Decision Date: May 19, 2011

Panel: Alan Andison

Keywords: Forest Act – ss. 105(1), 105(2), 148.6; Ministry of Forests and Range Act – s. 4(e); stumpage rate; appraisal log dump; truck haul distance; discretion; admissibility of evidence

Western Forest Products Ltd. (“Western”) appealed nine separate stumpage rate determinations issued between September 2004 and May 2006 by the Regional Appraisal Coordinator (the “Coordinator”), Coast Forest Region, Ministry of Forests (the “Ministry”).  The determinations applied to sawlogs harvested under nine cutting permits (“CPs”) located within Western’s tree farm licence (“TFL”) 25, near Port Renfrew on the west coast of Vancouver Island.  The appeals concerned the selection of the appraisal log dump in calculating the stumpage rates for the CPs.

The Coast Appraisal Manual (“CAM”) sets out the policies and procedures that apply to stumpage appraisals in the Coast Region.  The stumpage determinations were issued under the 2004 version of the CAM that, for the first time, incorporated the market pricing system (“MPS”) into all stumpage appraisals on the Coast.  The MPS is an equation-based model that uses data from past winning bids for Crown timber that was sold through a competitive bidding process.  Data from competitive timber sales are applied in calculating stumpage rates from timber held under long-term tenures, such as TFL 25, which are not sold through a competitive bidding process.  The truck haul distance is a variable in the MPS equation in the CAM for calculating stumpage rates.  The truck haul distance is the volume weighted average one-way haul distance from the geographic centre of each part of the CP area to the appraisal log dump.  Thus, calculating the truck haul distance requires the selection of an appraisal log dump.  The farther the appraisal log dump is by road from the CP area, the longer the truck haul distance.  Truck haul distance is a negative factor in the equation used to determine stumpage rates, and therefore, a longer truck haul distance will produce a lower stumpage rate, assuming the other variables remain constant.  The phrase “appraisal log dump” is defined in the CAM, but the parties disputed how that definition should be interpreted and applied.

Western appealed on the grounds that the Coordinator erred by using the Jordan River log dump rather than the Shoal Island log dump, located near Chemainus, as the appraisal log dump for the purpose of determining the stumpage rates for the nine CPs.  The Jordan River log dump is located near Port Renfrew, is owned by Western, and was used almost exclusively by Western during the relevant time period.  There was no dispute that the Jordan River log dump is closer by road to the nine CPs than the Shoal Island log dump, and that most of the timber harvested from the nine CPs was hauled to the Jordan River log dump.  However, Western submitted that the Jordan River log dump was not a reasonable choice of appraisal log dump for the CPs because it was not available to any operator other than Western.  Western argued that in choosing an “appraisal log dump”, as defined in the CAM, the MPS principles that inform the CAM require 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 is the Shoal Island log dump.

The Government submitted that the definition of “appraisal log dump” in the CAM is clear, and it provides the Coordinator with no discretion when selecting an appraisal log dump.  The Coordinator must simply pick the closest log dump by road to the centre of the CP area, which in this case is the Jordan River log dump.

The Commission considered two issues: (1) whether the 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 nine CPs.

During the hearing of the appeals, the Commission also made a number of oral rulings on the admissibility of certain evidence, and those rulings were discussed in the written decision.

The Commission found that the courts have held that the CAM is akin to subordinate legislation, and therefore, the CAM must be interpreted in accordance with the principles of statutory interpretation.  The Government’s witness, a Ministry forester who is responsible for drafting the CAM, provided testimony about his intention in drafting the definition of “appraisal log dump”.  Western objected to that evidence.  The Commission held that his evidence was admissible under section 148.6 of the Forest Act, but it gave no weight to the evidence of his intended meaning of “appraisal log dump”, because the CAM is approved by the Minister, and the Minister’s intention must be determined from the words in the CAM, read in their ordinary sense harmoniously with the scheme and objects of the CAM and its parent legislation.  Applying the principles of statutory interpretation to the definition of “appraisal log dump” in the context of the CAM, the Commission held that the Coordinator exercises discretion when he or she selects the appraisal log dump for a CP.  The Commission found that there is no list of appraisal log dumps in the applicable versions of the CAM, and the definition of “appraisal log dump” does not dictate which sites may be considered as options for appraisal log dumps.  The Coordinator considers information that is not provided in the CAM regarding potential log dump sites, and the Coordinator selects from potential log dump sites based on his or her professional knowledge about timber harvesting and transport processes.

Regarding the second issue, the Commission held that certain evidence Western sought to admit, which was challenged by the Government, regarding the MPS and the CAM, was admissible under section 148.6 of the Forest Act, but it gave little weight to most of that evidence because it was of limited relevance.  The Commission gave more weight to Western’s evidence that provided an overview of the MPS and how it was developed.  However, none of the evidence specifically addressed the selection of the appraisal log dump for the purpose of calculating the truck haul distance under the relevant version of the CAM.  The Commission gave little weight to the witnesses’ opinion evidence about how the CAM should be interpreted, because it is the Commission’s role, and not the role of witnesses, to interpret the CAM.

The Commission then considered the language in the relevant provisions of the CAM, as well as the applicable case law and legislation.  The Commission found that section 4(e) of the Ministry of Forests and Range Act requires the Government to assert its financial interests in its forest resources in an equitable manner, and to apply the policies and procedures in the CAM in the same way to all licensees.  However, the equitable application of the CAM may result in different stumpage rates for licensees harvesting different stands of timber from the same general area.  In addition, the Commission found that the CAM contains two primary constraints on the selection of an appraisal log dump: (1) the definition of “appraisal log dump”, which indicates that the appraisal site must be a “log dump” and must be the closest one to the CP area; and (2) section 4.1(1) of the CAM, which indicates that stumpage rates must be determined in a manner that produces the highest stumpage rate for the CP area.

In the context of the CAM which is based on the MPS, the Commission interpreted the definition of “appraisal log dump” to mean the closest site to the CP area that was a functional log dump at the time of appraisal, and was available for use by both a hypothetical market bidder and the affected licence holder.  The evidence established that the Jordan River log dump was functional at the time of appraisal, and that the actual winning bids for timber near Port Renfrew which were used to develop the MPS equation in the CAM, were appraised to the Jordan River log dump, despite that fact that those bidders did not actually use that log dump or haul their logs to it.  Regarding Western’s nine CPs, the evidence indicated that the Jordan River log dump was functioning and available to Western and its affiliated companies at the time of appraisal.  The Commission held that, if the timber in TFL 25 was, hypothetically, sold through a competitive bidding process, at least one hypothetical winning bidder would have been in Western’s position in terms of having access to the Jordan River log dump.  There was no reason why a hypothetical bidder, participating in a hypothetical timber auction, could not have made a winning bid that took into account the truck haul distance to the Jordan River log dump.

Section 4.1(1) of the CAM requires, in the context of the MPS and when dealing with timber held under a long-term tenure, that the Coordinator select the appraisal log dump that will result in the highest market stumpage rate that a hypothetical winning bidder would pay, if the timber was sold through a competitive auction.  In this case, the Jordan River log dump was the appropriate choice because it was the closest log dump to the nine CPs that was functional and available to a hypothetical winning bidder at the time of appraisal, and it results in a higher stumpage rate than if Shoal Island was selected as the appraisal log dump.  Consequently, the Commission concluded that the Coordinator exercised his discretion in a reasonable manner when he selected Jordan River as the appraisal log dump for the nine CPs.

Accordingly, the appeals were dismissed.