was "extremely high". As he explained, TLT was not logging in the Johnstone Straits at the end of 2007 because TimberWest could not find profitable logs to harvest there, and stumpage was the main driver. The market forecast was bad, and stumpage was

a big issue. [495] Mr. Storry's evidence was of assistance to me, since part of his job as the TimberWest operations planner for the Johnstone Straits was to look after all issues relating to stumpage for the company. A stark example of the change in stumpage rates was Mr. Storry's evidence that the average stumpage rate in the Johnstone Straits in TFL 47 in 2007 was $23.36, and by 2009 it was $7.74, a very significant change. This evidence supports Mr. Whiteley's testimony that the 2007 Q1 Report referencing stumpage at $17.74 was not the stumpage being paid at the Johnstone Straits in 2007. Mr. Storry testified that in April 2007, the shutdown of the Johnstone Straits was because of the "margin problem". [496] Mr. Storry further testified that stumpage was acutely problematic for TimberWest, and other licensees, in 2007 and 2008 during the market downturn. As a result of the prohibitively high stumpage rates in 2007 and 2008, the government revised the stumpage equation in approximately 2009, reducing the stumpage rates for public land harvest. As Mr. Storry testified, the major reduction in stumpage in 2009 made it a lot easier to make margin, meaning money, in Blocks 2 to 12. Mr. Storry testified that when planning for 2007, the issue he faced was that the log market prices had dropped, but stumpage had stayed high because the adjustment of stumpage lagged. [497]

Contemporaneous documents confirm the stumpage concern. On January 5, 2007, Mr. Mitchell emailed Mr. Whiteley and Mr. Storry the following comment respecting TLT's plan: "2007 Plan (TFL Cut, TLT volume by area, Timing, issues - including concern re Woods/Brooks stumpage)." Mr. Storry testified that the Woods/Brooks area was the next progressive operating area that TimberWest expected TLT to work on, but there was a problem of "high stumpage". As a result, Mr. Mitchell advised Mr. LeRoy in early November 2006 that, "[TimberWest] had removed Woods/Brooks 2G due to economics". [498] Furthermore, in approximately September 2007, Mr. LeRoy arranged for Shawn Munson, an individual he described as being knowledgeable about stumpage, to try to assist TimberWest with the stumpage problem. Mr. LeRoy agreed that this step was one installment in a long and detailed process between the companies to work hard to find a way to solve the stumpage challenge. Mr. LeRoy recalled that TimberWest met with a company called Interfor to learn how to use "ghost blocks", being a low valued block of timber, to try to obtain lower stumpage. All of this evidence supports that stumpage was a legitimate concern that TLT was trying to assist TimberWest in mitigating and not a "ruse". [499] My assessment of the totality of the evidence is that the 2007 Q1 President's Report does not support a "hot market",

except for pulp markets, which were not profitable. In addition, the 2007 Q1 Report notes that TimberWest's "Elk Falls operation has taken downtime as a result of weak lumber markets". I turn now to the evidence regarding the markets in 2007 and 2008. [500] The earnings of TimberWest support that there was a decline in the lumber market. As of the second quarter of 2007, TimberWest's distributable cash was $13.6 million, compared to a plan of $25 million and to the prior year's result of $35.5 million. By the third quarter, the results were more dismal with distributable cash at negative $5.6 million against a plan of $44.5 million and to the prior year's result of $9.3 million. In the fourth quarter, if the large real estate sale is not included, the timberlands operations generated a negative distributable cash of $0.1 million compared to a plan of $11.8 million and to the prior year's result of $14.5 million. [501] All of the defence witnesses explained this significant drop in earnings as relating to the economy, and a particular concern with the impact of the fall in US housing starts on the markets. [502] In August 2007, Ms. Park reported to the board of directors on a financing update: Moreover, we are facing some very difficult near term business conditions with the labour situation, the strong Canadian dollar, the weak/oversupplied log and lumber markets that will cast

our credit in an unfavourable light in the public and private markets. [503] Ms. Park testified that in 2007, the market conditions were deteriorating quickly. She was very concerned about how quickly the markets were deteriorating and the need to complete TimberWest's financing. Her understanding was that US housing starts were dropping and, as a result, customers were not buying logs. She testified that by the end of 2007 and into 2008, the market conditions worsened because of the downward spiral of the housing market. [504] Ms. Park's evidence was that, as a result of the collapse in the forest industry, TimberWest lost $300 million, being two-thirds of its revenue. [505] The evidence of Mr. McElligott was that the US housing market was the economic driver for TimberWest's business. In 2005, there was a "very, very, very strong US housing market". In 2005, the TimberWest board felt that a fair price for the business was $17 a stapled unit. Then, "the world changed dramatically when the US housing market crashed". Mr. McElligott testified that from January to December 2006, "[the economic environment for TimberWest] was like a ski run, a downhill one. US housing starts dropped more than 25 percent." [506] As a result of the market conditions, in late 2007, the board rejected the TimberWest harvesting plan for 2008 and sent it back to be revised. The board asked for a plan

with less volume. [507] Mr. Storry testified it was not just TLT that was impacted, but his recollection was that "the whole company was showing some curtailment." This supports that the decision to stop operations at the Johnstone Straits was not a plan directed only against TLT to hasten their downfall. Mr. Storry also testified that by the end of 2007 and into 2008, the log market "basically collapsed." As he described it, the people buying logs would not even pick up the phone. He did not predict that the log market would drop so fast. Mr. McElligott testified that it was his view that it was the deepest housing drop since the Great Depression. [508] PwC understood, as of the end of January 2008, that Mr. Slavik of TLT was focused on: working with the 3 customers to obtain their estimated volume of work that will be awarded to TLT - this has proven more difficult than expected simply because the customers are recasting their forecasted harvesting volumes given the market conditions [509] Mr. Vermette testified that his understanding was that, as bad as things were in the fall of 2007, they were meaningfully worse in the summer of 2008 since there was not really a demand for the "product that everybody was in the forest industry for." He also testified as to how "the industry was still in a great deal of difficulty". [510] Mr. Coleman, the defence expert, states in his

report: But, by mid-2007, the 2007-2008 financial crisis was underway. This meltdown of the global economy had a significant impact on the forest industry in British Columbia. I was employed by Western Forest Products at this time and the business focus was survival. Logging was curtailed, as were all unnecessary expenditures. The forest industry at all levels - corporate, contractors, consultants, suppliers, and employees - was affected. [511] Mr. Coleman's opinion was that the logging plans for TLT's operation in the Johnstone Straits were reasonable and there was no attempt to "starve" TLT of work during the 2005 to 2007 cut control period. Mr. Coleman was not successfully challenged on this opinion in cross-examination. [512] There were numerous documents produced in this trial that reference the decline in the markets and the need to curtail production. [513] The Q3 President's Report in June 2007 noted that: Management has completed a detailed forecast for the remainder of 2007 and is projecting that TimberWest will not earn its distributable cash requirements from forestry operations for 2007. With the strong Canadian dollar, weak US lumber markets, over-supplied Japanese log and lumber markets and contractor cost increases, the timberland and lumber operations are expected to fall well short of their plan numbers for the year. [514] In a press release on October 30,

2007, Mr. McElligott stated: "US log and lumber markets remained difficult during the quarter with low housing starts, high inventories of unsold homes, and on-going home price deflation. Many of our US log customers took downtime and we expect this market to remain weak for some time." [515] In late November 2007, a TimberWest labour update reported: Due to the markets, production has been significantly curtailed. Our felled inventory is being cleaned up and no new falling is taking place. Our first quarter production plan is significantly curtailed. Even though most understand this situation is generally market driven, it is causing considerable concern amongst workers about the future viability of their woodlands contractor employer and future employment. [516] In December 2007, the TimberWest 2008 Operating and Capital Plan, provided to the Board of Directors, stated under "2007 in Review": 2007 has been a very challenging year for TimberWest with oversupplied log and lumber markets, an appreciating Canadian dollar, upward pressure on long term contractor costs, declining housing starts in the US and Japan, and downtime to the strike. These factors have resulted in the timberland operations performing worse for the year than planned. [517] In Mr. McElligott's briefing notes to the board for the December 2007 board meeting, he wrote: [TimberWest's] 2008 plan calls for a 40%

reduction to the company's traditional harvest levels because of the unacceptably low margins The consensus view is that no relief whatsoever is in sight for 2008 and a recovery of the US housing market will not get underway before the year 2009. [518] In Mr. McElligott's analyst report in early February 2008 the following comments are recorded on the analyst script: While we had a strong start to the year, we faced weak markets in the US and Japan, a strong Canadian dollar, a strike, and escalating contractor costs in the second half of the year. And, as indicated during our last quarterly call, we planned to throttle back on our harvest volumes in the fourth quarter given weak prices and margins. We did so and are taking a similar approach to harvest levels in 2008. In terms of our outlook for 2008, we see some tough sledding ahead in our core timberlands business. Harvest levels are expected to be the lowest in the company's history because we believe this will enhance long term unitholder value. For all of the above reasons, we do not expect to generate sufficient distributable cash to cover our distribution obligations in 2008 [519] By the end of the first quarter of 2008, TimberWest was showing a negative distributable cash of $3.9 million, compared to the first quarter of 2007 with distributable cash of $26.9 million. Finances continued to go downhill for TimberWest in

2008 and by the end of the year, TimberWest had negative distributable cash of $25 million. [520] The plaintiffs rely on the evidence of Mr. Bentsen, who testified that in all of his years working at TimberWest, the public lands, such as TFL 47, would never shut down on account of stumpage. It is important to note that Mr. Bentsen is not in a position to give any direct evidence of what took place in the fall of 2007, since he was not employed by TimberWest at that time. He last worked for TimberWest in January 2002. I accept that in early 2002, the logging industry was not facing the various issues it had to face in 2007 and 2008. [521] Also of relevance to the state of the markets is Mr. LeRoy's explanation of what caused TLT's financial problems in two affidavits he swore. In the first affidavit, sworn January 7, 2008 in the CCAA proceeding, Mr. LeRoy states at para. 4 that: TLT encountered a number of problems that led to its current financial difficulty including: a. a rapid expansion of its operations; b. expansion into work on private timber lands; c. the recent lengthy strike in the coastal forest industry; d. the general difficulties in the forest industry relating to the low value of the US dollar; e. the decline in the US housing market; and f. an investment in a Costa Rican subsidiary. [522] The second affidavit was sworn on July 20, 2015, in this proceeding. Mr.

LeRoy stated, referring to a January 25, 2008 meeting, at para. 8: Dave Whitely [sic] said that this was because it would be uneconomical for TimberWest to let TLT harvest on the Bill 13 Contract. This was TimberWest's constant refrain - it could not let TLT harvest on the Bill 13 Contract because it would lose money by doing so, because of unfavourable market conditions, high stumpage rates and so on. [523] Mr. LeRoy testified that he recalls Mr. Whiteley saying that markets were coming down but that stumpage was the driving issue at the Johnstone Straits. At trial, he did agree that what he stated in his affidavit was true. The defendants were not just blaming stumpage, as the plaintiffs assert, but also the unfavourable market conditions. [524] The plaintiffs point to the fact that there was logging happening on Quadra Island at the time that the operations in the Johnstone Straits were shut down to argue that stumpage was not really an issue. Mr. LeRoy testified that logging was going on at Quadra Island when he was prevented from working at the Johnstone Straits, and the same types of trees were being logged. [525] Mr. Storry explained that the reason why harvesting continued on the South Quadra Island and not in the Johnstone Straits was that it "made margin", meaning that it was profitable. Other factors were also relevant, including a commitment to the locals and First

Nations, the nature of the silviculture operations and the lower stumpage. [526] All of the evidence supports the significant problems with stumpage and the market as the reasons for the shutdown at the Johnstone Straits and not a plan put in place by the defendants to "starve" TLT and force their bankruptcy. I also accept that any volumes that were reduced in other contracts between TimberWest and TLT were a result of the difficult market conditions facing the logging industry, and were not done with the intention of harming TLT. Instead, I accept that the statements made by Mr. Whiteley and Mr. Holmes suggesting that TimberWest expected to start up certain operations in 2007 and 2008 were made in good faith and with a genuine desire to continue to provide as much work as was feasible to TLT during difficult circumstances for all players in the industry. (ii) Shutdown of the Johnstone Straits Operations [527] The plaintiffs assert that the shutting down of operations at the Johnstone Straits was unlawful and it could not have lawfully been shut down due to market conditions. They rely on the Bill 13 Regulation and the Bill 13 Contract to argue that operations could only be shut down in narrow circumstances, none of which applied. In particular, they argue that while paragraph 3.3 of the Bill 13 Contract limits a company's liability for failing to allocate work to a contractor

for reasons beyond its control, there is limiting language at the end of the section that expressly carves out a change in the market price of timber, as required by s. 22 of the Bill 13 Regulation. The plaintiffs argue that if the market price of timber is beyond the control of the company, it remains liable to the contractor for failing to allocate work. [528] The defendants' position is that the Bill 13 Contract did not provide any guaranteed harvest volume on a yearly basis. The Bill 13 Regulation and Bill 13 Contract specifically allowed for a different amount of work if attributable to bona fide business and operational reasons. [529] Sections 21 and 22 of the Bill 13 Regulation provide: Compliance over time 21 A replaceable contract must provide that the amount of work that the licence holder allocates to the contractor and that the contractor is required to perform in any year during the term of the contract may differ from the amount of work specified in the contract, provided that (a) the difference is attributable to bona fide business and operational reasons on the part of the licence holder, and (b) the amount of work that the licence holder allocates to the contractor under each replaceable contract over each amount of work compliance period of the licence to which the contract relates is equal to or greater than 95% of the aggregate of the specific amount of work

provided for under that contract during that amount of work compliance period, less the aggregate of any reductions in the amount of work imposed during that amount of work compliance period as permitted by sections 20 and 22. Events beyond control 22 (1) A replaceable contract must provide that the licence holder is not liable to the contractor for any failure to allocate to the contractor in any year the amount of work specified in the contract, as adjusted under section 20 or 21, if the failure results from changes in law, natural disasters, interference by a person who is not a party to the contract or any other event beyond the reasonable control of the licence holder other than a change in the market price of logs. (2) A replaceable contract must provide that the contractor is not liable to the licence holder for any failure to perform the amount of work allocated by the licence holder in any year if the failure results from changes in law, natural disasters, interference by a person who is not a party to the contract or any other event beyond the reasonable control of the contractor other than a change in the market price of logs. [530] Paragraphs 3.2 and 3.3 of the Bill 13 Contract mirror the requirements in ss. 21 and 22 of the Bill 13 Regulation: 3.2 Adjustments to Amount of Work. In any year during the Term, the Company may allocate to the Contractor and the

Contractor must perform an Amount of Work that differs from the Amount of Work specified in this Agreement, provided that: (a) the difference is attributable to Bona Fide Business or Operating Reasons on the part of the Company 3.3 Events Beyond Control - Company. The Company is not liable to the Contractor for any failure to allocate to the Contractor in any Contract Year the Amount of Work specified in this Agreement, as adjusted pursuant to the provisions of this Agreement or the Contract Regulation, if the failure results from changes in law, natural disasters, interference by a person who is not a Party to this Agreement or any other event beyond the reasonable control of the Company, other than a change in the market price of Timber. [531] The phrase "Bona Fide Business or Operating Reasons" is defined in s. 1.4 of the Bill 13 Contract to include, among other items, "changes in the market for Timber or products manufactured from Timber by the Company", as well as "any circumstances that, in the Company's reasonable opinion, might adversely impact upon the Company, including any event described in paragraph 3.3". [532] Section 22(1) of the Bill 13 Regulation requires contractors and licence holders to agree not to hold each other liable for changes in the amount of work for reasons beyond their control, "other than a change in the market price of logs". As I interpret this

section, it means that the parties are not required by the legislation to agree not to hold one another liable for changes in the amount of work resulting from a change in the market price of timber. However, they are free to do so if they so choose, as the parties here have done in the Bill 13 Contract. [533] In my view, the impact of the adverse financial circumstances faced by TimberWest and the declining log market in 2007 and 2008 would clearly come within the definition of a "Bona Fide Business or Operating Reasons" as defined in the Bill 13 Contract, for changing the amount of work performed in a given year. It expressly considers a change in the timber market as one of those reasons. This is permitted under s. 21 of the Bill 13 Regulation, so long as the amount of work provided to the contractor over the five-year compliance period is at least 95% of the aggregate amount of work specified in the contract, in accordance with s. 21(b). [534] The Bill 13 Contract provided the "amount of work" to be "87.0% of the timber harvested from blocks 2-12 in each cut control period." Over the compliance period, this amounted to approximately 2 million m3. In accordance with the Bill 13 Contract and the Bill 13 Regulation, TimberWest was required to provide TLT with 95% of the roughly 2 million m3 over the relevant period. [535] The only expert evidence on this issue came from Mr.

Coleman. He concluded that TimberWest had met both its forest tenure commitment with the government under the Forest Act, and its commitment to TLT under the Bill 13 Regulation. Specifically, he concluded that TimberWest harvested 103.7% of the AAC during the relevant period and TLT harvested 1,928,250 m3 from TFL 47. Mr. Coleman was not challenged in cross-examination on this opinion. [536] I am convinced that there was no violation of the Bill 13 Regulation or of the contractual terms of the Bill 13 Contract by TimberWest in the steps it took in shutting down harvesting in the Johnstone Straits. The plaintiffs have not proven that there were fraudulent misrepresentations made respecting the shutting down of the Johnstone Straits operations or any unlawful actions in failing to permit work. (b) Fraudulently interfering with TLT's lending relationship with RBC and misrepresenting the value of the Bill 13 Contract [537] The plaintiffs allege that TimberWest secretly contacted TLT's bankers to advise them of TimberWest's plans to shut down TLT's operations in the Johnstone Straits. The defendants knew that once this information was relayed to the bank, it would devalue the Bill 13 Contract and: a. TLT's loan covenants would be breached and/or would have no hope of being repaired; b. RBC would require some significant restructuring and likely a downsizing; and c. RBC would require

TLT to hire a third-party consultant to help with the restructuring. [538] The defendants deny having any contact with RBC to tell them that TimberWest planned to shut down TLT in the Johnstone Straits. The defendants argue that the plaintiffs presented no evidence to prove this allegation. There was no evidence that anyone at TimberWest spoke to RBC about the value of the Bill 13 Contract and Connie Watson, the RBC representative, specifically denied it. [539] In any case, the defendants point out that under the test for civil fraud, the false representation must cause the plaintiffs to act, not a third party. It is not sufficient to allege that the defendants made representations to RBC, which they relied upon. (i) Providing information on shutting down the Johnstone Straits [540] The plaintiffs claim that Ms. Park called RBC and told the bank that TimberWest was going to shut down TLT's operations in the Johnstone Straits. This call was allegedly made on August 10, 2007, when the Johnstone Straits had already been shut down since April 2007. The defendants deny that Ms. Park provided any operational information to RBC. [541] TimberWest was advised in January 2006 that Ted's banker was Mr. Forster at the Royal Bank in Nanaimo. Gerry Young had met with "Ted's banker", meaning Mr. Forster, in January 2006. Ms. Park had spoken to Mr. Forster in early 2007 when Mr. LeRoy invited

her to do so to support his financial position. [542] Prior to making the call on August 10, 2007, Ms. Park had attempted to call "Ted's bankers" on August 7, 2007. She notes in her email to Mr. McElligott on August 7, 2007: "Further to our discussion with Conrad on Friday, I have called LeRoy's and Munns's bankers (both of whom are on vacation) and left them messages to call me." Mr. Forster had confirmed with Mr. Triemstra on July 25, 2007 that he was going to be away from the office for a couple of weeks leaving on July 27. As such, it makes sense that when Ms. Park phoned on August 7, Mr. Forster was away on vacation. [543] On August 10, 2007, there was a call between Ms. Park and "Ted's bankers". Ms. Park's email to Mr. McElligott and Mr. Whiteley reporting on the call reads: I just got off the phone with Ted's bankers at RBC. They are very supportive of TimberWest's labour strategy and believe that it is in the best interests of Ted and the contracting fraternity, they definitely understand our tactic. However, they are very concerned about Ted's ability to withstand the strike and are hopeful that it is short. This credit is now being managed in part by the Risk Management Group of RBC in Toronto. I really stressed that we should keep in close contact and if there was any risk of Ted tipping over that they should call us in advance, that we did not want material

collateral damage. I think this is a very serious credit issue in the short run and the local guys might lose control of the file. They have assured me that they will keep in close contact with me and they won't let anything happen to Ted's credit situation without calling me first. I will continue to stay in touch with them. [544] Putting aside what Ms. Park meant in this email, the first issue is whom the call was with. In my view, the evidence supports it was with the local branch of RBC. Ms. Park had met with Mr. Forster along with TLT back in March 2007 at the invitation of TLT. Mr. Forster was the banker Ms. Park was aware of. As I will discuss below, the evidence supports the August 17 call between TimberWest and "Ted's bankers" was with Mr. Forster. [545] The call could not have been with Ms. Watson, since she was not in the picture as of August 10. She and the special loans group did not receive the TLT assignment until late August 2007. In further support, Ms. Watson testified that she never spoke to anyone at TimberWest about anything. The wording of the email supports that at that time, the file was still with the "local guys", but they might lose control in the future. The local RBC person was Mr. Forster. [546] In my view, the totality of the evidence supports this call was likely one between Mr. Forster and Ms. Park, or at least someone at the local RBC branch

and not in Toronto. [547] With respect to the content of the call, the plaintiffs assert that Ms. Park provided information to RBC that TimberWest was planning to shut down TLT's operations in the Johnstone Straits. There is no evidence that supports that Ms. Park told RBC of such a decision except perhaps by inference from what is stated in the email. [548] Ms. Park testified that she did not advise RBC that work was being or would be shut down at the Johnstone Straits. As she testified, this was not something that she had operational knowledge of. As the CFO, she did not have knowledge of this level of detail on operating conditions. She further explained that at that time, she was hoping to avoid a situation where the bank would no longer support Mr. LeRoy. I accept her evidence in that regard. I am unable to make the inference that discussing labour strategy or the use of the word "tactic" equates to providing operational information on the shutdown of the Johnstone Straits to RBC. [549] Ms. Park's explanation that she was discussing TimberWest's labour strategy makes sense. That was the focus in August since at that time, TimberWest was in the midst of the final offer vote. The Labour Relations Board decision came down on August 15, 2007, dismissing TimberWest's application for a final offer vote. Mr. McElligott's evidence was that the reference to labour strategy could

not reference a tactic to shut down TLT in the Johnstone Straits since there never was a discussion to do that. [550] There are no internal RBC documents that support that any operational information was provided by Ms. Park. This is after extensive document production by TimberWest, but also by RBC in accordance with a court order requiring the production of all financial documents relating to TLT. [551] In my view, as I have found above, this call was likely with the one person at RBC that Ms. Park had been speaking with: Mr. Forster. Mr. Forster testified that he never had any discussions with TimberWest about TimberWest's plan to shut down work at the Johnstone Straits at any time. [552] The evidence respecting the August 17 call assists in identifying whom Ms. Park spoke to on August 10. Ms. Park reported on the call she had on the morning of August 17 in an email to Mr. McElligott and the executive committee: I spoke to Ted's bankers again this morning and they were planning to meet with Ted this afternoon. They called me. They continue to be concerned about Ted's long term viability as well as his situation during the strike. I am pleased with our decision to lock out because while I don't think that RBC will do anything without calling us, I really think Ted's situation is serious and is likely coming to a head anyway. [553] Mr. Forster reported that he had a call with

Ms. Park on the morning of August 17. In his email, sent the same day, to Mr. Triemstra of TLT, he reported that: Spoke briefly to Bev this am. No significant news from her other than to express their desire to support and work with TLT. I confirmed that I looked at the covenant numbers you provided to her and agree with them in all material respects. [554] The evidence supports that when Ms. Park references "Ted's bankers", she is referring to Mr. Forster. Mr. Forster initially testified that the August 17 call was not with him, but conceded in cross-examination that the call was likely between him and Ms. Park. [555] The plaintiffs suggest Ms. Park spoke with someone other than Ms. Watson or Mr. Forster. This is pure speculation that has no basis in the evidence. There is no evidence that supports that Ms. Park knew of any person at RBC to call other than Mr. Forster. It is highly improbable that Ms. Park would search out some other individual at the head office of RBC in Toronto to speak to. The only other potential person whom Ms. Park could have spoken to would be Mr. Ferencich, who was in the Risk Management Group, in Toronto. There is no evidence that supports Ms. Park even knew that name, who he was, where he was located, or what his position was. There is simply no merit in this argument. [556] I accept that the weight of the evidence does not support that Ms. Park

disclosed any operational information to RBC in August 2007, or at any time. (ii) Devaluing the Bill 13 Contract [557] The plaintiffs' theory is that Mr. McElligott saw the value of the Bill 13 Contract on TLT's balance sheet at $8.85 million and he decided to provide information to RBC to have the contract devalued. The information he allegedly provided was that harvesting would be shutdown in the Johnstone Straits. In order to achieve this goal, he instructed Ms. Park to transmit this information to RBC. The defendants deny that any such operational information was provided and I have found that Ms. Park did not provide any such operational information. Mr. McElligott further denied that he did any analysis of the financial information with a view to searching for some vulnerability of TLT. [558] A further challenge for the plaintiffs is that RBC and Ms. Watson, the person in charge of TLT's account with special loans, denied that any such information was provided. Her evidence was that she independently assessed the value of the Bill 13 Contract and she never spoke to anyone at TimberWest about the value of the Bill 13 Contract. [559] Ms. Watson's evidence is that she conducted her own review of TLT's assets, including the Bill 13 Contract, as part of her job to assess the bank's security position after TLT's file was referred to special loans. She reviewed the various

contracts, obtained TLT's counsel's legal opinion, and considered the marketability and risks of the contract. She had RBC's counsel, Mr. Skelly, look into TLT's Bill 13 rights. She obtained information from PwC and from Mr. Forster. She did not obtain any information from TimberWest. As a result of her investigations, her opinion was that the value of the Bill 13 Contract was $0. [560] Mr. LeRoy testified that the Bill 13 Contract would have no value in the event of TLT's bankruptcy or insolvency as it would not be assignable. PwC had also taken the position that on a forced liquidation, Bill 13 contracts had no value. [561] Ms. Watson further testified that RBC's valuation of the Bill 13 Contract played no role in the bank's decision to call TLT's loan in December 2007. She stated that this decision was based on a number of factors, including concerns about TLT's poor management, an unsustainable business model, its financial condition and its conduct leading up to and during the special loans review. [562] The overwhelming evidence does not support the allegations made by the plaintiffs that TimberWest played any role in RBC's decision to devalue the Bill 13 Contract. [563] I also accept the defendants' submission that representations made to third parties do not support a claim in deceit by the plaintiffs against TimberWest, since the false representation must cause the

plaintiffs to act to their detriment: Hryniak at para. 21. (c) Making fraudulent and defamatory statements about Mr. LeRoy and TLT [564] The plaintiffs submit that on several occasions in the fall of 2007, Mr. McElligott made defamatory statements to union officials disparaging Mr. LeRoy and TLT. The alleged defamatory statements were: a. TLT was not an efficient logger and was in financial trouble; b. TLT was going bankrupt within 1 to 2 days or within in a week; and c. TLT was bankrupt and would be going out of business shortly. (the "Defamatory Statements") [565] The plaintiffs argue that the Defamatory Statements are not true in that TLT was an efficient logger and, as of October 2007, was not going to go bankrupt in a week or two. They claim that the Defamatory Statements indicating that TLT could go bankrupt imminently were made to apply pressure to the union in order to try to get the union to agree to subdivision. [566] The defendants submit that the only evidence of these statements were entries in Mr. LeRoy's diary or emails and as such are "based on unreliable hearsay from second-or third-hand reports". None of the witnesses the plaintiffs called gave any first-hand, direct evidence about any of these representations. None of the union representatives to whom the plaintiffs claim the remarks were made were called as witnesses. Mr. McElligott denied making any of the

statements he is alleged to have made, including telling Steve Hunt on October 4, 2007 that "LeRoy and Munns are basically broke", or that TLT and Mr. LeRoy were not efficient loggers and that is why they were in financial trouble. In addition, even if the representations were made, they cannot support a claim for deceit as the representations were not made to TLT or the plaintiffs and as such, the plaintiffs could not have relied upon them. [567] To establish defamation, the plaintiffs must show that: 1. the impugned words were defamatory, in the sense that they would tend to lower the plaintiff's reputation in the eyes of a reasonable person; 2. the words in fact referred to the plaintiff; and 3. the words were published, meaning that they were communicated to at least one person other than the plaintiff: Grant v. Torstar Corp., 2009 SCC 61 at para.

28. Once these elements are established on a balance of probabilities, the onus shifts to the defendant to advance a defence. [568] On the evidence before me, I am not prepared to make the finding that the allegedly defamatory statements were made. The first statement is based on an entry in Mr. LeRoy's dairy on October 4, 2007, in which he wrote: Ross Stryvoke phones to discuss a conversation with Steve Hunt who claims in a meeting with Paul McElligott he insinuated LeRoy and Munns are basically broke and he needs to be able to subdivide. He claims we are not efficient loggers and that is why we are in trouble. [569] This diary entry is "triple hearsay" and is not admissible as proof of the truth of its contents. Mr. McElligott, the only person who would have been present for the conversation who testified at trial, denies having made the alleged defamatory statements about TLT and Mr. LeRoy. [570] The second statement is based on a note that Mr. LeRoy recorded in his diary on October 10, 2007 stating that Mr. Stryvoke informed him over the phone that, at a meeting between Mr. Stryvoke, Mr. McElligott, Mr. Hunt and Mr. Matters, Mr. McElligott stated that "he needs the ability to subdivide because LeRoy is going to be bankrupt in one or two days or within a week", that "we [TLT] were inefficient contractors and had completely mismanaged the Nanaimo Lakes operation." Again, this

statement is hearsay and cannot be relied on to prove the truth of its contents. [571] Mr. McElligott was asked about this meeting and he denied having made any of the defamatory comments. He acknowledged that he discussed with the union representatives that the large contractor model was not working and that the contractors were having difficulties, which was an accurate statement about the state of the operations in the fall of 2007 based on the evidence before me. He denied having revealed any financial details about any of the Woodlands contractors and he denied making the specific statements about TLT or Mr. LeRoy that he is alleged to have made. Based on this evidence, I am not prepared to make a finding that any defamatory statements were made. [572] The plaintiffs assert that each of the Defamatory Statements were made to union representatives in the fall of 2007. The defendants were given no opportunity to cross-examine those union representatives on what they were told, when, and in what circumstances. Mr. LeRoy admitted that these statements were not made to him personally and that TLT did not have first-hand information about the meetings at which these statements were allegedly made. He testified that the statements were "gossip on top of gossip." On the evidence, I cannot find that any of these statements were made. [573] In addition, in my view, statements made

to Union officials, even if they were made, cannot support the plaintiffs claim in deceit since the alleged false representations would have to induce the plaintiffs to act. There is no evidence that supports this essential element of the claim of deceit or fraudulent misrepresentation. (d) Delaying, refusing to discuss, or failing to negotiate rate adjustments in good faith [574] The organizing principle of good faith in contractual performance requires parties to contracts to perform their contractual duties honestly and reasonably, not capriciously or arbitrarily, and with "appropriate regard to the legitimate contractual interests of their contracting partner": Bhasin v. Hrynew, 2014 SCC 71 at paras. 63, 65. This means that parties are still free to pursue their individual self-interest, but they may not seek to undermine one another's interests in bad faith, including by lying or knowingly misleading each other about matters directly linked to the performance of the contract: Bhasin at paras. 65, 70, 73. [575] The plaintiffs argue that the defendants engaged in bad faith negotiations on both the harvesting rates that were to be paid for 2008 and on rate adjustments in 2006 and 2007. They say that TimberWest delayed setting rates in January and February of 2007, and then insisted on the production of financial records, including audited financial statements, as a

prerequisite to setting the rates. Once this confidential financial information was provided to TimberWest, TimberWest used it to determine points of weakness and sensitivity that it could take advantage of. [576] The plaintiffs assert that in the fall of 2007, the defendants suggested rates for 2008 that they knew were unreasonable and not capable of being accepted, in a deliberate attempt to cause a rate dispute or business failure. In support of this argument, they point to the fact that the harvest plans were not provided to TLT for Nanaimo Lakes until 2008, the rates were lower than the prior year and disregarded the Perforex report findings, TimberWest had full knowledge of TLT's financial situation and TLT and TimberWest had never previously had a rate dispute. [577] The plaintiffs further allege that TimberWest refused to agree to their proposed rates at Nanaimo Lakes even when TLT agreed to accept them, and that Mr. Whiteley told TLT that there was no rate TLT could propose for Nanaimo Lakes that TimberWest would accept. These bad faith negotiations for harvesting rates and rate adjustments resulted in increasing costs for TLT while depriving it of properly earned income. [578] The defendants deny that the financial information was requested to delay rate adjustments or for any fraudulent purpose; it was requested for legitimate business reasons. Their position is that

there was no material change to the work TLT did in 2006 that would warrant a rate adjustment. Instead, the discussions took place because of Mr. LeRoy's request for financial assistance. They deny having negotiated in bad faith on any of the contracts or having refused to allow TLT to work at Nanaimo Lakes regardless of rate. (i) Delaying Rate Adjustment Negotiations and Requiring Production of Financial Statements [579] The plaintiffs allege that in early 2007, TLT and TimberWest were negotiating compensation adjustments for the rates paid in 2006 at Nanaimo Lakes, but were not making any progress. They say that TimberWest then delayed payment of these adjustments by requiring the production of TLT's audited financial documents as a prerequisite to settlement, knowing that it would take several months to prepare the documents. [580] The evidence supports that in early 2007, Mr. LeRoy sought financial accommodation from TimberWest. He requested a $300,000 advance, which TimberWest agreed to. Mr. LeRoy and Mr. Triemstra, the CFO of TLT, began sharing with TimberWest how dire TLT's banking situation was. Mr. LeRoy was accurately communicating the situation he was facing with RBC. [581] Mr. LeRoy decided to reach out to Mr. Young, Mr. Whiteley's boss, advising of the difficult financial situation that TLT faced and the need for TimberWest to help if TLT was going "to continue

with any viability". TLT also offered to have TimberWest engage with their banker, RBC, to confirm their dire circumstances. TimberWest was being told that the bank "is going to take over". [582] TimberWest agreed to provide some relief in that, in early March 2007, it agreed to move away from blended rates and provide weekly payments. It offered to pay a 2% increase on the rates on an interim basis while final rates were being negotiated. However, the TimberWest executive team was of the view that before agreeing to any financial aid, they had a duty to their company and the unitholders to do their "due diligence". Ms. Park was brought in to explore the financial issues further. She testified that TimberWest needed to figure out whether TLT's financial difficulties were caused by the rates that TimberWest was paying or by internal issues unrelated to TimberWest's rates. [583] I accept that the purpose of requesting financial information was so that TimberWest could understand the financial condition of TLT in order to ensure it was making responsible business decisions, and not for an improper purpose. Ms. Park requested this information in order to determine whether further financial assistance should be provided. Rightly so, since TimberWest was a public company and, as the CFO, she needed to ensure that any financial assistance provided, which is what TimberWest understood

was being requested, was appropriate. [584] The suggestion that there was tactical delay in setting the rates is not supported by the evidence. By March 26, 2007, TimberWest had accepted the higher rates proposed by TLT on an interim basis retroactive to January 1, 2007. These higher rates ultimately became the final rates. It is difficult to understand on what basis TLT is complaining about the rates paid in 2007. These higher rates were paid even though TimberWest had not received the audited TLT financial statements. When the interim rates became final rates in June of 2007, TimberWest still had not received TLT's audited financial statements. Although TimberWest agreed to pay the rates on an interim basis on the understanding that TLT would provide the audited financial statements, TLT did not provide these until the end of December 2007 when TLT was in the CCAA proceeding. This supports that ultimately, audited financial statements were not required before most of the rates were set. (ii) Negotiations for Nanaimo Lakes Rates [585] I turn now to the issue of the Nanaimo Lakes rates. Mr. LeRoy testified that Nanaimo Lakes was a particularly problematic operation for TLT and that it had lost $3 million dollars on that contract in 2006. He proposed retaining Perforex, an independent company, to assist in establishing TLT's costs at Nanaimo Lakes. TimberWest agreed, and the

parties agreed to jointly finance the project. Both parties testified that the study was not intended to be a rate arbitration. TimberWest understood the study to be a review of TLT's performance at Nanaimo Lakes to determine what was causing such high costs. Mr. LeRoy understood the study to be an assessment of what reasonable costs for an average efficient operator would be. The presentation slides produced in this action support that the objective of the study was "to review 2006 performance" on the Nanaimo Lakes contract and "to understand why financial results were less than expected for TLT". I accept that the study was aimed at addressing the costs actually incurred by TLT, rather than a reasonable cost for an efficient operator. [586] Perforex worked proactively, since the engagement letter was signed on April 10, 2007 and by May 4, 2007, it was ready to make a presentation. It also made a second presentation on May 28, 2007. There is a dispute about what Perforex found, and in particular, whether they found that TimberWest was only following its harvesting plan 30% of the time, as Mr. LeRoy and his son recall. None of the TimberWest witnesses who attended the presentations recall this. The Perforex slides produced in the action do not support this. [587] What is clear is that after the Perforex study was completed, at the end of May 2007, Mr. LeRoy sought rates for

Nanaimo Lakes that were based on a cost-plus structure, asking for a rate based on the costs finding by Perforex plus 10% profit. He agreed that this was based on a cost-plus structure. All of the parties agreed that the Nanaimo Lakes contract was not a cost-plus contract. The fact that TimberWest did not agree to a cost-plus arrangement based on the cost identified in the Perforex study does not mean that it was "ignoring" the results of the study. [588] By June 1, 2007, Mr. LeRoy had decided to stop working at Nanaimo Lakes. He explained that the rationale was to try to save money in light of the anticipated strike. He told Mr. Whiteley that TLT was "taking a pause" from Nanaimo Lakes. The strike then started on July 7, 2007, so no harvesting could be done by TLT or any other contractor until the strike resolved in October. After the strike ended, TLT worked at Nanaimo Lakes and Ladysmith until December 21, 2007. [589] The negotiations for 2008 rates began in the fall of 2007. By the end of October, the parties agreed to rates at North Island and Shoal Island, but not for Nanaimo Lakes. [590] At the end of November 2007, TimberWest proposed rates for Nanaimo Lakes and attached a harvesting plan. The proposed rates were based on the original accepted bid rates from 2005, adjusted for inflation, harvest mix and commodity prices. Mr. LeRoy was of the opinion that the rates

proposed were impossible rates which would not allow him to operate. [591] At that time, TLT's financial situation had significantly worsened. RBC had referred TLT's account to the special loans group in Toronto and Ms. Watson had become involved. The consistent information that TimberWest received was that TLT did not want to continue operating at Nanaimo Lakes. Ultimately, that position was confirmed in the restructuring plan presented to RBC in December 2007. That restructuring plan was not PwC's original plan, but the revised plan based on Mr. LeRoy's input. [592] That restructuring plan specifically provided for TLT to terminate the Nanaimo Lakes and Ladysmith Contracts. It states: · During the course of our mandate, we have determined that the Company has been asked to make some tough decisions. The Company has now made some of these operational decisions and we think that Mr. LeRoy is committed to the following: - Exit unprofitable contracts/operations (i.e. Nanaimo Lakes logging and road building, Ladysmith log sort) 2008 Operational Plan Contracts being exited consist of: - Nanaimo Lakes logging and road construction contracts (immediately). - Ladysmith dryland sort contract (immediately) [593] On January 5, 2008, Mr. LeRoy advised TimberWest that he was planning to issue a termination notice for Nanaimo Lakes as part of his restructuring plan. In his affidavit sworn

January 7, 2008, Mr. LeRoy confirmed that TLT was planning on abandoning unprofitable contracts. [594] Mr. LeRoy testified that in a meeting on January 25, 2008, Mr. Whiteley gave him an ultimatum explaining that there was no rate that TLT could propose for Nanaimo Lakes that TimberWest would agree to. This is denied by Mr. Whiteley. [595] The evidence does not support that TimberWest and TLT were truly looking to continue to operate together in Nanaimo Lakes at that time. Both Mr. LeRoy and Jason LeRoy agreed that they were not interested in accepting the proposed rate before the January 2008 meeting, but Jason LeRoy's evidence was that on January 25, 2008, TLT would relook at it and possibly do it. There was no evidence that TLT had accepted or tried to accept the Nanaimo Lakes rates proposed by TimberWest. To the contrary, the weight of the evidence supports that TLT was trying to exit the Nanaimo Lakes operations. In this context, it does not align with the preponderance of possibilities that Mr. Whiteley would tell TLT that it would refuse any rate TLT proposed for Nanaimo Lakes. [596] I also find that the evidence does not support an attempt by TimberWest to unilaterally fix the rates at Nanaimo Lakes. It was not in TLT's best interests at the time to try to continue work at that operation, and TLT was not actively participating in rate negotiations by making

counter-offers. The evidence before me supports that, while the rates offered were low, they were a genuine offer based on the market conditions and what was feasible for TimberWest at the time. [597] I now turn to the allegation that TLT's financial information was improperly used by TimberWest. The financial information provided by TLT included incomplete extracts from cash flow statements and from balance sheets. Both Ms. Park and Mr. Blanchard testified that the information was incomplete and it was not until the end of December 2007, when TimberWest received the restructuring plan, that complete financial disclosure was made. [598] The plaintiffs have not proven that the defendants used the financial information provided for any inappropriate purpose. The financial information was provided under the terms of a signed confidentiality agreement, and there was no evidence led to support a breach of that agreement. [599] I am not convinced that any bad faith rate negotiations took place, nor that the limited financial information that TLT provided was to TimberWest was used against it. The plaintiffs have not proven this aspect of their claim. (e) Fraudulently misrepresenting the true intentions and consequences of the implementation of the subdivision plan in respect of TLT [600] The plaintiffs' position is that various statements made by Mr. Whiteley and Mr. McElligott in

which they professed their support for Mr. LeRoy and TLT, asserted that the subdivision plan would not impact TLT and stated that they expected TLT to be put back to work, were false. They knew that TimberWest's plan was to deliberately not start up at the Johnstone Straits and Nanaimo Lakes. The plaintiffs claim to have relied on these statements in providing confidential information to TimberWest about their financial circumstances, engaging professionals to assist in restructuring their business, entering into financing agreements and waiting to sell TLT's assets rather than selling them at a time when their value would be maximized. [601] The position of the defendants is that the statements made about Mr. LeRoy and TLT were true in that TimberWest did value its longstanding relationship with TLT and would have honoured the contracts. TimberWest denies that Mr. Whiteley ever told TLT that it would get more volume after subdivision or that the subdivision plan was protection in case a contractor went bankrupt. [602] The collective evidence of the TimberWest employees was that they wanted TLT to succeed and would have completed the Nanaimo Lakes contract. I accept the evidence of the defendants in that regard. [603] Mr. Whiteley denied having told TLT that it would get more volume after subdivision. He agreed that the concept of subdivision was discussed with Mr. LeRoy, but

testified that subdivision could not have given more volume to TLT since the whole purpose was to split the volume up among smaller contractors. This plan was well publicized and Mr. LeRoy admitted he was aware of what the plan was. I see no basis on which to find that this representation was made, nor that it was relied upon by TLT. [604] The same applies for the allegation that Mr. LeRoy was told that subdivision was only "protection" should a contractor go bankrupt. Mr. LeRoy knew precisely what the plan was since his evidence was that he was actively tracking what was taking place. He was aware of the press releases and was speaking to union representatives, to other contractors and to the bank about the labour matters. He knew that TimberWest was concerned that there was too much volume in the hands of too few contractors. This evidence does not support that Mr. LeRoy was under any misapprehension of what TimberWest's plan was for dividing up the contracts. [605] As I have already explained under part (a), I find that any statements about TimberWest's intention to have TLT go back to work were made with the honest belief in their truth at the time. The changes in volumes under various contracts were made because of the difficult market conditions that both parties faced at the time. [606] In summary, I cannot find that the defendants made any fraudulent misrepresentations

about the subdivision plan to TLT. (f) Filing a false affidavit sworn by Mr. Whiteley [607] The plaintiffs claim that the statements in Mr. Whiteley's affidavit that the payments in 2006 and 2007 were "gratuitous bailout payments" were false. The intent of describing them in that fashion was to demonstrate to the court that TLT was a "financial basket case" and did not have a prospect of successfully restructuring under the CCAA. It was a deliberate strategy done for the purpose of supporting RBC's application to have TLT forced into bankruptcy, which would result in the termination of TLT's contracts. [608] The plaintiffs further argue that the filing of a false affidavit, and failure to advise the Court about the subdivision plan and its unlawful means to implement that plan against TLT, amounted to a fraud on the Court. [609] The defendants argue that the statements in the affidavit were true and the affidavit was sworn for the purpose of opposing RBC's application to set aside the set-off claims. [610] As noted earlier in these reasons, Mr. Whiteley's affidavit was sworn on February 6, 2008 in the CCAA proceedings. Paragraph 21 of the affidavit states that it was sworn in response to--not in support of--RBC's application of February 4. The details of RBC's February 4 application were not in evidence at this trial, but the evidence that is before me suggests that RBC had

unsuccessfully petitioned the Court to put TLT into bankruptcy in January, before this affidavit was sworn. In addition, Mr. Whiteley discussed set-off rights in the affidavit at paras. 17 and 18. On a balance of probabilities, I find that the evidence supports the defendants' assertion that the affidavit was sworn to oppose RBC's application to set aside set-off claims, or at the very least had something to do with the set-off claims, and not in support of RBC's petition for bankruptcy. [611] In any event, the key issue is whether the information provided was false. [612] There is evidence that supports Mr. LeRoy's view that he was receiving rate adjustments and not bailouts. It is clear that this was how he was explaining the payments to RBC, which is understandable since he may not want to advise his bank that he was receiving financial aid from TimberWest. His explanation was that the payment in 2006 was for fuel increases that occurred in 2003, 2004, and up until the fuel formula was implemented in 2005, as well as other adjustments for increased costs. [613] Mr. LeRoy testified that the "historical" system was that if there were changes in costs, he would carry those changes and then ask for an adjustment to account for them. If that was the system, I would have expected TLT to have requested an adjustment for the fuel costs in 2004 for the extra fuel costs incurred in

2003, and then in 2005 for the 2004 fuel costs. At the very least, when the fuel formula was implemented in October 2005, it would make sense that he would have requested the adjustment at that time for the past costs. There was no evidence led that this happened. [614] The evidence supports that in January 2006, Mr. LeRoy raised the concern of a "cash flow crisis" with TimberWest. By March 2006, Mr. LeRoy was seeking $2 million because TLT was not able to "put our accounts payable within at least a sixty day window." At the end of March, TimberWest made the lump sum payment of $2 million. Mr. LeRoy claims this payment was for rate adjustments for Nanaimo Lakes and for other adjustments for the years 2003 to 2005. [615] In 2007, the issue came up in the same way when, in June, Mr. LeRoy advised TimberWest that in order to bring TLT's current payables over 60 days and to get his debt ratios to a one-to-one ratio, he needed $2.3 to $2.4 million. The focus was on resolving TLT's difficulties with RBC and its breach of covenant. That TLT needed to get its bank covenants under control was supported by the RBC evidence that TLT needed about $2.1 million to get ratios back in order. [616] Mr. LeRoy's evidence was that the $2.3 million, which TimberWest paid TLT in June 2007, was for 2006 rate adjustments for Nanaimo Lakes. [617] TimberWest's view was that under the terms of the

contracts, TimberWest had no obligation to make payments to adjust for fuel costs and other items, and as such these payments were made outside of the contracts with a view to providing financial aid. I accept that TimberWest viewed these payments as bailout payments, and not as rate adjustments. Contemporaneous documents support that TimberWest internally described the payments as bailouts. The employees who testified and who were involved with the payments thought they were bailouts, including Mr. Blanchard. [618] The plaintiffs point to notations made on internal memorandums that call the 2006 payment an "adjustment". Mr. Blanchard was the one who wrote "rate adjustment" in the memo. The evidence at trial was that after TLT received the $2 million, it wrote to TimberWest to ask about how to treat it. Mr. McElligott testified that he delegated the task of how to account for the payment to Mr. Blanchard and Mr. Young. Mr. Blanchard explained that while he was not involved in negotiating the payment, he understood the payment to be a bailout payment to help Mr. LeRoy with his financial difficulties. He testified that he wrote this letter characterizing the payment as a "negotiated agreement" covering various incremental costs at Jason LeRoy's request because TLT needed it for tax purposes. Although the description in this letter does support Mr. LeRoy's view of the 2006

payment, overall, the evidence supports that this was an after-the-fact characterization of the payment for TLT's tax purposes and does not represent the basis on which TimberWest agreed to make the payment or how it viewed the payment internally. [619] The views of the executive members all are consistent. Everyone was of the view that these payments were made to provide financial aid to TLT, and not as part of a negotiated rate adjustment. [620] It is clear that Mr. Whiteley had an honest belief that these payments were made as lump sum cash payments to provide financial aid to TLT and not as part of any contractual requirement. I agree that there was no contractual requirement to make these payments. Mr. Whiteley's honest belief was based on his understanding of the requests for financial assistance, tied with the information he was receiving from Mr. LeRoy that he needed money to make his payables due to bank pressure. I do not find that Mr. Whiteley, based on the knowledge he had, made any false statements in his affidavit when describing these payments. I accept that at the time he swore the affidavit, his view was (and still is) that these were gratuitous payments, meaning that they were not required by any contractual terms, and were a "bailout" due to the undisputed difficult financial circumstances TLT was facing. The evidence does not support that this affidavit was

sworn in order to undermine TLT's financial viability while it tried to restructure under the CCAA. Conclusion [621] I am unable to find that the evidence supports any conspiracy between the individual defendants to force TLT to declare bankruptcy. The plaintiffs have not met their burden of proving the conspiracy on the balance of probabilities. I have no doubt that Mr. McElligott, Mr. Whiteley and Ms. Park were operating consistent with the duty they owed to TimberWest and its unitholders to act in their best interests. I am neither persuaded that in carrying out the implementation of the subdivision plan the predominant purpose was to harm TLT, nor that the plan was unlawfully carried out. [622] The credibility of Mr. McElligott, Mr. Whiteley and Ms. Park was directly challenged by the plaintiffs. In essence, the plaintiffs submit that the three of them were co-conspirators who lied, gave false evidence and colluded together. Those allegations are rejected and have no merit. These three senior executives aggressively pursued the plan they had mapped out for TimberWest as it related to TLT through lawful means, as they had every right to do. [623] I accept Ms. Park's evidence, as a sentiment also shared by Mr. McElligott and Mr. Whiteley, that contrary to the plaintiffs' assertions that TimberWest and the executive team were on a plan to destroy TLT, their collective position

was to try to support TLT and stabilize it. [624] On the totality of the evidence, I find that the elements of the tort of civil conspiracy, either through predominant purpose or unlawful means, have not been made out. [625] I also find that the claims for fraudulent misrepresentation or deceit fail in that they are not established on the evidence, and must be dismissed. [626] Since I have found that the plaintiffs have not proven the claims advanced in conspiracy or civil fraud, it is not necessary that I consider the last fundamental element of both these claims, being causation. However, the plaintiffs had a large hurdle to overcome with respect to causation in light of the evidence of the weak financial situation that TLT was already in, the ongoing issues with their bank that had started as early as 2005 and were significantly exacerbated by the early fall of 2007, the lack of internal accounting systems, the significant debt load it was carrying, the coastal logging strike in 2007 that lasted for almost four months shutting down all harvesting, amplified by the weak logging market and the global recession. In my view, the demise of TLT was causally connected to these other factors, and not to any unlawful acts of TimberWest or its executive team. [627] The claims are dismissed. In respect to costs, I ask that the defendants consider the significant losses that these

plaintiffs have sustained. If the defendants decide to pursue costs, the defendants may make written submissions on costs within 60 days of release of this decision. The plaintiffs will have 30 days to reply in writing to those submissions. If anything new arises in the plaintiffs' submission, the defendants have 14 days to respond. [628] I would like to thank counsel for their assistance throughout this factually complex and legally challenging case. Credit goes to both sets of counsel for the expeditious presentation of the evidence and the very thorough and helpful submissions. "Forth J."