Real Estate Law Blog

B.C. Supreme Court allows claim against government for damages for improperly cancelled project

Most development in B.C. requires approval by government, whether through permitting, rezoning, subdivision approval, or licencing. That process often appears opaque to applicants. Denials, which can effectively terminate a project, can be given with little or no justification. Typically, the main avenue available to an applicant is a challenge by judicial review, a lengthy process with an unsatisfying end result (having the same decision-maker make a new decision).

A recent decision of the B.C. Supreme Court^[1] (Greengen) allowed a direct claim for damages against the government for misfeasance in public office, a tort which has historically been extremely difficult to establish but which may be a much more attractive remedy than judicial review.

In Greengen, applications for permits for a run-of-river hydro power plant were denied by the Ministry of Environment and Ministry of Agriculture, respectively. The plaintiff alleged that the Province had made the decisions improperly (effectively, by caving to pressure from a local First Nation). The Court allowed the claim, providing a roadmap to damages claims from developers whose applications have been unlawfully denied.

The Tort of Misfeasance in Public Office

An action for misfeasance in public office can be brought where a government official intentionally misuses its powers. The Supreme Court of Canada in Odhavji Estate v. Woodhouse^[2]established two ways that a plaintiff can prove a misfeasance claim:

• Category A: by showing that a public officer engaged in unlawful conduct that is specifically intended to injure the plaintiff; or
• Category B: by showing that a public officer acted with knowledge both that they had no power to do the act complained of and that the act was likely to injure the plaintiff.

Both categories require the plaintiff to prove that the public officer’s conduct was intentional and unlawful, meaning they acted in excess of the powers granted to them under the applicable statute, or for an improper purpose (such as malice).

Key Takeaways

A full analysis of the case is below, but some key points for developers, project proponents and other applicants are as follows:

1. On trend: Greengen is in line with the trend in misfeasance in public office cases in the last two decades which have incrementally expanded the scope of the tort. In particular, Greengen follows the SCC’s decision in Odhavji, which established that misfeasance in public office does not require the public official to have the specific purpose of harming the plaintiff (the official only needs to know that the unlawful denial was likely to injure the plaintiff).

As this appears almost self-evident where a project has been denied, Greengen and Odhavji are likely to encourage further claims in this area.

2. Category B claims are now at the core of the tort: Prior to the Odhavji decision, which established ‘Category B’ misfeasance claims, plaintiffs had to show that the public official specifically intended to harm the plaintiff, resulting in very few successful actions.

Plaintiffs advancing a claim under Category B need only show unlawfulness in the decision-making process and that the public officer knew or was reckless to the fact that its conduct was unlawful and would injure the plaintiff. In Greengen, this was established by showing that the decision was made by a person other than the decision-maker designated by the applicable legislation, and that the decision-maker had improperly fettered its discretion.

Greengen is an example of how much easier the tort is for plaintiffs to establish under Category B, and it is hard to see a situation where a plaintiff will pursue the much more difficult Category A claim.

3. Inference: As is sometimes the case with governmental processes, in Greengen there was a lack of clear evidence as to how the decisions had been made.^[3] While the Court acknowledged that neither Greengen nor the Court could determine with specificity exactly what decision was made and by whom, this was not a bar to Greengen’s claim. The Court was willing to make significant inferences based on circumstantial evidence and a fragmented documentary record, and expressly commented on the appropriateness of making such an inference (extract below).

The approach in this case is useful to practitioners in this area, who are often unable to establish specific facts about the governmental process itself, due to a lack of records or unclear evidence.

4. Limitation defence denied: The Province sought to have the claim barred on the basis that it was brought out of time. Critically, the Court found that the claim was not discoverable until the Province had provided evidence about the decision making process through a March 2010 Freedom of Information and Protection of Privacy Act This is good news for plaintiffs like Greengen who may similarly be in the dark about whether a government decision was unlawful, and may not realize they have a misfeasance claim until well after the decision is made. Freedom of information requests are likely to be a key tool in establishing future misfeasance claims.

5. Scope: Misfeasance claims have a broad reach and can be brought against Crown servants or government bodies that perform duties which might affect the public. While Greengen was seeking permits from two Provincial Crown bodies, the cause of action effectively allows a claim for any government denial.

Facts

From 2003 to 2009, Greengen Holdings Ltd. planned to develop a hydro-electric project at Fries Creek, located on Crown land near Squamish, British Columbia. Greengen had been awarded an Energy Purchase Agreement with BC Hydro, pursuant to which Greengen would sell the power generated at its proposed hydro-electric project to BC Hydro at a fixed price for 40 years.

The Fries Creek area is also home to a Squamish Nation cultural site that was established by a Land Use Agreement with the Province in 2007. Greengen’s proposed run of river project would generate power by diverting water from Fries Creek into turbines, impacting the flow of water into the cultural site.

In order for the project to go ahead, Greengen was required to apply for a land tenure over Crown land pursuant to the Land Act^[4]and a water license pursuant to the then in force Water Act.^[5]

Julia Berardinucci of the Ministry of Environment, and Alec Drysdale of the Ministry of Agriculture were the statutory decision-makers responsible for deciding whether to grant the water license and land tenure permits, respectively. In November 2008, two assistant deputy ministers advised Greengen in a phone call that both permits had been denied. Neither Ms. Berardinucci nor Mr. Drysdale participated in this phone call.

In August 2009, Greengen received letters from Mr. Drysdale and Ms. Berardinucci formally advising that the permits had been denied. In the letters, the decision-makers explained that the reason for the denial was because – among other things— the hydro project would adversely impact the Squamish First Nation’s aboriginal rights in the Fries Creek area.

In 2016, Greengen commenced an action against the Province for misfeasance of public office, alleging:

• the actual decision to deny the permits was made at the time of the November 2008 phone call, and was not made by the appropriate decision-makers; and
• the decisions to deny the permits were not made for the stated purposes, but rather because the Province wanted to avoid a lawsuit with the Squamish Nation and feared the negative publicity that may result.

Court’s Analysis

Greengen advanced its claim under Category B. The Court first considered whether the decisions to deny the permits were unlawful, finding found that the November call was the “key to this case and the most troubling aspect of the [Province’s] conduct.”^[6]

The Court found that the decisions to deny the permits were made by the November 2008 call, and not when the letters were sent in 2009. The Court commented that the only way the November 2008 call would have been lawful was if Mr. Drysdale and Ms. Berardinucci – the applicable statutory decision-makers— independently made the decisions to deny the permits prior to the call, and authorized the two deputy ministers to convey these decisions to Greengen.^[7]

The Court found that this had not occurred. Ms. Berardinucci testified that she had not made a decision on the water use permit by November 2008. As for Mr. Drysdale, the judge inferred from the correspondence and other documentary evidence that Mr. Drysdale had similarly not made any independent decision with respect to the land tenure by November 2008. This was in part due to an internal email sent by Mr. Drysdale in August 2008 in which he stated that he was “comfortable” granting the land tenure. The Province received no additional evidence between August and November 2008 which would explain the apparent change in his decision.

Meanwhile, in the fall of 2008, discussions had escalated between the Squamish Nation and the Province with respect to Greengen’s proposed project, with senior politicians and ministers becoming involved. It was very clear from these discussions that the Nation would consider it a breach of its Land Use Agreement if the Province granted the water and land tenure permits.

Based on the above, the Court inferred that “someone higher up” in government directed or persuaded Mr. Drysdale to agree that on November 2008 Greengen would be told the permits were denied. The judge further found that this decision was made to appease the Squamish Nation.^[8] While the Court was unable to identify which government officials actually made the decisions denying the permits, it inferred that the decisions were not made by Mr. Drysdale or Ms. Berardinucci, commenting that this type of inference was permissible in misfeasance cases:

[281]  I am mindful that this Court ought to be cautious in drawing inferences in misfeasance cases, but if there is no reasonable and lawful explanation for the facts found, it is open to this Court to find misfeasance despite not being able to answer with specificity which individuals did exactly what…

As a result, the Court concluded that the November 2008 decisions denying the permits were unlawful, because the decisions were either made by persons other than Ms. Berardinucci and Mr. Drysdale, or that these public officers had fettered their discretion for improper purposes. Further, certain government officials involved knew (or were reckless to the fact) that the November call was unlawful and would cause Greengen harm.

In calculating damages, the Court found that, as a result of its hydro project being unlawfully denied, Greengen had lost past and future potential earnings totalling $56.25 million. However, after factoring in “a number of significant risks”[9] that the proposed project would have faced, the judge reduced the damages award to $10.125 million.

Conclusion

Greengen is a significant case in the development of the doctrine of misfeasance, and will be attractive to developers and project proponents who have been unfairly treated by a government decision. In many situations this will be more appealing than a judicial review.

Establishing misfeasance in public office remains a high bar, but practitioners and developers will likely use this case as a roadmap for claims in this area, as well as helpful precedent on the court’s ability to make inferences on key issues. The success of this claim may mean that governmental authorities take such claims (which historically have rarely succeeded) more seriously, both in reviewing their own procedures and in settling potential claims.

Given the significance of the decision, we expect an appeal to be filed and will continue to monitor the situation closely.

_{[1] Greengen Holdings Ltd. v. British Columbia (Ministry of Forests, Lands and Natural Resource Operations), 2023 BCSC 1758 (“Greengen”).}

_{[2] 2003 SCC 69 (“Odhavji”).}

_{[3] For another application of the doctrine which relied heavily on inference, see Alberta (Minister of Infrastructure) v. Nilsson, [2002] A.J. No. 1474 (C.A.)}

_{[4] R.S.B.C. 1996, c. 245.}

_{[5] R.S.B.C. 1996, c. 483.}

_{[6] Greengen at para. 245.}

_{[7] Greengen at para. 280.}

_{[8] Greengen at para. 293, 278.}

_{[9] Greengen at para. 414.}