Forests Ministry investigators battle log broker

A provincial forestry officer over-stepped his authority when he obtained search warrants during an alleged fraud investigation involving millions in unpaid logging royalties, a judge has ruled.

A provincial forestry officer over-stepped his authority when he obtained search warrants during an alleged fraud investigation involving millions in unpaid logging royalties, a judge has ruled.

Daniel Smallacombe also failed to provide “full and frank disclosure,” when he applied for the four warrants during the Campbell River investigation, said Justice Miriam Gropper of the B.C. Supreme Court.

“I consider that the information that Mr. Smallacombe did not disclose was of fundamental importance…” the judge wrote in a judicial review handed down Monday in Vancouver.

At the centre of the Ministry of Forest’s investigation is Timberwolf Log Trading Ltd., a log broker with offices in Nanaimo and Vancouver. The company also operated two licenced log scaling sites on Northern Vancouver Island, including one at Menzies Bay located north of Campbell River, and provided contracted scalers for a third site.

(Timberwolf Log Trading is in no way associated with Timberwolf Tree Services of Campbell River.)

According to court documents, the ministry alleges Timberwolf did not accurately report the true value of scaled logs it received between April 1, 2006, and Dec. 31, 2008.

Following an investigation by the Forests Ministry, officers recommended that Timberwolf be charged with fraud over $5,000. However, in September 2010, provincial Crown counsel declined to do so and Timberwolf was never charged nor do they face any criminal charges.

The Issue

According to online documents from the B.C. Ministry of Finance, Timberwolf Log Trading owes the province $3.2 million in stumpage royalties. As well, the payment has been outstanding for more than 84 days.

The money owed is close to the reassessed stumpage royalty – including a 25 per cent penalty – of $3.44 million. That bill was assessed to Timberwolf following the ministry’s investigation of allegations and subsequent audit of documents and records, including those improperly seized during the searches in Campbell River.

Beginning in 2008, the ministry’s investigation ramped up. From January to May, investigators conducted “check scales” on seven different log booms at Timberwolf’s Menzies Bay log scale and sort.

The rescaling of the booms allegedly revealed significant inaccuracies in the log grading. At the first supreme court judicial review last spring, Justice Catherine Wedge heard from the Crown that, “According to the check scales, of approximately 3,600 logs, almost 1,400 had been inaccurately reported at the lower grade.”

And the difference between a prime log and a low-grade log is substantial. Old growth cedar, Douglas fir and hemlock command more than $30 in government royalties for every cubic metre logged, compared to 25 cents per cubic metre for low-grade logs.

As a result of their alleged findings, forestry officer Daniel Smallacombe – apparently acting under the direction of Daniel Steel, a senior investigator and special constable with the ministry – applied for warrants to search the business premises of scalers and other contractors who worked for Timberwolf. They included Pioneer Scaling and Inventory Management, BC Log Inventory Services, and James Simon.

The investigators never asked for warrants to search Timberwolf’s offices. Timberwolf’s lawyers also told Justice Wedge there are often discrepancies in timber royalty estimates, and also suggested the ministry’s scalers made errors of their own.

The Legal Battle

After the searches were carried out, hundreds of pages of written documents and electronic data were seized by investigators. This information, combined with the previous investigations provided the auditors with the information they required to recalculate the stumpage fees.

At the time, Timberwolf was well aware of the investigation as well as the searches of their contractors. Company representatives were also approached by Graeme Jacques, a forestry revenue official who carried out the audit, to explain the alleged discrepancies.

However, the company declined to do so.

“For reasons best known to Timberwolf, it declined to provide the scaling records in its possession…” wrote Justice Wedge.

At the first judicial review, Timberwolf lawyers questioned the fairness of the ministry in the audit process and claimed they were not provided with adequate time to respond to the allegations.

On April 10, 2010, Justice Wedge dismissed their application, but pointed out the company had other options to appeal the ministry’s decision.

Last December though, Timberwolf filed another petition for judicial review with the supreme court. This time their lawyers questioned the four tele-warrants. As well, in January, Timberwolf challenged the first ruling in the B.C. Court of Appeal and that decision is still pending.

As for the warrants issued to officer Smallacombe, he was in Port McNeill at the time, and because there wasn’t a sitting judge in nearby Port Hardy, he called a judicial justice of the peace to get approval.

But Timberwolf lawyers argued that Smallacombe had no authority to obtain tele-warrants in regard to an alleged fraud under the criminal code, and the judge agreed.

“…Mr. Smallacombe is not a constable or a peace officer, and his powers are more limited than those of a game warden…” wrote Justice Gropper.

Smallacombe also failed to make notable disclosures to the judicial justice of the peace, including discussions he had with Timberwolf representative Steve Jeffrey.

As a result, Justice Gropper quashed the four warrants issued in July and August 2008.

Representatives from both Timberwolf and the Ministry of Forests did not respond in time to interview requests prior to the Mirror’s deadline.

Next week, Part 2: Learn how some forest companies avoid paying full stumpage royalties and why this can happen in B.C.