Bill 22 – Retaking Control of BC Forests: The Illusive Public Interest Test

By Dennis Ryan, Partner and Head of Natural Resources, Lee Turner, Managing Partner, and Nikita Gush, Associate at Doak Shirreff Lawyers LLP, Kelowna, BC

The British Columbia government recently passed the Forest Amendment Act, 2019 SBC c 31 (“Bill 22”), which received royal assent on May 30, 2019. This paper will provide a background of this
legislation and a summary of the material amendments that have now been incorporated into the Forestry Act, RSBC 1996, c 157.

A. Background: The Forest (Revitalization) Amendment Act

Until the passing of the Forest (Revitalization) Amendment Act in 2003, most tree farm licences were appurtenant to one or more timber manufacturing facilities. In these circumstances, the prescribed manufacturing plant had to be capable of utilizing a volume at least equal to the annual harvest issued under the licence and had to use the timber in that plant unless exempted from doing so by the Minister. Many licence documents provided that any appurtenant manufacturing facility could not be sold or transferred separately from the licence resulting in the ownership of
the mill and the licence being vested in the same party. In 2003, the Forest (Revitalization) Amendment Act:

• • removed minimum cut control requirements;
  • repealed appurtenancy and timber-processing requirements that forced licensees to process timber at specific mills; and
  • repealed and replaced the requirement that licensees must have written consent from the Minister of Forests before tenures could be subdivided or transferred.

B. Revitalization Initiatives

In recent history, access to timber supply has dwindled in BC due to the devastating wildfires; the reductions associated with the decline in beetle harvesting; new habitat protections; and increased land reservations for parks. In addition, restrictions on softwood lumber trade are limiting BC’s access to the US market. These factors, along with declining lumber prices, are resulting in several forestry companies curtailing the processing of timber and, in some cases, permanently closing processing facilities.

For years major forest licensees have controlled the market for milling and forest tenure holdings. As a result, smaller industry operators find it challenging to compete. Since the removal of appurtenancy and Ministerial approvals for transfers of timber tenures, small and medium sized forestry and lumber manufacturers, First Nation communities and smaller BC communities that are dependent on the forest industry are voicing concerns that the major forest licensees that hold most of the public timber tenures in BC are selling their logging rights to each other following a
mill closure. This practice of swapping tenures is intended to permit companies to move timber supply to other, financially healthier mills. However, without legislative change, the smaller lumber manufacturers in BC are struggling to secure adequate fibre to maintain even one shift per day at their mills.

BC government initiatives to revitalize the forestry industry include advocating for the establishment of coalitions of industry, First Nations, labour and community leaders to engage in collaborative planning across timber supply areas. Concurrently with this initiative, on April 1, 2019 the BC government announced Bill 22. According to the Ministry of Forests, Lands, Natural Resource Operations and Rural Development, the changes to the Forest Act introduced by Bill 22 will:

• • improve government’s ability to exert more control over the disposition of Crown tenures;
  • ensure that public interest is considered in the disposition of Forest Act agreements;
  • ensure that dispositions and changes of control do not result in further concentration within the forestry sector; and
  • ensure that the government has the necessary information needed from companies to form policy and legislative changes to address emerging forestry issues.

Bill 22 requires forestry companies to obtain the Minister’s written approval before transferring tenure agreements to another party. As a result, the Minister will have the power to refuse a proposed disposition, or put conditions on it.

Forestry Minister Doug Donaldson spoke in the legislature on May 9, 2017 stating:

“We’re launching the Interior process around the forest sector to attempt to reverse the trends that fell into disarray under this previous government. The forests belong to the people of B.C.; the forests are not assets belonging to the companies. We’re taking that position, and that’s the position that communities and First Nations and small companies…are supportive of… We’re making changes to the Forest Act to give government more oversight of the forest sector, support reconciliation with First Nations and improve public trust.”

One of the stated objectives of the amended Forest Act will be to ensure changes of control do not result in further concentration of harvesting rights.

C. Summary of Bill 22 Provisions

The principal provision of Bill 22 is the introduction of Ministerial consent as a condition precedent to the proposed disposition of a forestry agreement under the Forest Act. Section 54(2) of the Forest Act states that a disposition of an agreement is without effect unless the Minister has approved of the disposition in writing. At the request of the Minister, the agreement holder or the intended recipient must provide any information that the Minister considers necessary. Certain information may be prescribed by regulation in the future. In approving a disposition, the Minister is entitled to impose conditions, including a condition that one or more agreements be disposed of to an unrelated third party by a certain date.

In considering whether to approve a disposition, the Minister is obligated to consider the effect of the disposition on (i) the marketing of fibre in British Columbia, and (ii) the public interest. The Forest Act defines “marketing of fibre” as (i) the acquisition and disposition of rights to harvest timber in British Columbia, and (ii) the buying and selling, within British Columbia, of timber or wood residue. However, “public interest” is not defined.

If the Minister concludes that the disposition of a tree farm licence, forest licence, or pulpwood licence would be detrimental to competition in the marketing of fibre in all or part of BC, or would otherwise be contrary to public interest, the Minister is required to disapprove the disposition, unless he or she believes that the imposition of certain conditions would address any negative consequences. If approval is granted with conditions, and any condition is subsequently breached, the Minister also has the power to suspend rights under the agreement. Nevertheless, Bill 22 does not limit the authority of the Minister to refuse approval of a disposition where it would be detrimental to competition in the marketing of fibre. Necessarily, dispositions to a (i) lender to secure financing, (ii) bankruptcy trustee, or (iii) personal representative following the death of an individual licence holder, do not require Ministerial approval.

Bill 22 also addresses dispositions through changes of control or amalgamation of a corporate holder of an agreement wherein the control of the corporation changes or is acquired or disposed of, or control of a holding corporation, whose subsidiary is the corporation, changes or is acquired or disposed of. A corporation is controlled by a person, or a group of persons not dealing with each other at arm’s length, if (i) shares of the corporation are held, other than by way of security only, by or for the benefit of the person or group, as applicable, and (ii) the votes carried by the shares referred to above are sufficient to elect or appoint 50% or more of the directors of the corporation, or to otherwise effectively control the operations and direction of the corporation.

Any corporate agreement holder is obligated to give notice to the Minister within 30 days after a change of control or amalgamation with another corporation that holds an agreement. The Minister is then obligated to consider the effects of any of these transactions on (i) the marketing of fibre in British Columbia, and (ii) the public interest.

On determination by the Minister that either of these factors are negatively affected, he or she has the power to either (i) suspend the rights under the applicable agreement, (ii) require the
agreement holder to dispose of the agreement to a person who is at arm’s length from the corporation, (iii) accept a proposal by the agreement holder, or (iv) impose other requirements on the corporation.

D. Concluding Remarks

While Bill 22 is an attempt by the government to exercise greater control over the marketing of fibre and to consider the public interest where tenures are being swapped or otherwise transferred, it is noteworthy that the legislation does not provide a definition of “public interest”. The management of forestry lands and tenures in BC is certainly challenging in no small part due to divergent stakeholder mandates and visions of how BC forests should be utilized.

There are certain members of the public that believe that large-scale industrial control of BC’s forests is not in the public interest. Some believe that locking in a long-term requirement that our forests must always be managed by the licensees for the sake of growing timber for harvesting above all other interests is again not aligned with the sentiments of other stakeholders (i.e., environmentalists and communities interested in preserving their watersheds). Bill 22 provides full discretion for the Minister to determine what he or she believes is in the public interest. Yet for
all the assertions by the government concerning the revitalization of the forestry industry and championing First Nations’ rights, the rights of labour, small business and communities dependent
on the forest industry in BC, this legislation does not mandate public consultations in the process of Ministerial considerations for approval of the disposition of forestry agreements. This missing element may result in decisions continuing to be made behind closed Cabinet doors in Victoria.

It will indeed be interesting to see how the first test of this process will play out with Interfor’s proposed acquisition of forest licences and related forestry assets in the BC Interior that were previously associated with Canfor’s Vavenby sawmill.

The Natural Resources Group at Doak Shirreff Lawyers LLP would be happy to assist you with any issues relating to the forest industry in BC or Alberta.