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Vol: IV – Issue: I – July 2011

[ Previous Forestry Law Reporters ]

Legislative Review, 2011

AAC Partition Rules and First Nations Tenure Regulation

Generally

Over the last year, forestry has still not made its way back onto the agenda of the BC Legislature in any meaningful sense. That said, the provincial government has begun to implement forestry-related statutes that had previously passed through the Legislature but were not yet in force, and to prescribe regulations to accompany that legislation.

Approximately a year ago, the Forestry Law Reporter reviewed the provisions of the Forests and Range Statutes Amendment Act, 2010 (Bill 7) and the Forests and Range (First Nations Woodland Licence) Statutes Amendment Act, 2010 (Bill 13). Last February, government brought into force those portions of Bill 7 that relate to allowable annual cut ("AAC") partitions – one of the main features of Bill 7. Then, in June, government brought into force the bulk of Bill 13, the statutory skeleton of its new First Nations tenure program. Government also created new regulations and regulatory amendments to go along with this legislation. Also in June, the Legislature enacted the Miscellaneous Statutes Amendment Act, 2011 (No.2), S.B.C. 2011, c.13 ("MSAA"). While largely of a house-keeping nature, the MSAA has made important changes to the rules that govern the issuance and transfer of woodlot licenses under the Forest Act.

AAC Partition Orders

As noted, the primary feature of Bill 7 is the introduction of an allowable annual cut "partition order" into the Forest Act that authorizes the Minister to enforce those partitions included in a Chief Forester's AAC determination at the tenure level. A number of aspects of a Minister's partition order were left to regulation, and many of those features were prescribed in the Allowable Annual Cut Partition Regulation (the "Partition Regulation"):

Base Level AAC and Exemptions

Bill 7 contemplated two categories of exceptions to a partition order: tenures with an AAC below a "base-level allowable annual cut", and tenures that otherwise met requirements prescribed by regulation. Of course, the definition of the base-level AAC was also left for government to prescribe by regulation so, effectively, Bill 7 left all exemptions entirely as a matter for government to specify in regulations. The Partition Regulation has now set the base-level AAC at 10,001 m³ annually. As well, the Partition Regulation has provided additional exemptions from a partition order:

• tenures with less than five years left in the term of the licence;
• tenures that restrict harvesting to
  • a type of timber or terrain in a part of Crown land within the TSA or TFL (as the case may be),
  • a specific area within the TSA or TFL, or (C) a type of timber or terrain in a part of private land within the TFL.

Downward Adjustments

If a Partition Order is applicable to a licence, then the licensee must comply with the harvest volume limit made in the Partition Order with respect to that licence. However, Bill 7 does contemplate regulations that will specify certain "downward adjustments" to the licensee's harvest volume. In other words, Bill 7 contemplates that certain volumes of timber harvested under a licence subject to a Partition Order will not count towards the licensee's harvest volume for purposes of a Partition Order.

Towards this end, the Partition Regulation has specified downward adjustments for both the Coast and the Interior:

• for the Coast, all timber harvested under the licence that is grade code Z under the Scaling Regulation; and
• for the Interior, all timber harvested of any grade code under the Scaling Regulation other than grade codes 1, 2, and 4.

Increase or Waiver of Harvest Volume Limit

Bill 7 also contemplates that the Minister may increase the harvest volume limit applicable to a licensee, or waive the limit altogether, in prescribed circumstances. The Partition Regulation has indentified these circumstances:

• if the licence was issued to a First Nation under section 47.3 (1) (a) of the Forest Act, respecting treaty-related measures, interim measures or economic measures, and the Partition Order will not meet the objects of that licence;
• the Partition Order would result in a loss of value, or the loss or destruction of timber, due to forest health factors;
• compliance with a Partition Order is contrary to a Regional Manager's notice issued under a licence that restricts the ability of the licensee to apply for cutting permits in areas of Crown land identified in the notice. An increase or waiver in these circumstances is not automatic; however, the licensee must still apply to the Minister.

Penalty for Non-Compliance

Not surprisingly, Bill 7 provides that if a licensee fails to comply with a Partition Order, government may impose a penalty equal to the volume harvested in excess of the volume limit specified in the Partition Order multiplied by a prescribed rate. The penalty rate prescribed under the Partition Regulation for excess harvesting is two-fold: the average stumpage rate for the licence over the past year for that portion of the excess harvest that exceeds the volume limit by 10% or less; and double the average stumpage rate for that portion of the excess harvest that exceeds the volume limit by more than 10%. Note that the penalty is in addition to stumpage otherwise payable on the excess volume.

Bill 7 also contemplates relief from an excess harvest penalty in circumstances that government may prescribe by regulation. Curiously, the Partition Regulation does not specify any such criteria.

First Nations Tenure Acquisition and Transfer

Numerous housekeeping amendments to various regulations were brought into force together with Bill 13 on June 9, 2011. Government brought into force straightforward or otherwise inconsequential amendments to the Allowable Annual Cut Administration Regulation, the Annual Rent Regulation, the Community Tenures Regulation, the Cut Control Regulation and the Wildfire Regulation. However, government also brought into force more substantive regulatory changes on account of Bill 13 – specifically, the new First Nation Tenures Regulation ("FNTR") and the Transfer Regulation.

First Nations Tenure Regulation

Bill 13 provides for the direct award of a replaceable forest licence, community forest agreement, and the newly created First Nations woodland licence to a First Nation – or its representative – to implement or further an agreement between the first nation and the government respecting treaty-related measures, interim measures or economic measures. A "representative" is defined as someone that the First Nation appoints as such, and who otherwise meets prescribed requirements. The main function of the FNTR is to describe those requirements.

The rules under the FNTR regarding eligibility to act as a "representative" of a First Nation for the direct award of one of these tenures is effectively the same for each tenure:

• a company controlled by the First Nation (in other words, the First Nation holds sufficient share to elect 50% or more of the effective directors of the company or to otherwise effectively control the operations and direction of the Company);
• a society that has, as one of its purposes, holding the tenure, and that is not prohibited under section 2 (2) of the Society Act from holding the tenure.

The use of a company under the control of a First Nation as a representative is straightforward enough, and allows the First Nation to operate the tenure as a business and to do as it may wish with earnings generated through the tenure. However, this branch of the "representative" test does not allow the First Nation to sell its right to hold the tenure to a third party that the First Nation does not control: the First Nation, at some level, must assume control of the tenure – it cannot assign its right to receive the tenure in exchange for some other form of asset (cash, for example).

The use of a society as a representative is more subtle. A First Nation cannot directly control any society it might set up: a society made up of its members, and there is no share capital in a society for a First Nation to hold, either directly or as a beneficiary to a trust. The members, as individuals, control the society, and there is nothing in the FNTR that requires the society to have First Nation members as members of the society or on the board of directors of the society.

Under the Society Act, however, a society cannot have "the purpose of carrying on a business, trade, industry or profession for profit or gain". Section 2 (2) of the Society Act narrows the application of this prohibition: it allows a society to carry on a business, trade, industry or profession for profit or gain so long as it is incidental to the purposes of the society. The Society Act, essentially, and for lack of a better expression, only allows a society to have purposes that are non-profit (at least insofar as the society and its members are concerned). So, rather than conduct a business and do whatever a First Nation might like to do with any profit or gain, a society would have to direct any profit or gain earned through the conduct of business in connection with the tenure towards other, non-profit, purposes of the society (for example, education, charity, sports and so on). The business a society conducted in connection with the tenure would simply exist as an incidental means to promote the society's non-profit purposes. So, while a First Nation may not control a society that was its representative, the society would have to serve non-profit purposes allowed under the Society Act. Presumably, before a First Nation appointed a society as its representative, it would satisfy itself that the purposes of the society served the interests of the First Nation. From the perspective of operating a business, however, this is not an ideal model.

Transfer Regulation

The requirement for a First Nation to remain in control of a direct award tenure in the nature of a replaceable forest licence, community forest agreement, or First Nations woodland licence (or at least to have the tenure operated for non-profit purposes of a society) is re-enforced in the amendments to the Transfer Regulation brought into force along with Bill 13. Under Bill 13, a First Nation or its representative cannot transfer any of these particular direct award tenures unless (A) Cabinet approves the transfer, or (B) in other prescribed circumstances to a person who meets prescribed criteria. The amendments to the Transfer Regulation address these circumstances and criteria.

Note that the amendments to the Transfer Regulation effectively treat the transfer of certain forest tenures a First Nation or its representative may hold (such as a non-replaceable forest licence, community salvage licence, woodlot licence or a forest licence to cut) as it would the transfer of one of these tenures from any party to any other party. This is not, however, the case with a direct award tenure in the nature of a replaceable forest licence, community forest agreement, or First Nations woodland licence. With these particular direct award tenures, the First Nation may only transfer the tenure to another company under the control of the First Nation, or to another society.

Woodlot Licence Eligibility Requirements

The MSAA was enacted on June 2, 2011, and included numerous amendments to BC's forestry legislation. Most of these amendments were brought into force upon enactment, or on July 22, 2011 by way of an order of Cabinet. As noted, the MSAA amendments to the Forest Act are almost entirely of a "house-keeping" nature. That said, section 52 of the MSAA did make important amendments to the eligibility requirements associated with woodlot licenses under section 44 of the Forest Act.

While the same citizenship requirements remain in section 44 (4) of the Forest Act, the MSAA has further limited the pool of eligible applicants under section 44 (5) through increased restrictions on an applicant's additional tenure holdings. In essence, the rule prior to the MSAA was that a person, corporation or First Nation was eligible to apply for a woodlot licence so long as it did not already hold more than one woodlot licence, either directly, through control of a corporation, or both. In other words, a person, corporation or First Nation could hold a total of two woodlot licenses (either directly, through control of a corporation, or both).

While these restrictions remain, section 52 of MSAA has added two additional categories of restrictions. First, an eligible applicant may no longer hold, either directly, through control of a corporation, or both, an "ineligible licence" with an AAC of more than 10,000 m³. An "ineligible licence" is defined as any of a TSL (major), a forest licence, a TFL or a forestry licence to cut, that is either replaceable or that has a term greater than five years. Note that the restrictions on forest licenses and forestry licenses to cut do not apply to those that are direct awarded under section 47.3 of the Forest Act in relation to treaty-related measures, interim measures or economic associated with an agreement between government and a First Nation – obviously, government simply regulates the issuance of these tenures on a case-by-case basis as it sees fit.

The second category of restriction relates to the concept of affiliation. As noted, prior to the MSAA, a person, corporation or First Nation could not hold more than two woodlot licenses, either directly, through "control" of a corporation, or both. Again, this remains the same. However, a person, corporation, or First Nation is also no longer eligible to hold a woodlot licence if a corporation it "controls" holds a woodlot licence or ineligible licence with an AAC of over 10,000 m³ and an "affiliate" of that corporation also holds a woodlot licence or ineligible licence with an AAC of over 10,000 m³. The woodlot licence eligibility requirements have expanded beyond the concept of "control" to now include "affiliates".

This change not only has implications for the issuance of a woodlot license, it could also have significant consequences for the transfer of a woodlot license – either directly between parties, or indirectly through the purchase and sale of a company that holds a woodlot licence. In both cases, the party who ultimately controls the transferred woodlot licence must also comply with the new eligibility requirements under section 44 of the Forest Act. Failure to do so means that the transfer is potentially without effect pursuant to sections 54 (2) and 54.1 (c), in the case of a direct transfer of the woodlot license or, more troubling, that the woodlot licence itself is subject to cancellation pursuant to section 54.5 (b) (iv) in the case of a purchase and sale of a company that holds a woodlot licence.

Miscellaneous Regulatory Changes

On May 19, 2011, section 6 of Bill 7 was brought into force, repealing and replacing the definition of "scale" in section 93 of the Forest Act. At the same time, a handful of amendments to the Scaling Regulation were also brought into force. While these changes may have some subtle significance for regulators, they do not appear of much practical consequence.