A BC Supreme Court battle is underway after it was alleged that a Surrey-based log broker failed to report $3.4 million worth of unpaid stumpage fees.
Now, the broker, Timberwolf Log Trading, has fired back, filing a notice of claim against the Ministry of Forests and its compliance officer, Daniel Smallacombe, for what it claims is misfeasance, abuse of office and defamation during an investigation into Timberwolf.
The log broker and several other contractors have also filed four petitions against the province seeking injunctions to prohibit the ministry from levying penalties against them.
Peter Spencer, Timberwolf’s lawyer, called the government’s investigation unfair, adding that the case could affect how the province investigates forestry companies in the future.
“Timberwolf’s issue was that it really had no sense of what was being alleged against it [during the investigation] or the basis for the allegations that the timber had not been properly scaled,” Spencer said.
The legal wrangle revolves around stumpage fees – royalties industry pays government for cut timber.
The fees are determined through a scaling process that measures the quality of the timber and charges an appropriate fee.
The data is then transmitted to the ministry, which invoices the companies for the stumpage fees.
According to court documents, the ministry alleged that Timberwolf failed to report the true value of scaled logs it received between April 1, 2006, and December 31, 2008.
In 2008, Smallacombe investigated several businesses in the Campbell River area that performed scaling duties and maintained records for Timberwolf.
The records were seized and audited in the fall of 2009, revealing “several instances” of inaccurate reporting.
But it wasn’t until the spring of 2010 that Timberwolf was told it owed $3.4 million in unpaid royalty fees.
The province said in a statement that it undertakes “very few” log scaling investigations.
“This case initially came to our attention as a result of a routine audit of scaling procedures,” the Ministry of Forests wrote in a statement. “We take this very seriously … those parties that underestimate stumpage owing will be identified, assessed and penalized.”
In February, a judge ruled that Smallacombe broke the rules when he obtained four search warrants during the investigation.
“Mr. Smallacombe was not authorized to apply for a telewarrant … he was acting outside of his legislative authority in investigating an allegation of fraud,” Judge Miriam Gropper wrote in her decision.
Spencer said the ruling could mean the auditor who assessed Timberwolf relied on information that was “illegally obtained,” though that has yet to be proved.
“It becomes part of our claim against the government that it hasn’t dealt with Timberwolf fairly,” he said.
The province refused to comment on Timberwolf’s suits.
Meantime, the log broker has initiated a separate action against the province and Smallacombe for abuse of office.
According to court documents, Smallacombe offered “criminal” immunity to a log scaler and contractor in exchange for co-operation with the investigation.
The suit alleges Smallacombe’s investigative tactics were “designed to injure and harm Timberwolf’s business.”
Spencer said the investigation has generated coastal forestry industry rumours that Timberwolf might be involved in “illegal activity,” and that has hurt the company’s ability to sell logs.
“Its reputation has been marred by the investigators and how they’ve handled this case,” Spencer said.
In a response to the claim filed February 24, the province denied any wrongdoing, adding that Smallacombe did not offer criminal immunity to two men during the investigation.
The province also denied that Smallacombe intended to harm Timberwolf’s business, and said the forestry officer did not know, at the time he applied for the search warrants, that only police officers are entitled to obtain them.
The province further alleged that Smallacombe had “reasonable and probable” grounds to believe that three contractors involved with the log scaling had committed fraud.
Those charges were referred to Crown counsel for approval in 2009 but were never approved, court documents show.
In its response, the province called the Timberwolf lawsuit an abuse of process, alleging that it had been launched “for the purpose of obstructing or delaying an investigation.”
Victoria has asked for the proceedings to be dismissed.