Province of B.C. liable for $10M in damages for 'misfeasance' in hydroelectric approval process

The District of Squamish is seen in this photo from shutterstock.com.

Representatives of the B.C. government committed "misfeasance" when they denied permits for a hydroelectric project near Squamish in 2008, leaving the province liable for more than $10 million in damages to the project's would-be developer, the B.C. Supreme Court has ruled.

Justice Kevin D. Loo delivered his decision in the long-running legal case on Tuesday, and his reasons were posted online Wednesday. 

The 89-page decision concludes that the process by which the province denied land tenure and water use permits to Greengen Holdings Ltd. in November 2008 was unlawful, and that the provincial employees who made and communicated that decision "must have known or were reckless as to that fact."

THE HYDRO PROPOSAL

The project at the heart of the case dates back to at least February 2005, when the company now known as Greengen first applied for the permits that would be necessary to build a hydro project on Fries Creek, west of Squamish.

The company applied for and was awarded an energy purchase agreement with BC Hydro in 2006, which would have seen it sell power to the Crown corporation at a fixed price for 40 years.

The proposal was for a "run of river" hydroelectric generator, rather than a dam. Such projects "divert water by means of a weir from a stream or a river at a point of high elevation into an intake structure or channel, and then into a pressurized pipeline called a penstock," according to the decision.

"The moving water is channelled downstream into turbines, causing them to spin, thereby producing electricity by way of generators located in a powerhouse. Subsequently, the water is returned to the original stream or river, or into another body of water by a channel called a tailrace."

All of the physical components of the project were to be constructed on Crown land, meaning Greengen required provincial land tenure and water use permits in order to build it.

The decision indicates Greengen's initial conversations with the Squamish First Nation were positive, but the nation came out against the project after the company submitted a development plan to the province in 2007.

Representatives of the province's Integrated Land Management Bureau and Water Stewardship Division informed Greengen by telephone on Nov. 21, 2008, that the permits had been denied. Formal letters denying the permits – citing, among other things, the Squamish Nation's rights to use the creek for spiritual and cultural practices – were sent in August of the following year.

In its lawsuit, Greengen argued that "the decisions to deny the permits were made not for the reasons set out" in the decision letters, but rather before the November call and "for collateral political purposes related to the province’s relationship with the Squamish Nation (the 'SN') and its desire to avoid a lawsuit from the SN."

WHAT IS MISFEASANCE?

Loo's decision didn't accept the entirety of Greengen's argument, but it did find that some of the people acting on behalf of the provincial government had committed the tort of "misfeasance."

Misfeasance is the misuse of power by a holder of government office, and the Supreme Court of Canada has identified two ways in which a plaintiff can demonstrate that it has occurred.

"Category A involves conduct that is specifically intended to injure a person or class of persons," Loo's decision reads, quoting the SCC.

"Category B involves a public officer who acts with knowledge both that she or he has no power to do the act complained of and that the act is likely to injure the plaintiff."

Greengen advanced its case under the reasoning of Category B, alleging that the decision to deny the permits was made by individuals in the government who weren't the "statutory decision-makers" tasked with considering such approvals.

For a variety of reasons, Loo concluded that this was, indeed, the case.

THE NOVEMBER CALL

The two people with the authority to make the decisions were Alec Drysdale of the ILMB and Julia Berardinucci of the WSD. Drysdale was responsible, by law, for considering the land tenure decision, and Berardinucci was responsible for considering the water use decision.

The participants in the November call denying the permits were Gary Townsend, an assistant deputy minister with the ILMB, and Jim Mattison, an assistant deputy minister with the WSD.

Based on testimony and documentary evidence from the time, Loo concluded that Drysdale was "comfortable" granting a land use permit as of August 2008.

By the November call, that was no longer the case, meaning something had to have changed.

While the judge weighed the possibility that Drysdale had independently changed his mind because of new evidence he received between August and November, Loo ultimately concluded that it was "quite unlikely that he would have done so," largely because provincial requests to the Squamish Nation for more information were still outstanding at that time.

Meanwhile, there was no evidence that Berardinucci had made a decision on the water use permit by November 2008, and Berardinucci testified that she had not done so at that time.

"In my view, the evidence above regarding the involvement of the ministers and the assistant deputy ministers, the evidence of the 'change' between Aug. 25, 2008, when Mr. Drysdale was comfortable approving tenure and Nov. 21, 2008, when the permits were denied, and my finding that Mr. Townsend took it upon himself with Mr. Mattison to advise the plaintiff that the permits had been denied even though neither Mr. Drysdale nor Ms. Berardinucci had independently made those decisions, compel an inference that someone in government other than the statutory decision-makers made the decision to deny the permits," Loo's decision reads.

Further, the judge considered whether there could be a "reasonable, lawful explanation" for the facts he found to be true about the decision. He concluded there could not be.

"The only circumstances in which the November call would have been lawful are that if Mr. Drysdale and Ms. Berardinucci independently made decisions to deny the permits prior to Nov. 21, 2008, and authorized Mr. Townsend and Mr. Mattison to convey their decisions to the plaintiff," Loo's decision reads.

"I have found that Mr. Drysdale did not independently make a decision to deny the permits prior to Nov. 21, 2008. It is clear on Ms. Berardinucci’s evidence that she did not either."

Because both Drysdale and Townsend were "experienced government employees" with an understanding of the statutory decision-making process, Loo further concluded that they either knew the November call was unlawful or were reckless as to its legality.

Thus, the judge found the province liable for misfeasance.

CALCULATING DAMAGES

To determine the amount of money the province owes to Greengen, Loo likened the case to a personal injury case.

"The plaintiff in this case has lost past earnings as a result of the conduct of the provincial representatives, and it will continue to suffer future losses in respect of earnings it would have received from the Fries Creek project had the permits been granted," the judge's decision reads.

Loo adopted an expert's assessment that the "projected raw cash flows" for the project over the course of its life would be $65.04 million, with $20.64 million accumulated prior to 2023.

Applying pre-judgment interest to the $20.64 million, the judge determined that the company would be entitled to $22.4 million for lost past earnings, before factoring in the risk inherently associated with a project that never even broke ground.

Loo added another $34.11 million for cash flows that would have come from the project post 2023, for a total award of $56.25 million, before factoring in risk.

"I am satisfied in this case that there was a real and substantial possibility that the project would have reached commercial operation and would have achieved profitability," the decision reads.

"That said, in my view, there were a number of significant risks to this project. For the reasons below, it is my view that these risks posed substantial potential barriers both to its viability and its expected profitability. Indeed, I find that after adding all of the contingencies together, there was less than a 20 per cent chance that the project would have achieved the results projected."

Specifically, Loo calculated the chances of the project achieving the full $56.25 million were roughly 18 per cent.

He found the province liable to the plaintiff for damages amounting to 18 per cent of the $56.25 million – or $10.125 million – for the loss of opportunity caused by the misfeasance.