Citing underhanded behaviour by local federal officials in the late 1990s, a judge has awarded a former Watson Lake sawmill company $67 million in damages – plus interest.

"I find that the action of some of the defendant's employees and agents were ‘harsh, vindictive, reprehensible and malicious,'” Federal Court Justice Elizabeth Heneghan wrote in her 391- page decision released last week.

The lawsuit against the federal government was filed nine years ago by South Yukon Forest Products. The 39-day trial was held in 2008 in Vancouver.

The company argued it spent a large amount of money building a sawmill operation in Watson Lake, based on assurances from the Department of Indian and Northern Affairs that it would receive a steady supply of wood for 20 years.

Heneghan indicated while the case was complicated and involved, it boiled down to a simple matter of breach of contract by the federal government.

Federal forestry officials promised South Yukon wood and they didn't deliver. That forced the company to close down its new sawmill operation in August 2000, after 19 months of operation, Heneghan noted in her decision.

"I find that the plaintiffs are entitled to recover their expectation losses from 2001-2020, in the amount of $67,000,000, together with pre-judgment interest as discussed below.

" . . . In the first place, the defendant here in this action failed to provide the wood supply to the plaintiffs pursuant to the promise that gave rise to the contract with the plaintiffs,” the judgment reads.

"Second, there is evidence that servants and agents of the defendant, that is employees of DIAND in the regional office in Whitehorse, were manipulating processes in such a way as to render the wood unavailable to the plaintiffs.”

The judge has invited the parties to provide her with submissions on what would be an appropriate amount of interest over the last nine years, and on legal costs.

Federal spokeswoman Line Gagnon said this morning federal lawyers are still reviewing the decision, so it's too early to say whether there will be an appeal.

Heneghan found that local federal officials were providing incorrect information to the head office in Ottawa.

She also expressed surprise that two former regional directors for DIAND in the Yukon were not familiar with their own forest management plan developed for the forestry branch by a private consulting firm in the early 1990s.

Don Oulton, a South Yukon investor who's been directly involved with the legal proceedings through the years, said once interest and costs are considered, the total amount owed by Ottawa is expected to be about $76.5 million.

Oulton said he has no way of knowing whether Ottawa will appeal, or on what grounds it would, because from the point of view of South Yukon Forest Products, the decision is pretty complete.

"I do not know what they would appeal on,” he said. "Maybe the amount. I don't know, but as far as the facts go, we feel the facts are there.”

Oulton said it's been a long road for the 121 shareholders who invested in the Watson mill believing Ottawa would provide them with 200,000 cubic metres of timber every year – the equivalent of more than 5,000 logging truck loads.

It took seven years just to get to trial, he pointed out.

Oulton said over the years he's carted around 80 boxes of documents to different court appearances in different cities.

"We are lucky we had a couple of shareholders who thought that an injustice had been done and they wanted to see it out, and they had the bankroll to do it,” he said.

Oulton said he knows of a mill in Haines Junction and another one in Watson Lake which were in the same boat as South Yukon but didn't have the financial wherewithal to fight the federal legal machine.

The settlement will now provide the original investors – of whom more than 75 per cent were Yukoners at the time – with a return on their investment, he said.

There are some creditors who are owed money, though Oulton did not want to get into specific details.

In addition to the $67 million in damages, interest and costs, Heneghan ordered Ottawa to pay South Yukon an additional $50,000 in punitive damages.

Punitive damages, she pointed out in her decision, are appropriate when there has been a display of bad faith or misconduct by one of the parties.

Heneghan said given the size of her award for damages, she didn't feel the federal government should have to pay the maximum $1 million allowed for punitive penalties, though the case did call for a punitive penalty.

"The record is replete with evidence illustrating the high-handed, arbitrary and highly reprehensible behaviour by servants and agents of the defendant,” she wrote. "I have already identified several examples of such behaviour.”

The judge indicated it may not have been wise for local federal officials to promise South Yukon a supply of wood in the first place.

"Nevertheless, the defendant made this bargain.” Heneghan said. ". . . Once a contract came into existence between the plaintiffs and the defendant, the plaintiffs were entitled to be dealt with fairly, that is, in good faith. Upon the evidence presented, that was not the case.”

The 1990s were both heady and troublesome times for the logging industry in the Yukon, particularly in the southeast, the heartland of the Yukon's timber resources.

With the promise of a steady supply of wood, many invested in equipment but as the federal forestry branch began to falter in its management of the wood in the mid-1990s, so did private loggers.

Premier Dennis Fentie, for example, was among the casualties, as he was forced to declare bankruptcy.

Frustration mounted to the point where loggers organized public demonstrations to vent their anger with federal forestry officials.

And there still is no logging to speak of in the southeast.

Oulton said South Yukon has not given any thought to restarting milling operations because there is still no ability to secure a long-term wood supply.

The Yukon government inherited responsibility for forest management on April 1, 2003, the date of the transfer of authority over land and resources from the federal government to the territory.

South Yukon lawyer Len Sali said this morning from his Calgary office the legal fees for South Yukon alone are in the millions of dollars.

The federal government has 30 days to file an appeal, and if it doesn't, he expects the settlement will come fairly quickly, he said.

Sali said when dealing with the federal Crown, it's not an issue of whether Ottawa can pay.

Like Oulton, Sali is pleased with what he described as a well-reasoned, thorough decision which addresses the issues that needed to be addressed.