The Hupacasath decision, privatization and Brascan’s big mistake

The story of the dispute about lands near Port Alberni goes like this…

Onceupon a time, in a place very near, the kings representative gives some land to arailroad (E & N) without talkingto the people that lived on that land-the indigenous people.

Theheirs of the railroad get rich selling off the land, often to logging companies.

Fastforward fifty years and the logging company (MacMillan Bloedel) uses the land as collateral for a licencethat gives them access to log a vast area of Crown lands (TFL 44), which theydo.

Fastforward another fifty years and after decades of over logging the loggingcompany decides that it can make more money by selling off the land asrecreational and residential property. They approach the government (NDP) seeking to privatize the lands by removingthem from the licence, but public outcry prevents this, so the companybegins donating huge sums to the opposition party (BC Liberals) and exploring ways to sell its operations.

Itsells out to an American logging giant (Weyerhaeuser), who also seeks to find a way to fully privatize the lands, and continuesto give huge donations to the same party which is now the government.

Itworks. With no public process or consultation the governing party changes thelaws and secretly approves the privatization of the lands.

Theindigenous group (Hupacasath) objectsto the privatization of almost two-thirds of its territory, attempts tonegotiate and ultimately sues.

Tenmonths later the American logging giant sells its operations for $1.2 Billion toa development company (Brascan) whois aware of the legal dispute about the lands.

Theindigenous group wins the lawsuit with the court saying they should have beenconsulted and weren’t, but the new owner says: please it would be unfair to ourpoor shareholders to reverse the privatization.

Several things jump out to me as I reflected on the story inthe days following the Hupacasath BC Supreme Court decision:

Private lands

The court found that the Province had a duty to meaningfullyconsult the affected First Nations about decisions affecting private lands withintheir ancestral territory.

Specifically, thecourt said: “The Crown’s honour does not exist only when the Crown is a land-owner.The Crown’s honour can be implicated in this kind of decision-making affectingprivate land.

This is a huge advance for First Nations. It has thepotential to undermine one of the key terms of reference of the treaty processwhich assumes private land issues are not negotiable.

Brascan’s bigmistake?

The Court-imposed conditions may significantlyrestrict Brascan’s plans for over one-seventh of the disputed lands (10,000hectares of so-called Higher and Better Use lands), that it appears to haveintended to subdivide and sell off as residential development lands. Brascan(through its subsidiary Island Timberlands’) projected sales of lots, from thesenow constrained lands, at $US 11.7 million.

Brascan paid Weyerhaeuser $1.2 billion for its coastaloperations which included the 70,000 ha now in dispute. In the court hearingBrascan representatives acknowledged that:

  • a key factor … in purchasing .. was the prospect of high quality, privately owned timberlands…” ; and
  • “[T]he removal of the privately owned lands from TFL 44 was a critical consideration in its decision to proceed with the transaction.

So Weyerhaeuser has taken their money (perhaps up to $300million) and run. Brascan’s evidence suggests they wouldn’t have offered $1.2Billion or perhaps even agreed to the deal if the disputed lands weren’tincluded.

I hope Brascan’s lawyers included indemnification provisionsinto their deal with Weyerhaeuser to compensate Brascan if the use of the landsbecomes restricted in some way, or if the privatization is reversed on appeal.

If they didn’t include contingencies in the deal to protectagainst what occurred, then I’m sure heads will roll… as Weyerhaeuser laughsall the way to the bank. The failure to forecast and prepare for thisexact predictable decision (if that is the case), is a huge management gaff thatBrascan shareholders should take their officers and directors to task for.

If they did include contingencies to deal with limitationson the disputed lands or the reversal of the prioritization, then thesecontingencies should have been disclosed to the court. Given the arguments thatBrascan made in the hearing, the failure to disclose contingencies (if any)could be a “material nondisclosure” which would lead to heavy sanctions fromthe court.

One should not even contemplate that the dealhad prior approval; obviously, no link to political contributions should besuspected. Political contributions are, naturally, given with no considerationto future favours.

The implications ofincreasing uncertainty on disputed lands

And the problem Brascan now has-the liability attached to these lands-isunlikely to resolve itself quickly.

The court ordered conditions require Brascan to “maintain current access for aboriginal groups to theRemoved Lands,” and require Brascan to give the Hupacasath “seven days notice of any intention toconduct activities on the land which may interfere with the exercise ofaboriginal rights asserted by the HFN.”

These conditions will remain in effect for two years or until the Provincehas completed its consultations with the Hupacasath, whichever is sooner.

Butthe problems created by the BC government’s ongoing refusal tomeaningfully negotiate with First nations about issues affecting theirlands may last much longer.

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