



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



Timberwolf Log Trading Ltd. v. British Columbia
  (Forests, Lands and Natural Resources Operations)
,









2013 BCCA 24




Date: 20130111

Docket: CA039909

Between:

Timberwolf Log
Trading Ltd.

Respondent

(Plaintiff)

And

Her Majesty the
Queen in Right of the Province of British Columbia
and Daniel Smallacombe

Appellants

(Defendants)




Before:



The Honourable Mr. Justice Low





The Honourable Madam Justice D. Smith





The Honourable Madam Justice A. MacKenzie




On appeal from: Supreme
Court of British Columbia, April 10, 2012
(
Timberwolf Log Trading Ltd. v. British Columbia (Forests, Lands and Natural
Resource Operations)
, 2012 BCSC 690, Vancouver Registry No. S110508)

Oral Reasons for Judgment




Counsel for the Appellant:



A.K. Fraser
B. Naylor





Counsel for the Respondent:



A. Wade
A. Mizrahi





Place and Date of Hearing:



Vancouver, British
  Columbia

January 10, 2013





Place and Date of Judgment:



Vancouver, British
  Columbia

January 11, 2013








[1]

D. SMITH J.A.:
The provincial Crown and Daniel Smallacombe
(collectively the Province) appeal, with leave, an order dismissing their
application made pursuant to Rule 9-5(1)(d) of the
Supreme Court Civil Rules
to strike out all, or parts of, a Notice of Civil Claim filed by the
respondent, Timberwolf Log Trading Ltd. (Timberwolf) against the Ministry of
Forests, Mines and Lands [now the Ministry of Forests and Range] (the
Ministry) and Mr. Smallacombe, an enforcement officer employed with the
Ministry. The claims advanced by Timberwolf in the Notice of Civil Claim
include misfeasance in public office and defamation (the parties have proceeded
on the understanding that this includes both libel and slander).

[2]

The Province also appeals, with leave, a further order dismissing
Timberwolfs claim for injunctive relief but granting them leave to amend that
relief to a declaration restraining the Crown and its officers from doing
various things. On appeal, Timberwolf concedes that the amended pleading, as
with the injunctive relief originally sought, contravenes the prohibition in s.
11(2) and (4) of the
Crown Proceeding Act,
R.S.B.C. 1996, c. 89, and
accordingly agrees that this second ground of appeal should be allowed. I would
accede to this ground of appeal and would strike para. 7 of the order under
appeal.

[3]

In its application, the Province had also sought an order striking
Timberwolfs claim of misfeasance in public office. However, leave to appeal
the order dismissing that application was denied. Therefore, at this time the
claims being advanced for trial by Timberwolf include misfeasance of public
office, slander and libel (the latter pending this Courts decision on appeal).

Background

[4]

The pleadings allege, in part, that in 2008 Mr. Smallacombe slandered
Timberwolf during an interview between Mr. Smallacombe and Mr. Good. Mr. Good
is an independent logging contractor whose company, BC Log Inventory Service
Ltd. (BC Log), had been retained by Timberwolf to do its scaling.

[5]

The impugned statement, it is claimed, was made to Mr. Good during an
investigation by Mr. Smallacombe into whether Timberwolf was underreporting the
quality and grade of its timber in order to reduce stumpage payable to the
Province. In its Notice of Civil Claim, Timberwolf pleaded (at para. 15) that
during the interview, Mr. Smallacombe slandered Timberwolf when he stated:

Maybe its not about wood at all.
Its on the surplus list as X and I [grade logs] and pass the surplus test
and gets approved for export and goes to the major drug trafficking routes in
the world South Korea, China, Washington. Who cares what wood is in it. All
that wood goes into a container.

[6]

Timberwolf further pleaded (at para. 16) that these words were meant and
intended to suggest that it deliberately misreported the grades of harvested logs
to provide it with access to legal export containers in order to distribute and
traffic illegal drugs.

[7]

The Province has conceded that they have no evidence to support the suggestion
made by Mr. Smallacombe (cited in para. 5 above) that Timberwolf was using its
timber shipments as a cover for participation in illegal drug trafficking to
the United States and Asia.

[8]

During the course of the investigation, Mr. Smallacombe obtained
Criminal
Code
search warrants for the seizure of records and personal property from
Timberwolf. The investigation resulted in an assessment against Timberwolf of
$3.5 million of underpaid stumpage. Timberwolfs appeal of that assessment to
the Minister was dismissed; however, we are advised that a statutory appeal of
that decision to the Supreme Court of British Columbia is scheduled for hearing
in September 2013.

Petition to Quash Warrants

[9]

In 2010, in relation to the disputed assessment, Timberwolf commenced a
petition to quash the search warrants obtained and executed by Mr. Smallacombe
(the Warrant Proceedings). Counsel for Timberwolf and counsel for the
Province were in attendance at the hearing of the petition. Mr. Good was also
in attendance as an observer and requested that he be provided with a copy of
the audio recording of his interview with Mr. Smallacombe in order to check the
accuracy of parts of the transcribed interview that had been included in the
Information to Obtain the search warrants. (The audio recording was not in
evidence at the hearing although an incomplete transcript of the interview was
before the court). In response to Mr. Goods request, counsel for the Province
advised the court that he would provide a copy of the audio recording to Mr.
Good. The chambers judge accepted counsels offer, stating that your
undertaking will be sufficient.

[10]

Several days later, counsel for the Province forwarded to Mr. Good an
email attaching a digital copy of the audio recording. In the email he wrote: I
have not provided these to Mr. Spencer [counsel for Timberwolf]. I have no
objection to your releasing the recording of the interview. The parties
disagree as to the objective meaning of that statement.

[11]

Several weeks later, in February 2011, the judge delivered her reasons
in the Warrant Proceedings in which she granted Timberwolfs application to
quash the search warrants. In January 2012, Timberwolf commenced the within civil
claims against the Province.

Motion to Strike Pleadings with Respect to Libel

[12]

The parties have proceeded in the litigation on the understanding that
the pleading of defamation includes libel and that the alleged libel arose out
of the republication during the Warrant Proceedings of the alleged slanderous
statement (i.e. when the audio recording was produced to Mr. Good). There are
two bases for this understanding. First, ostensibly the libel claim is being
advanced to avoid a limitation period defence to the claim of slander. The
second basis is from evidence (not material facts) that is pleaded in the
following highlighted passages of paragraphs 13 to 15 of the notice of civil
claim:

13.
Throughout
the investigation and following the issued Assessments, Timberwolf through its
counsel, made repeated requests for disclosure of the investigation report and
interviews.
Smallacombe and MOFR,

purposefully and deliberately
withheld disclosure of the requested documents and materials.

14.
On
December 1, 2010, during a related court proceeding, a judge of the Supreme
Court of British Columbia requested counsel for the

Defendants to ensure
that certain investigative material be disclosed to Timberwolf and Good.

15.
Subsequent
to the Court appearance of December 1, 2010, an audio recording of an interview
of Good by Smallacombe was disclosed.
In that interview Smallacombe
slandered Timberwolf. He stated:

[the
words as reproduced in para. 5 above]

[Emphasis added].

[13]

The central issue before the chambers judge, in regard to the orders for
which leave to appeal has been granted, was whether it was plain and obvious
that Timberwolfs claim in libel was bound to fail. In dismissing the
appellants application to strike that claim, and in particular paras. 14 and
15 of the pleadings, the chambers judge stated:

[65]      The defendants seek to strike the plaintiff's
pleadings on the basis that the tape recording in question cannot be advanced
in support of claims in the underlying action because it was produced by
counsel for the defendants under the compulsion of discovery procedures or a
court order in other litigation. As such, say the defendants, the plaintiff is
bound by the implied undertaking of confidentiality.

...

[71]      ... I have difficulty accepting the submission of
the defendants in this application that an implied undertaking of
confidentiality attaches to the tapes production. First, the recording was
voluntarily released to a non-party to the application to quash the search
warrant. It was not released pursuant to any discovery obligation. The
application to quash has, in any event, long since concluded.

[72]      Second, counsel advised Mr. Good that the
recording had not been produced to the plaintiff in any proceeding, and he
expressly advised Good that he could release it to whomever he pleased.

[73]      For these reasons, it
is not plain and obvious that the plaintiff cannot claim in defamation against
the defendants. Accordingly, the application to strike that pleading is also
dismissed.

On Appeal

[14]

On appeal, the Province submits that the trial judge erred in failing to
find that it was plain and obvious that the claim in libel would fail. They
contend that the audio recording was delivered by counsel for the Province to
Mr. Good pursuant to an express undertaking given by counsel for the Province
under compulsion by the court and that Mr. Good, although a non-party to the Warrant
Proceedings, thereby became subject to an implied undertaking of
confidentiality not to use the audio recording for any collateral purpose to
the proceeding. Relying on
Goodman v. Rossi
(1995), 125 D.L.R. (4
th
)
613 (O.N.C.A.) at paras. 24 and 26, and
Doucette (Litigation Guardian of) v.
Wee Watch Daycare Systems Inc.,
2008 SCC 8, [2008] 1 S.C.R. 157, the
Province says that Mr. Good breached that undertaking when he delivered the
information to Timberwolf or its counsel, who then relied on the audio
recording as the basis for its claim in libel. The Province submits that this
use of the audio recording for a purpose collateral to the Warrant Proceedings is
an abuse of process entitling it to an order striking paragraphs 14 and 15 of
the Notice of Civil Claim.

[15]

The Province further contends (citing
Hung v. Gardiner,
2003 BCCA
257, 13 B.C.L.R. (4
th
) 298) that the chambers judge erred in failing
to find that the claim in libel was bound to fail based on the doctrine of
absolute privilege. They submit that the republication of the audio recording,
when counsel for the Province delivered it to Mr. Good, occurred on an occasion
of absolute privilege in the course of the Warrant Proceedings and therefore
the Province was subject to absolute immunity.

[16]

Timberwolfs position (also relying on
Doucette
) is that Mr. Good
was not subject to an implied undertaking of confidentiality because counsel
for the Province in the Warrant Proceedings was not under compulsion by the court
to disclose the recording, rather he did so voluntarily, and Mr. Good was a
non-party to those proceedings. It further submits that the occasion on which
Mr. Good received the audio recording was not one of absolute privilege as the
audio recording was not evidence in the Warrant Proceedings and therefore its disclosure
to Mr. Good was made outside the scope of those proceedings.

[17]

Common to both submissions is Mr. Goods status as a non-party to the Warrent
Proceedings and the absence of any clear link between the disclosed audio
recording and the Warrant Proceedings. While the chambers judge did not
expressly address the Provinces second argument on absolute privilege, my
reading of her reasons suggest that her conclusions on the first issue would
support a similar finding on the second issue.

Discussion

[18]

The test for striking a pleading under R. 9-5(1) is well established: it
must be plain and obvious that the pleading, assuming the facts pleaded to be
true, discloses no triable issue:
Hunt v. Carey Canada Inc.,
[1990] 2
S.C.R. 959;
Odhavji Estate v. Woodhouse,
2003 SCC 69, [2003] 3 S.C.R.
263; and
R. v. Imperial Tobacco,
2011 SCC 42, [2011] 3 S.C.R. 45 at
para. 17.

[19]

It should also be noted that an order under R. 9-5(1) is a discretionary
order for which deference must be given absent an error of law or principle or
a failure of the judge to consider or weigh all of the relevant circumstances. The
standard of review for discretionary orders was summarized by Chief Justice
Finch in
Stone v. Ellerman,
2009 BCCA 294, 92 B.C.L.R. (4
th
)
203, leave to appeal refd [2009] S.C.C.A. No. 364 in this manner:

[94]      Discretionary powers
must be exercised in accordance with what the judge thinks the justice of the
situation requires. Judicial discretion is constrained by factors or principles
that must be weighed and balanced as between the competing interests, but no
rule of law dictates the result. Accordingly, an appellate court will not
interfere with an exercise of judicial discretion unless it can come to the
clear conclusion that it was wrongly exercised in that no weight or
insufficient weight has been given to relevant considerations (
Friends of
the Oldman River Society v. Canada (Minister of Transport),
[1992] 1 S.C.R.
3 at 76-77, 88 D.L.R. (4
th
) 1, [1992] 2 W.W.R. 193) or that on other
grounds it appears that the decision may result in injustice (
Taylor v.
Vancouver General Hospital,
[1945] 4 D.L.R. 737 at 743, [1945] 3 W.W.R.
510, 62 B.C.R. 42 at 50 (C.A.)).

[20]

As previously noted, where an application is brought pursuant to R.
9-5(1)(d), evidence may be tendered as the R. 9-5(2) prohibition against
admitting evidence is restricted to applications brought under R. 9-5(1)(a),
where only the pleadings are considered. In this case, the Province submitted two
affidavits in support of its application to strike. That evidence, when
considered with the pleadings, does not in my view meet the stringent plain
and obvious test for an abuse of process if Timberwolf were permitted to
advance its claim in libel to trial.

[21]

First, the Provinces submission that the implied undertaking of
confidentiality should extend to a non-party does not appear to be have been
adopted in
Doucette,
where the scope of the implied undertaking rule was
expressly limited to parties in the litigation:

[1] The principal issue raised on this appeal is the scope of
the implied undertaking rule under which
evidence compelled during
pre-trial discovery from a party to civil litigation can be used by the parties
only for the purpose of the litigation in which it was obtained.

...

[4] Thus the rule is that both documentary and oral
information obtained on discovery,
including information thought by one of
the parties to disclose some sort of criminal conduct,
is
subject to the
implied undertaking. It is not to be used
by the other parties
except
for the purpose of that litigation
, unless and until the scope of the
undertaking is varied by a court order or other judicial order or a situation
of immediate and serious danger emerges.

...

[27] For good reason, therefore,
the law imposes on the
parties to civil litigation an undertaking
to the court
not to use
the documents or answers for any purpose other than securing justice in the
civil proceedings in which the answers were compelled (whether or not such
documents or answers were in their origin confidential or incriminatory in
nature). ...

[Emphasis added.]

[22]

Furthermore, the doctrine of absolute privilege would appear to be
limited to occasions where the making of a statement (e.g. the publication of
the audio recording in this case) occurs in the course of proceedings before
the court (see
Lincoln v. Daniels,
[1962] 1 Q.B. 237 (C.A.), and
Gutstadt
v. Reininger
(1995), 27 O.R. (3d) 152 (Ont. General Division).

[23]

In the circumstances of this case, I am of the view that the factual
matrix in which both of these submissions are advanced must be fully explored
in order to arrive at a fair determination of this claim.

[24]

The claim in defamation (both slander and libel) advanced by Timberwolf
is a serious one. It is conceded that Mr. Smallacombe had no evidence to
support the comments he made, albeit the Province will argue that the comments
are not actionable because they were made on an occasion of qualified privilege
and, in any event, the claim in slander is subject to a two-year limitation
period which has passed (this defence is not yet pleaded by the Province).
These potential impediments to Timberwolfs claim in slander make it all the
more important to fully canvass the circumstances that gave rise to the alleged
claim in libel.

[25]

In my opinion, the significant factual and legal issues in this case can
only be determined fairly on the basis of a complete evidentiary record that is
not limited to a pleadings context. The remaining claims proceeding to trial
(misfeasance in public office and slander) will undoubtedly involve the
tendering of much of the same evidence that would be tendered in the libel
claim. In my view, to foreclose Timberwolf from advancing its claim in libel at
trial would, in these circumstances, result in an injustice.

[26]

The words of Chief Justice McEachern in
Bow Valley Resource Services
v. Kansa General Insurance Co. (B.C.C.A.)
(1991), 56 B.C.L.R. (2d) 337 are
apposite in these circumstances:

In my view it is not always appropriate to confine
complicated litigation, as this clearly is, within labels or general statements
of principle arising out of one or more authorities. My view is that the recent
jurisprudence particularly,
Hunt v. Carey-Canada Inc.
(1991), 74 D.L.R.
(4
th
) 321, leave us with a clear message particularly in a case of
this kind.

...

In my judgment there is no
rational chance that a division of this Court would depart from that practice
[set out in
Hunt
] and embark upon and attempt to resolve the novel and
difficult questions which arise in this case just on the pleadings. Pleadings
have a way of being amended as cases proceed towards trial and sometimes,
indeed, even at trial. In my view, it is inevitable that these pleadings will
be amended and I do not believe that this Court would purport to decide these
vital questions of law without a full investigation of the factual matrix out
of which these issues arise. I think the Court would inevitably defer to the
trial process as the place where these novel and difficult questions should be
first considered.

[27]

During submissions on appeal, it became apparent that amendments to the
pleadings would likely be necessary before the claims reached trial. Factual
issues were raised as to the objective meaning of the email attaching the
digital copy of the audio recording that counsel for the Province forwarded to
Mr. Good as well as the content and scope of counsel for the Provinces
undertaking to the court. Legal issues on the application of the implied
undertaking rule to a non-party and of the application doctrine of absolute
privilege beyond the parameters of the legal proceedings before the court were
also raised. I agree with the comments in
Bow Valley
that in such
circumstances the trial process is the place where these issues should be first
determined and that Timberwolf should not be driven from the judgment seat on
a motion to strike.

Conclusion

[28]

I am not persuaded that the chambers judge erred in the exercise of her
discretion in finding that it was not plain and obvious that an abuse of process
would arise, specifically on the basis of the doctrines of implied undertaking
and absolute privilege, if Timberwolf were permitted to pursue its claim in
libel. I agree with her conclusion that these important factual and legal
issues should not be determined on a R. 9-5(1)(d) application.

[29]

In the result, except for the setting aside of para. 7 of the order
under appeal as conceded by the respondent, I would dismiss the appeal.

[30]

LOW J.A.:
I agree.

[31]

A. MACKENZIE J.A.:
I agree.

[32]

LOW J.A.:
The appeal is allowed only to the extent of setting
aside para. 7 of the order under appeal, otherwise the appeal is dismissed.

The
Honourable Madam Justice D. Smith


