A B.C. Supreme Court judge has decided that MacKenzie Sawmill Ltd., whose Surrey mill was destroyed in a series of fires, has not been “permanently discharged” from its obligations to provide lumber giant Interfor Corporation with wood chips.
The large mill, in the 11700-block of 130th Street in Surrey, went up in flames, taking 120 jobs with it. MacKenzie Sawmill Ltd.’s insurer paid out $20.2 million for the fire losses.
Burnaby resident Rick Anderson, who was a saw filer at the mill, looked on as huge billows of smoke rose from the burning wreck of the second fire.
“This thing ain’t going to stop until it’s to the ground,” he remarked at the time. Bystanders said sparks from a welder’s torch had started the first fire, a couple months earlier, in a chip truck full of sawdust.
In 2006 MacKenzie Sawmill Ltd. entered into a chip supply agreement (CSA) to supply wood chips to Interfor Corporation from its sawmill in Surrey.
“Wood chips are a natural by-product of sawmilling operations and an important input in pulp mill operations,” Justice Geoffrey Gomery explained in his reasons for judgment. “Interfor does not operate a pulp mill, but it is a former owner of the Mackenzie Mill and is contractually committed to supplying wood chips from the Mackenzie Mill to Catalyst Paper Corporation (“Catalyst”) for use in its pulp mill. Interfor entered into the CSA in fulfillment of its contractual commitment to Catalyst.
“The defendants submit that the CSA does not impose on MSL an obligation to rebuild the Mackenzie Mill and start producing chips again, following the fires. I agree,” the judge said. ” That is not the question at hand. The question is whether the contractual obligation persists if there is or could be a new “Mackenzie Mill” to which the CSA would apply.”
The sawmill was built in 1938. Interfor bought it from Fletcher Challenge Canada Ltd. in 1991 under the agreement that it would sell all of the chips produced at the mill to Fletcher Challenge. As Catalyst is Fletcher Challenge’s successor, Gomery noted, the “obligations originally owed by Interfor to Fletcher Challenge under the CPSA are now owed to Catalyst.”
Three fires at the Mackenzie Mill – the first on Nov. 12, 2010, the second on Jan. 25, 2011, and a third on Oct. 31, 2014 – halted production and ruined the mill with the result being that MacKenzie stopped providing wood chips to Interfor, a development which was permitted under a “force majeure” clause.
“Its broader effect and implications, in the circumstances of this case, lie at the heart of the dispute in this case,” Gomery explained.
Gomery noted that while MacKenzie did not rebuild the sawmill, another company or companies associated with MSL’s owners built a new one on site and when that mill began operating its owners “began selling wood chips produced from the new mill’s operations to third parties, at higher prices than those provided under the CSA. When Interfor learned of this, it objected, and this action is the result.”
Interfor sued MSL, the owners and operators of the new sawmill, and other persons alleged to be related to them. The defendants are Mackenzie Sawmill Ltd., Pacific Lumber Remanufacturing Inc., Riverside Forest Products Inc., Riverside Forest Products (2018) Inc., West Rim Fibre Corp., 0761979 BC Ltd., 1162183 BC Ltd., Avtar Sidhu, Rajdeep Singh Sohi. The court noted Sohi incorporated Mackenzie Sawmill Ltd. in 2006, is its sole beneficial owner and he and members of his family own various companies that are named as defendants.
Interfor, the judge noted, maintains “that the CSA continued in force following the fires, and that the new mill’s owners are alter egos of MSL and bound by the CSA accordingly. Alternatively, it claims against the other defendants for conspiracy and inducing MSL to breach its contract with Interfor,” Gomery noted.
The defendants, for their part, sought a court order confirming that MacKenzie Sawmill Ltd. was discharged from all its obligations under the CSA on account of the fires, submitting that the fires that ruined the mill brought MSL’s business to an end.
But Gomery concluded that MSL’s obligations under its agreement with Interfor “were not permanently discharged” by the fires, and while it isn’t obliged to operate the mill and produce chips, if it does “it must sell the chips to Interfor” until the agreement is terminated.