Decision Date: September 8, 2015

Panel: Jeffrey Hand, Maureen Baird, Q.C., Howard Saunders

Keywords: Forest Act – ss. 105(1); Interior Appraisal Manual – s. 3.1; stumpage rate; log transport; lake tow; appraisal transportation route; log dump

Canadian Forest Products Ltd. (“Canfor”) appealed nine stumpage rate determinations issued between December 20, 2013, and June 13, 2014 by an employee of the Ministry of Forests, Lands and Natural Resource Operations (the “Ministry”). The stumpage rates applied to timber harvested by Canfor under cutting permits (“CPs”) issued under a forest licence. Stumpage is a fee paid to the government for harvesting Crown timber. In determining stumpage rates for timber harvested in the Interior Region, the Ministry must apply the policies and procedures set out in the Interior Appraisal Manual (“IAM”). These appeals raised issues regarding the proper interpretation and application of provisions in the IAM that address the log transportation costs that applied in calculating stumpage rates for the CPs. Specifically, the issue was whether the stumpage rates should be calculated based on “lake tow” (i.e., log transport on a vessel or by boom and tow) as the primary log transportation, or alternatively, based on truck haul as the primary log transportation. Lake tow was a lower cost transportation method than truck haul, and therefore, lake tow produced a higher stumpage rate.

Canfor operates a sawmill in Mackenzie, not far from the eastern shore of Williston Lake. The CPs authorize Canfor to harvest Crown timber in areas located five to fifteen kilometres from the western shore of Williston Lake. The Manson log dump, which is within Canfor’s operating area, has been an access point to Williston Lake for log transport since the 1970’s. In 2004, Canfor acquired the Williston Transporter (the “Barge”), a self-propelled barge built in 1995, which can carry timber across Williston Lake year-round. The Barge operated out of many log dump sites around Williston Lake, including the Manson log dump. Canfor operated the Barge continuously between 2005 and 2007. In the fall of 2007, logging and sawmill operations in the Mackenzie area ceased for economic reasons, and Canfor anchored the Barge. Canfor intended to reactivate the Barge in the future, and conducted basic maintenance on it while it was anchored. Meanwhile, Canfor maintained its licence of occupation over Crown land at the Mason log dump, but performed no maintenance there.

In or about 2009, Canfor resumed harvesting in areas around Mackenzie that were within short truck hauling distances to the sawmill. In 2012, Canfor began to consider harvesting in more distant areas, including an area adjacent to the Manson log dump.

In 2013, Canfor applied for the CPs. The appraisal data that Canfor submitted to the Ministry with its applications for the CPs indicated truck haul as the log transportation method all the way from the CP areas to the sawmill in Mackenzie. In 2013, Canfor also started planning to have the Barge back in service by September 2015.

In October 2013, Canfor formally requested that the District Manager of the Ministry’s Mackenzie District deem the Manson log dump to be “unsuitable” as a log transportation route, pursuant to section 3.1(3) of the IAM. Section 3.1(1) of the IAM provided that the licensee “must submit an appraisal data submission that is capable of being used by the person who determines the stumpage rate… in a manner that will produce the highest stumpage rate.” Thus, regardless of the licensee’s actual method of transporting logs, the method that produced the highest stumpage rate would be applied when determining the stumpage rate. However, section 3.1(3) of the IAM contained an exception, whereby the District Manager could determine that a transportation route was “unsuitable” based on four criteria. In this case, lake tow would produce the highest stumpage rate, but Canfor submitted that truck haul should be the primary transportation method because the Manson log dump was unsuitable until either the Barge was operational or suitable infrastructure for towing was installed.

In November 2013, the District Manager decided that the Manson log dump was suitable as a log transportation route involving lake tow, for the purposes of determining stumpage rates for the CPs. The Ministry directed Canfor to re-submit its appraisal data based on truck haul as the log transportation method from the CPs to the Manson log dump, and lake tow as the log transportation method from the Manson log dump across Williston Lake. Canfor complied with that request, but objected to the District Manager’s decision on suitability. The Ministry determined the stumpage rates for the CPs based on Canfor’s re-submitted data, with lake tow as the log transportation method from the log dump across Williston Lake.

In 2014, Canfor appealed the stumpage determinations on the basis that transport of the logs by water via the Manson log dump is “unsuitable” within the meaning of section 3.1(3) of the IAM. Canfor submitted that, in order for the Manson log dump to be suitable, it must actually be ready for use, and it was not ready for use when the stumpage determinations were issued.

Meanwhile, during 2014, Canfor retained an engineer to advise it on the work necessary to bring the Manson log dump back into service for use by the Barge. The engineer’s recommendations included re-grading the ramps to the foreshore that had eroded, installing rock along the shoreline to prevent erosion, and expanding the site’s log storage area. In January 2015, Canfor obtained the permits necessary to resume using the Manson log dump. During 2015, Canfor conducted work at the log dump, with the intention of beginning to use the site with the Barge in September 2015.

The nine appeals were heard together. In deciding the appeals, the Commission considered several issues. The main issue was whether the Manson log dump was unsuitable for water transportation when the stumpage determinations were made, pursuant to section 3.1(3) of the IAM. The other issues included whether the District Manager’s decision regarding the suitability of the Manson log dump was inconsistent with the object and purposes of the IAM.

The Commission rejected Canfor’s argument that a log dump must be ready for use in order to be suitable. Rather, the Commission found that suitability is achieved if the site possesses physical characteristics that make it capable of being put into use without extraordinary effort or expense. Based on the evidence, the Commission found that the Manson log dump still possessed the physical features that made it suitable as a log transportation route in the past, including roads connecting it to surrounding harvesting areas, a scale for logging trucks, a log storage area, ramps leading to an area capable of use by loading machines, and water depth and a foreshore configured to allow the Barge to access the foreshore. The Commission also found that, despite some erosion, the overall physical condition of the site in 2013/2014 was unchanged compared to when it was in use. Although there had been erosion since the site was last used in 2007, this erosion was no different in character than the erosion that occurred when the site was in use, even if the cumulative effect was greater due to the deferral of maintenance. Canfor did not need to take extraordinary measures to return the site to operating condition. Most of the work that Canfor’s engineer had recommended was for the purpose of making the site more efficient, and not to make the site safe for use.

The Commission also found that the availability of the Barge was irrelevant to determining the suitability of the Manson log dump as a log transportation route, because the criteria in section 3.1(3) of the IAM focus on the physical characteristics of the site. Canfor’s use of the Manson log dump based on the availability of the Barge was a business decision. Moreover, the site was historically used for boom and tow operations, and no extraordinary measures would need to be taken to bring the site into use for that activity. Therefore, the site was also suitable for that form of water transport.

In addition, the Commission held that the District Manager’s decision regarding the suitability of the Manson log dump was consistent with the language in section 3.1 of the IAM, and the market pricing system which underlies the object and purposes of the IAM. In that regard, the Commission found that the parties’ expert witnesses agreed that the purpose of the market pricing system is to resemble, but not mirror, the actual operations of licensees in similar tracts of timber. The Commission held that it would be inconsistent with the market pricing system to determine stumpage rates based on the actual operations that a particular licensee chooses to use at a particular location.

Accordingly, the appeals were dismissed.