Decision Date: May 28, 2012

Court: BCSC, Johnston

Cite: 2012 BCSC 772

Western Forest Products Inc. (“Western”) appealed a decision of the Forest Appeals Commission (the “Commission”) to the British Columbia Supreme Court. The decision relates to the stumpage rate that Western should pay for harvesting Crown timber in nine cutting permit (“CP”) areas on the West Coast of Vancouver Island near Jordan River. The appeal concerned the interpretation of provisions of the Coast Appraisal Manual (“CAM”). The CAM sets out the policies and procedures that apply to stumpage appraisals in the Coast Region. The CAM is approved by the Minister of Forests, Lands and Natural Resource Operations under section 105(1) of the Forest Act, and has the force of law.

Under the CAM, stumpage rates are affected by variables, and the variable at issue in this case was the selection of the appraisal log dump. The stumpage rates were determined using a version of the CAM that incorporates the market pricing system (“MPS”). The MPS is an equation-based model that uses data from past winning bids for Crown timber sold through a competitive bidding process. Data from competitive timber sales are applied in calculating stumpage rates for timber held under long-term tenures, such as the nine CPs in this case, which are not sold through a competitive bidding process. The truck haul distance is a variable in the MPS equation in the CAM. The truck haul distance variable is the volume weighted average one-way haul distance from the geographic centre of the CP area to the appraisal log dump. The farther the appraisal log dump is by road from the CP area, the longer the truck haul distance. All other variables being equal, the longer the truck haul distance between the CP area and the appraisal log dump, the lower the stumpage rate. The phrase “appraisal log dump” is defined in the CAM, but the parties disputed how that definition should be interpreted and applied for the purpose of selecting the appropriate appraisal log dump.

In this case, Western had proposed that the Shoal Island log dump on the East Coast of Vancouver Island was the appropriate choice of appraisal log dump for the nine CPs, but the Regional Appraisal Coordinator, Ministry of Forests (the “Ministry”), selected the Jordan River log dump as the appraisal log dump. The Jordan River log dump is 70 to 80 kilometres closer to the CP areas than the Shoal Island log dump, and this significantly increased the amount of stumpage that Western had to pay to the Province. The Jordan River log dump is owned by Western, and was used almost exclusively by Western during the relevant time period. Most of the timber harvested from the nine CP areas was hauled to the Jordan River log dump.

Western appealed the stumpage rate determinations to the Commission, on the grounds that the Regional Appraisal Coordinator erred by selecting the Jordan River log dump rather than the Shoal Island log dump as the appraisal log dump. Western submitted that the Jordan River log dump was not a reasonable choice because it was unavailable to any operator other than Western. Western argued that in choosing an “appraisal log dump” as defined in the CAM, the market pricing system requires the selection of the closest log dump by road to the centre of the CP area that is operational and generally available to all licensees, which in this case was the Shoal Island log dump.

The Ministry submitted that the definition of “appraisal log dump” in the CAM provides the Regional Appraisal Coordinator with no discretion when selecting an appraisal log dump. The Coordinator must pick the closest log dump by road to the centre of the CP area, which in this case was the Jordan River log dump.

In Western Forest Products Inc. v. Government of British Columbia (Decision Nos. 2005-FA-002(a), 003(a), 009(a), 010(a), 048(a), 078(a), 131(a); 2006-FA-020(a) and 031(a), issued May 19, 2011), the Commission considered two issues: (1) whether the Regional Appraisal Coordinator exercises discretion when selecting the appraisal log dump; and if so, (2) whether the Coordinator exercised his discretion in an unreasonable manner when he selected Jordan River as the appraisal log dump for the CPs. Applying the principles of statutory interpretation to the relevant provisions of the CAM, the Commission held that the Regional Appraisal Coordinator exercises discretion when selecting an appraisal log dump, and in this case, he exercised his discretion in a reasonable manner when he selected Jordan River as the appraisal log dump.

Specifically, the Commission found that section 4(e) of the Ministry of Forests and Range Act requires the Ministry to assert its financial interests in Crown forest resources in an equitable manner. However, the equitable application of the CAM may result in different stumpage rates for different licensees harvesting different stands of timber from the same general area. The Commission also found that “appraisal log dump” is defined in the CAM to mean the closest site to the CP area that is a functional log dump at the time of appraisal, and is available for use by both a hypothetical market bidder and the affected licence holder. The evidence established that the winning bids at auctions for timber located near the nine CP areas were appraised to the Jordan River log dump despite that fact that those bidders did not use that log dump, and those winning bids were used to develop the CAM equations that applied in this case. There was no reason why a hypothetical winning bidder, participating in a hypothetical timber auction, could not have made a winning bid that took into account the haul distance to the Jordan River log dump.

In addition, the Commission found that section 4.1(1) of the CAM requires the Regional Appraisal Coordinator to select the appraisal log dump that will result in the highest stumpage rate that a hypothetical winning bidder would pay if the timber were sold at an auction. In this case, the Jordan River log dump was the appropriate choice because it was the closest log dump to the nine CP areas that was functional and available to a hypothetical winning bidder at the time of appraisal, and it resulted in a higher stumpage rate than if the Shoal Island log dump was selected. In conclusion, the Commission confirmed the nine stumpage rate determinations.

Western appealed the Commission’s decision to the BC Supreme Court. Western argued that the Commission exceeded its jurisdiction by finding that the Jordan River log dump was the proper appraisal log dump, given that other licensees harvesting timber near the nine CP areas were appraised to Shoal Island, in the absence of a policy or procedure in the CAM that would permit different treatment to similarly situated licensees. Western also argued that the Commission erred in law in concluding that the Jordan River log dump was available to at least one hypothetical winning bidder when there was no evidence to support such a conclusion.

The Supreme Court applied the test set out by the Supreme Court of Canada in Dunsmuir v. New Brunswick, 2008 SCC 9. The Supreme Court also noted that the Supreme Court of Canada’s decision in Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, had seriously weakened Western’s argument that the Commission exceeded its jurisdiction. On the jurisdictional issue, the Court held that the Commission was interpreting its home statutes (the CAM and the Forest Act) and a related statute (the Ministry of Forests and Range Act) when it reached its conclusions about the Regional Appraisal Coordinator’s determinations, and the Commission’s interpretations were well within the range of reasonable outcomes.

Next, the Supreme Court considered whether the Commission erred in law when it found that the Jordan River log dump was available for use by a hypothetical winning bidder. The Supreme Court concluded that the Commission’s finding was reasonable. The Supreme Court found that the Commission’s reasons indicate that it included Western as a hypothetical winning bidder, and it considered that a private forest land owner had occasionally used the Jordan River log dump. The Commission also referred to evidence that the Jordan River log dump was selected as an appraisal log dump for auctioned timber sales that were used to generate the equations in the CAM. The Supreme Court held that there was evidence upon which the Commission could have found that the Jordan River log dump was available to a hypothetical winning bidder, and there was no dispute that it was a functioning log dump. The Supreme Court also held that to exclude Western from consideration as a hypothetical winning bidder would be illogical.

Accordingly, the appeal was dismissed and the Commission’s decision was upheld.