Denman Conservancy Association (DCA) sued 4064 Investments Ltd. for breach of a land purchase contract. DCA asserted that 4064 had been obliged by the contract to place covenants on two areas and, having not done so, proceeded to aggressively log one of those areas. After six years the parties settled this case on November 6, 2006. As a result DCA holds conservation covenants on two large, ecologically valuable areas on Denman Island and has title to an additional 156 acres of land. The settlement land includes a significant wetland and is an important link in a network of already preserved lands and adjacent crown lands. The constant support of the Environmental Dispute Resolution Fund (EDRF) since August 2000 has been a major factor in sustaining DCA’s volunteers through their years of struggle with the case.
Origins of DCA’s Legal Claim
In May 1995 a subsidiary of the Boston-based investment firm, John Hancock Timber Resources Group, purchased forestlands amounting to 30% (1540 hectares) of the land area of Denman Island. In discussions with the new owners DCA pointed out the significant ecological values of two areas in their holdings – the Railway Grade Marsh Complex and the Komas Bluffs. Together the Conservancy and Hancock tried to interest the Pacific Marine Heritage Fund in these areas. The initiative failed when the Heritage Fund decided to focus their efforts in the southern Gulf Islands.
In June 1997 Hancock’s holdings were sold to intermediary companies, which then immediately “flipped” the holdings to 4064 Investments Ltd. A condition of the sales contract binding all these purchasers was that best commercial efforts were to be made to place covenants on the Komas Bluff and the Railway Grade Marsh Complex. Mike Jenks was the logger and operator for 4064 Investments.
DCA and the Islands Trust Fund developed covenant texts and met with Mike Jenks on issues related to the covenants from fall 1997 to April 2000. With the exception of a few stray clauses, Mike Jenks had all but agreed to the text of the covenants when he cut off negotiations with DCA and the ITF.
During this time the Islands Trust, responding to the clamour from the Island community, made extensive efforts to mitigate the effects of 4064’s wholesale clearcutting by creating regulations to protect sensitive areas such as steep slopes and riparian areas and also by specifying logging practices that would maintain a viable forest. 4064 challenged all these regulations in the courts. The outcome was that the regulation of logging practices was found to be beyond the authority of the Islands Trust.
Sometime in the second week of July 2000, 4064 began logging within the specified 20-metre covenant setback area of the Railway Grade Marsh. The covenants required by the purchase contract had not been put in place, but until this time the riparian area adjacent to the marsh had been left untouched.
On July 17, 2000, DCA contacted the John Hancock company asking them to enforce their contractual rights to stop the logging. Though Hancock contacted Jenks, the logging did not stop until July 20 after approximately 80% of the standing timber within the 20-metre setback was felled. Since 4064 forbid DCA to enter and inspect the prospective covenant area, DCA chartered a private plane to fly over the area while logging was in process and a DCA Board Member documented the damage with photographs. These graphic aerial photos of scarred and naked brown earth strengthened the DCA’s resolve to seek justice in this matter.
The damage was further documented by a ground crew of volunteers who counted, measured and identified the species and age of every stump. The data was subsequently analysed by a professional forest analyst who calculated the amount of timber removed and its market value. On two occasions in the next few years, the Legal Committee documented by video and still photography further damage to the area by logging incursions. (The perpetrators of that logging were never identified.)
At the time of the logging in 2000, Hancock declined to enforce its contractual rights, but offered to assign those rights to DCA. West Coast Environmental Law staff suggested that DCA apply for funding through the Environmental Dispute Resolution Fund (EDRF) to carry the case forward. In August 2000 our lawyer, Doug Olstead, did initial research on the case. He concluded that there was a viable Cause of Action based on a Breach of Contract and that the potential benefits could include: (1) recovery of the monetary value derived from the logging; (2) an order to place the covenants on the lands including Komas Bluff; (3) costs associated with remediation of the damaged covenant area.
DCA Decides to sue 4064
In mid-2001, DCA was seeking a litigation lawyer and the WCEL recommended Kathryn Chapman of Arvay Finlay – Barristers in Victoria, who agreed to take on the case at reduced rates, and also, on occasions, pro bono (for free). Kathryn and successive lawyers were warned that, as her client was an organization, there would be some delays in decision-making. Decisions made by the Legal Committee would be by a consensus process and some decisions would require a vote at a General Meeting of the Society.
|EDRF Grants– Aug. 2000 $2500 for research on Cause of Action
– mid. 2001 $3,800 2nd opinion on Cause of Action
– June 2002 $9000 to pursue the mediation option
– Sept. 2003 $5000 Security for Costs
– July 2004 up to $18,146 to complete the case with DCA paying 50% of all costs
Katherine prepared a second opinion on the merits of the proposed Cause of Action. This opinion was completed in April of 2002. DCA filed a Writ of Summons and a Statement of Claim in the Supreme Court of British Columbia on June 25, 2002. Filing was required at this time to meet the statutory time limits for parts of the claim.
DCA received a further grant in June 2002 to pursue the mediation option suggested by Kathryn Chapman. This grant provided for further legal work and also funds to hire expert witnesses. The expert’s opinions would be part of the mediation brief drafted by Kathryn and could also serve as the basis to proceed to litigation if warranted. Through all this time there were legal costs not covered by the grants as well as a DCA contribution to costs incurred in the work covered by the EDRF grants so that overall about half the cost of the legal work was paid for by DCA.
The resident community on Denman Island numbered about 1000 in the year 2001 census. By the size of its membership from that population base it was apparent that the community strongly backed the DCA. Nevertheless the DCA Board embarked on the uncertain voyage of a legal suit with much concern about the level of support of its members. The DCA Constitution requires that any expenditure of over $10,000 be approved by a 2/3 majority of members at a General Meeting.
About 45 members gathered on the evening of March 24, 2003 for a Special General Meeting called to approve launching the litigation. A very attentive audience was led through the issues and especially the risks entailed. The address by the lawyer, Katherine Chapman, with a balance of caution and optimism about the prospects of the case, convinced the membership that she had the organization’s interests at heart. The Resolution was passed authorizing commencement of litigation with the aim of, if possible, getting a mediated settlement. Proceeding to trial would require approval at a further meeting, though the Board was authorized to accept a settlement that could be reached in mediation.
The Action Starts – Security for Costs
Writs were served on 4064 Investments Ltd., associated companies and Mike Jenks in June 2003; at the same time Certificates of Pending Litigation (CPLs) were filed on the titles of the various parcels within the covenant areas.
|The Defendents4064 INVESTMENTS LTD.
NORTHLAND DEVELOPMENTS LTD.
COAST MOUNTAIN ENTERPRISES INC.
Litigation lawyer Brent Lokash represented defendants 4064 Ltd. and Mike Jenks. (It is noted that in the years 2000 – 01 Mr. Lokash, representing 4064, had successfully challenged the Islands Trust Bylaws that had tried to limit logging practices on the Island.) Statements of Defence were received and lists of documents were exchanged. DCA then received notice from the defendants of a Security For Costs (SFC) Application. A hearing date was set for September 9, 2003 at the Victoria Courthouse.
|Certificate of Pending Litigation (CPL)A CPL may be registered on the Title of a property that is the subject of a legal claim. It warns any potential buyer of the potential claim against the land.Security for Costs Defendants that believe their costs may not be reimbursed, despite their being awarded costs after winning the case, can apply to the court for Security for Costs. For instance, this could occur if the party suing them was a small, impecunious organization that could simply fold if it lost the case.|
Conservancy meetings are generally held in the Old School on Denman, a building that dates from 1912. The room is little changed from its utilitarian origins. The walls feature blackboards and painted wood. Uninsulated, the room is either too hot or too cold. Fluorescent lights glare down from the high ceiling
The DCA Board convened an Extraordinary General Meeting on September 3, 2003 to inform the membership of the SFC application. Special resolutions were passed, to defend against the SFC application and to authorize the posting of a sum of up to $120,000 as security, if required.
On the day of the hearing the Legal Committee caught an early ferry off Denman Island, as it had a number of times during the life of the legal case, and drove to Victoria. It would be the first test of DCA’s case before a judge with the need to put up a $120,000 bond at stake. But no hearing was held. Instead, the second floor foyer of the Court House became the stage for a tense choreography among the lawyers. A number of offers and counter offers whipped back and forth. With the clock relentlessly advancing as the case steadily inched up the docket before the judge (who was an unknown quantity to the DCA lawyers and whose ruling was unpredictable), an albeit uncomfortable and not completely satisfactory agreement was reached by the parties on the proverbial “court house steps.”
DCA agreed to put up to a total of $100,000 as security in a stepwise fashion as the case progressed. The funds would be secured through a consent order with an undertaking by the DCA solicitor Doug Olstead. This arrangement had less financial downside than had the funds been held by the Court. In return, 4064 acknowledged certain important legal technicalities relative to its contractual responsibilities in the case that would have served DCA had the case proceeded to trial. It was hoped, perhaps naively, that the settlement of the SFC would create goodwill among the parties in preparation for anticipated mediation with 4064, an outcome that did not materialise.
This all begs the question: How is it that DCA happened to have $100,000 to use as security? The DCA possessed securities to this value as a result of fundraising for its attempts to purchase the Chickadee Lake parcel from 4064 Investments. Via two direct purchase offers and two subsequent settlement offers of the legal case, by 2003 DCA had been able to offer somewhat more than the appraised value for this property; however, the company was unwilling to deal. In the early offers made prior to the serving of the writ against 4064, the company was unaware of the pending lawsuit.
Some of the 4064 Lands are Sold
May 1995 John Hancock Timber Resources bought Denman forestlands
In March 2004, 4064 agreed to sell a portion of the land covered by DCA’s CPLs to a resident of Swann Road on Denman Island who is a member of the DCA. The land she purchased is adjacent to her original property. The purchase agreement required subdivision of existing parcels and specified a clear title would be delivered. On being asked by the 4064 lawyer to lift the CPLs from that property to clear the title, DCA offered to lift them if a security deposit of $100,000 was made by 4064 to offset the loss of protection of DCA’s claim. There was no reply to this offer. It would be two and a half years before this purchaser would get possession of all her land.
On May 18, 2004 the Legal Committee went to Victoria to meet their newly appointed lawyer, Lewis Harvey. DCA’s first litigation lawyer Katherine Chapman had been on medical leave for some time and, in the interim, junior lawyer Robin Gage had been ably looking after the file. On Lewis Harvey’s advice DCA’s Statement of Claim was revised to focus it on the key elements. Through the summer work continued towards the Discovery stage where key witnesses are examined by opposing lawyers.
4064 Looks for Solutions
In late October a company belonging to Mr Ghog retained Mr Tim Hicks, a professional mediator resident on Denman Island. (4064 Investments Ltd. was, at the time owned by two partners: Messrs Jenks and Ghog). Mr Hicks’ assignment was to assess the feasibility of a ‘Collaborative Negotiation’ between the community and 4064 to rezone the 4064 lands at higher density in exchange for the dedication of a substantial part of the land for community purposes. An important part of the land under discussion was the subject of DCA’s lawsuit. Mr. Hicks found that the community was not ready to undertake such negotiations. Many in the community believed that nothing could happen with the 4064 lands until, at minimum, 4064 showed that it was willing to resolve the lawsuit.
Examinations for Discovery were scheduled and rescheduled through the later part of the year as efforts were made by our lawyers to keep the case moving. Finally Robin Gage had to cancel once again as she went into early labour, giving birth to a son.
In late December 2004 Hans de Visser, an employee of Mr. Ghog met with the DCA Legal Committee to gain an appreciation of DCA’s position. He subsequently arranged a public meeting with the community on Denman Island, in January 2005, where the views previously collected by Mr Hicks were confirmed.
Some Denman Residents aim to Buy the Land
The company, 4064, appeared to now decide on a new course of action. On March 16, 2005, Henning and Tomas Nielsen asked for a meeting with the DCA Legal Committee. The Nielsens told the committee they and their financial backers had an agreement to buy all 4064’s land north of Denman Road, subject to their being satisfied that the DCA lawsuit would be resolved in an acceptable manner. The Legal Committee provided the Nielsens with DCA’s principles for an acceptable settlement and Mr. Nielsen said he would come back with a settlement offer.
There was a question about negotiating a settlement of DCA’s law suit with a third party and so DCA’s lawyer was asked to obtain a copy of the sales agreement from 4064. Some of the agreement was confidential, but the Legal Committee received assurance that they could negotiate with the Nielsens in good faith, that they were, in fact, legitimate prospective purchasers of the lands.
DCA knew that the land development plans of Mr. Nielsen’s group would be highly controversial within the Denman community. Given this, the Legal Committee would only negotiate as long as the Nielsens would agree to certain conditions. For example, it was understood that during the negotiations, DCA would not discuss nor take a position on any development plans the purchaser had for the 4064 lands and would confine itself solely to obtaining a fair settlement of its legal claim against 4064 Investments Ltd.
At this time there was again a change of DCA’s litigation lawyer. Lewis Harvey had left Arvay Findlay and the firm offered Cathie Parker as replacement. However Arvay Findlay was itself downsizing and Cathie was joining with other partners to create a new firm. The Legal Committee began to prepare for a meeting with Cathie Parker to brief her on the case, given that there were several thick binders full of documents and notes, and to prepare for next steps in the litigation. One concern, that of the funding from West Coast Environmental Law’s Environmental Dispute Resolution Fund (EDRF) was laid to rest as it was determined that the Fund was agreeable to Cathie’s firm, Underhill, Falkner, Boies Parker – Barristers serving as DCA’s lawyer. In addition, Cathie said that she was willing to work at WCEL’s pay rate and would be with DCA’s case “to the end.”
On April 5, the Nielsens submitted a settlement offer by e-mail. The Legal Committee thought it fell short in several areas. Covenants would be placed, but the proposed covenants on the Komas Bluffs would be weaker even than the restrictive covenants required by the original purchase agreement between Hancock and 4064. In the case of the Railway Marsh Complex, no compensation for the damaging logging was offered. The only compensation offered was the right to purchase two 80-acre parcels of land at approximately market value.
Conditional Settlement Agreed
In a series of meetings and exchanges between the Legal Committee and the Nielsens an agreement was reached. It would be tedious to recount the details but the scope of this task might be conveyed by the report of one member of the Legal Committee that “between 1st and 15th July there are 92 e-mails in my inbox dealing with Legal Committee business.” The settlement of DCA’s suit against 4064 would be conditional on the completion of the sale of the lands to Mr Nielsen and his partners.
On 18th August DCA wrote to Mr Nielsen expressing concerns about the practicality of his anticipated time-line for all the work to be done before closing, especially Agricultural Land Commission (ALC) approvals and surveys. On 19th he replied that the vendors had agreed to delay closing until the ALC process had been completed. (The Land Commission’s approval is required for conservation covenants on Agricultural Reserve land.) On Friday, September 9th, DCA and Mr Nielsen signed a five page Memorandum of Agreement. It was draft #14.
In essence, the agreed settlement included registration of conservation covenants on the Railway Marsh lands and on Komas Bluffs (the subject lands of the lawsuit, with the exception of the parcel sold to the Swann Road resident), and the donation to DCA of two parcels of land totalling 156 acres to the north of the Inner Island Nature Reserve on Central Road. DCA’s solicitor, Doug Olstead, was to draft the covenants. Each of the parties to the suit would absorb their own legal costs.
Drafting the Covenants
An outline of the covenant conditions was included in the Memorandum, but now came the quite difficult task of agreeing on the specific terms of the covenants. Most contentious was the Komas Bluff covenant where the original terms written into the John Hancock sales contract with 4064 allowed … “pruning, trimming, cutting or the removal of living or dead trees or other vegetation for the purpose of improving sight lines for dwellings situate on lands outside of agreement area…” A survey of each of the two covenant areas was required, and though the general layout was defined, agreement in the field about the location of the edge of a marsh or the crest of a bluff caused some interesting discussions. A baseline ecological survey of the two covenant areas was also required. The MOU called for the survey of the lands and the covenant documents to be completed by October 28, 2005.
In October, such progress had been made that the Nielsen group completed the purchase of those of the 4064 properties not subject to DCA’s CPLs. However the covenant texts were far from completely agreed upon and a complication arose that would further delay the completion of the work. The completion of the survey of the Komas Bluff covenant area was contingent on the subdivision of lands required for the Swann Road resident’s purchase. That subdivision was still far from final approval.
In mid December there were just two key points of the Railway Marsh covenant text outstanding, but still many issues unresolved in the Komas Bluff document. The Legal Committee met with Mr Nielsen and his group for discussion of the outstanding covenant issues on Thursday 22nd December. A basis for agreement was found, though the many small details took numerous further exchanges before all were agreed.
The completed draft of the covenants was provided to Mr Nielsen on January 31, 2006 and the draft package of covenants and supporting documents was submitted to the Land Commission shortly after. The Commission’s approval was released on April 6. There remained some adjustments to the covenants regarding liability insurance and the matter of the subdivision of land for the sale to the Swann Road resident, which was still lacking Islands Trust approval in May.
More Delays before Final Settlement
Robin Gage had now returned to the case, working part time for Underhill Falkner Boies Parker. Then arose a further complication that was to delay completion for several more months. The settlement agreement and the Nielsen’s purchase of 4064 lands were linked by the lifting of the CPLs that DCA had placed on the land titles. Each of the transactions was contingent on the completion of others. The plan was that all the transactions would be completed on the same day. The one that did not conform to this plan was the subdivision and subsequent transfer of that land’s title. The land transfer was not acceptable to the lenders without the new titles being designated, a step that the Land Title Office took a number of days to complete.
A further web of agreements was necessary to protect all interests during the hiatus between the subdivision and completion of the settlement. DCA’s protection included a new CPL, the solicitor’s undertakings and a $75,000 security posted by 4064.
On the 21st September the first step, the subdivision and replacement of a CPL on the residual parcel was completed. Raising the titles took the Land Title Office another two weeks. It still took quite some further time to get all the documents in order.
On November 6 the CPLs came off, titles to the settlement parcels were transferred to DCA and covenants went on the Railway Marsh and Komas Bluff properties.
There remained just a few loose ends to tidy up: a charitable receipt, tax issues, authorization from the Surveyor General to hold Statutory Rights of Way, Consent Dismissal of Action and accounting.
The Denman Conservancy Association is most grateful to the Environmental Dispute Resolution Fund of West Coast Environmental Law Association for their financial contributions, to the two law firms Arvay Findlay – Barristers and Underhill, Falkner, Boies Parker – Barristers who worked for substantially reduced compensation and to our solicitor Doug Olstead who donated his time to support the DCA from beginning to end. Finally the DCA acknowledges the skill, tenacity and dedication of the members of the Legal Committee who persevered with the work for over six years through setback upon setback until completion.
Legal Committee Members
Juan Barker July 2000 – present
Des Kennedy July 2000 – Mar 03
Roxanna Mandryk Apr. 03 – present
John Millen Apr. 02 – present
Patti Willis July 2000 – present
Susan-Marie Yoshihara Apr. 03 – Aug. 05
Copyright 2006 Denman Conservancy Association