MacMillan Bloedel Parks Settlement Agreement Decision
Through the creation of provincial parks and protected areas, MB was deprived of Timber Licenses, allowable annual cut under Tree Farm Licenses, and the full value of its capital investment in the land. Timber Licenses are a form of tenure where the owner holds the right to cut all standing timber. This was by far the majority of the value compensated for by the Settlement Agreement. Lost allowable annual cut results in lost profits to the company and these were estimated after deductions for various cost adjustments. Finally MB was compensated for investments that had been made in forestry infrastructure such as roads and bridges.
The issue of compensating MB at all proved to be highly contentious at the public hearings. It was the position of a large number of speakers that no compensation should be payable at all.
Many speakers urged the government to adopt the recommendations of the Schwindt Report on resource compensation that only actual investment costs should be compensated not loss of future profit. If the provisions of Schwindt had been adopted by the Province, then there would be no compensation payable for lost allowable annual cut for example. However, lost investment in forestry infrastructure, including mill capacity, would still be compensable.
A variation of this argument relates to the linkage of Tree Farm Licenses to mills. In this argument, the cost to the company of stumpage should capture the full economic rent of a standing tree. Profits to the timber companies should be obtained by processing that wood for pulp, paper or lumber and there should be no profit to a tree farm license holder simply from cutting a tree. If there are lost profits to the licensee, then this indicates that the Province is undercharging stumpage, which it is argued is in effect a form of subsidy to the licensee.
Legal arguments in opposition to compensation were also advanced by some members of the public to support an argument that there was no obligation on the Province to compensate MB. Because MB holds a form of license and does not actually have title to the land subject to Timber Licenses and Tree Farm Licenses, the argument is that there is no vested property right and accordingly, no implied obligation to compensate for the expropriation of that right. This argument notes that the creation of parks was done under the Park Act and did not specifically invoke the Forest Act provisions which require that any reduction of allowable annual cut above 5% requires compensation to be paid to the Licensee.
Many speakers at the public hearings cited what, in their view, was a scandalous environmental history of logging, which includes destruction of fish habitat, cutting of old growth forests, and destruction of ungulate and other species’ habitat. Because of past environmental harm, speakers claimed that MB "owed’ the Province compensation to rehabilitate damaged ecosystems. Speakers also argued that because MB has reduced its workforce, it should be responsible for the losses to communities through mill closings and accordingly no compensation for lost cutting rights should be payable.
A significant minority of speakers supported payment of compensation to MB, either through cash or through some form of land and resource rights. Support for compensation is based on the traditional principle that no property rights should be expropriated without compensation. Should a government decide legislatively to expropriate cutting rights for the purposes of park creation or Treaty settlement without compensation, this would have an adverse effect on the business investment climate. The argument is that companies active in British Columbia, or companies that may express a future interest in investing in British Columbia would not be inclined to make the capital investments necessary to exploit Tree Farm Licenses if those rights could be taken away at the whim of future government action.
The decision by the Province to enter into the Settlement Agreement with MB was made after due consideration of the liabilities of the Province through its own legal advice and I do not propose to second guess that decision. The Settlement Agreement explicitly states that the Province does not accept liability for compensation but entered into settlement negotiations on a voluntary basis. There is however a clear connection between the Province's legislative scheme, such as the provision that there will be compensation paid for reduction of a Tree Farm License allowable annual cut by more than 5% and the political and legal issue of whether or not there is liability for compensation. It is open to the Province to amend legislation to make it easier or harder for a resource company to obtain compensation following the loss of a resource right. What the Settlement Agreement process has indicated is that there is a lack of clarity in the public mind as to the Province's legal obligation to pay compensation and furthermore a lack of explanation as to the political justification for retaining a legislative scheme that requires compensation to be paid.
Because there are a large number of resource loss compensation issues to be resolved arising from future Treaty settlements and from the past creation of parks, it is recommended that the Province adopt a clear and transparent compensation policy, preferably supported by either legislative amendment or clear explanation of the Province's view on whether there is an obligation to compensate. Such a policy would clarify the rules of investment for private industry and allow the public the opportunity to take compensation costs into consideration when deciding whether or not to support future creation of parks and protected areas. It would also be of value in evaluating the costs of Treaty settlements.