Forest Appeals Commission

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1 Forest Appeals Commission Fourth Floor 747 Fort Street Victoria British Columbia Telephone: (250) Facsimile: (250) Mailing Address: PO Box 9425 Stn Prov Govt Victoria BC V8W 9V1 APPEAL NO FAB-01 In the matter of an appeal under section 146 of the Forest Act, R.S.B.C. 1996, c BETWEEN: Weyerhaeuser Company Limited APPELLANT AND: BEFORE: The Province of British Columbia (Ministry of Forests) A Panel of the Appeal Board Toby Vigod Panel Chair Bruce Devitt Member Geza Toth Member RESPONDENT DATE OF HEARING: February 16-17, 2000 April 19-20, 2000 PLACE OF HEARING: Victoria, B.C. APPEARING: For the Appellant: Peter Voith, Counsel For the Respondent: Bruce Filan, Counsel APPEAL This is an appeal by Weyerhaeuser Company Limited s predecessor, MacMillan Bloedel Limited ( MB ), of a January 8, 1999 review decision which upheld three Stumpage Advisory Notices issued by Stephen Edwards, Regional Appraisal Coordinator, dated June 17, 1998, July 13, 1998 and July 23, 1998, respectively. The three Notices were in respect of five cutblocks in the Port MacNeill Forest District ( PMFD ). All three Notices determined stumpage rates assuming predominantly conventional logging despite the fact that MB s approved operational plans called for predominantly helicopter logging. The appeal was brought before the Forest Appeal Board (the Board ) pursuant to section 146(1)(a) of the Forest Act, which provides for an appeal of determinations made under section 143(1)(c) of the Act regarding section 105(1) stumpage appraisals. The Board was appointed by Order-in-Council No. 1138, approved on August 28, 1999, and by Order-in-Council No. 1451, approved on October 21, 1999.

2 APPEAL NO FAB-01 Page 2 MB is seeking an order reversing the review decision and directing the Regional Appraisal Coordinator to reappraise the stumpage rates associated with the cutting authorities. BACKGROUND Stumpage Appraisal Process As stumpage appraisal is at the heart of this appeal, it is necessary to briefly outline the stumpage appraisal process. A licensee harvesting Crown timber in British Columbia must pay a fee to the Crown known as stumpage. Section 105 of the Forest Act addresses the determination of stumpage rates. It states: 105 (1) Subject to the regulations made under subsections (6) and (7), if stumpage is payable to the government under an agreement entered into under this Act, the rates of stumpage must be determined and varied by an employee of the ministry identified in the policies and procedures referred to in subsection 1(b) (b) in accordance with the policies and procedures approved for the forest region by the minister The policies and procedures approved by the minister for the coastal region are found in the Coast Appraisal Manual (the CAM ). The provisions of the CAM have been described as analogous to a regulation: Re MacMillan Bloedel Ltd. and the Appeal Board under the Forest Act (1984), 8 D.L.R. (4 th ) 33 (B.C.C.A.). A stumpage appraisal under the CAM involves an estimate of the value of the appraised stand of timber relative to the value of the timber elsewhere in the Coast Region. To estimate a stand s relative value, a value index is created for the stand of timber. The value index is equal to the estimated selling price of the appraised stand of timber less estimated operating costs required to harvest that timber. The British Columbia Court of Appeal, in Canadian Forest Products Ltd. v. British Columbia (Ministry of Forests) (1998), 55 B.C.L.R. (3d) 221 (B.C.C.A.) ( Canfor ), summarized the stumpage appraisal process as follows: it seems to be the case that under the applicable provision of the CAM, cost estimates are arrived at and imposed upon operators to in effect give them a cost allowance for harvesting and transportation that they will be entitled to claim and set off against the value of timber harvested. To the extent that the assessed cost of operations is greater or lesser, this will impact upon the total stumpage payable. Cost estimates are to be reflective of costs to the average operator and are thus neutral to operators across a general area. More efficient operators benefit and less efficient operators suffer. The system is designed to reflect average costs and cost estimates are arrived at as a result of continuing consultation between Ministry of Forests personnel and industry personnel.

3 APPEAL NO FAB-01 Page 3 This appeal concerns the method of harvesting to be used to calculate estimated operating costs. As noted by the Court, cost estimates under the CAM are to be reflective of the average operator. Thus, more efficient operators benefit while less efficient operators suffer. Further, section 4.1 of the CAM requires that operating costs be calculated according to the least cost principle. Section 4.1 states: Section 4.1 Cost Estimates: The Appraisal Coordinator must estimate operating costs for a cutting authority area in a manner which will produce the least total operating cost for the cutting authority area. To do this, the Appraisal Coordinator must base estimates of harvesting and transportation costs on the operating cost estimates set out in this manual for the method, which will produce the least total cost estimate to the point of appraisal, unless that particular method of harvesting or transportation is not possible under the cutting authority. An appraisal assumes compatible operating phases. Phase cost estimates for specified operations, helicopter logging operations, and conventional logging are weighted according to the applicable net cruise volume under the cutting authority for each system. [emphasis added] Finally, it is important to note that stumpage rates are determined by the Regional Manager, Regional Appraisal Coordinator, or other authorized regional staff while the District Manager approves the harvesting method and operational plans. In order to assess stumpage, the regional appraisal staff receive an appraisal data sheet from the District Manager. The appraisal data sheet, prepared by the licensee, contains information on the harvesting methods authorized under the cutting authority. Normally, an appraisal data sheet is submitted for the harvest method approved in those plans. The Cutblocks at Issue MB s Port McNeill Division operates on various Crown tenures and private lands in the PMFD of the Vancouver Forest Region. The five cutblocks that are the subject of this appeal are located to the east and northeast of Vancouver Island. Each of the five cutblocks was originally approved by the District Manager for entirely or predominantly conventional logging in MB s Forest Development Plan ( FDP ) and Logging Plans ( LPs ). In 1998, MB s Port McNeill Division harvested 879,442 cubic metres of timber of which 208,685 cubic metres was harvested using helicopters. According to MB, that proportion of helicopter logging to conventional logging has been consistent over time for the Division. MB also noted that of the approximately 50 cutblocks that MB completed harvesting on in its Port McNeill Division in 1998, only 13 were helicopter logged. Five of these cutblocks are subject to this appeal. Of the remaining 8 cutblocks, one was on private land, one was initially prescribed as

4 APPEAL NO FAB-01 Page 4 conventional logging only, but converted to helicopter logging and accepted as helicopter logging by the Ministry of Forests ( MOF ) for appraisal purposes, while the remainder were prescribed and appraised as helicopter logging in the first instance. The harvesting operations subject to this appeal are related to the following harvesting agreements and cutting authorities: Tree Farm Licence 39, Cutting Permit 305, Cut Blocks 6827 and 6828 which are located at Gilford Point on Gilford Island, adjacent to Knight Inlet. Forest Licence A19244, Cutting Permit 31, Cut Block 8901 which is located on the central coast to the north of Bond Sound. Timber Licence TO487, Cutting Permit C, Cut Blocks 6842 and 6844 which are located on opposite sides of the entrance to Health Lagoon on Gilford Island. Block 6842 is adjacent to the Indian Reserve that includes Gilford Village. In 1997 and early 1998, MB sought and obtained approval from the PMFD to harvest the five cut blocks using mostly conventional logging. The harvest plans show 2.1 hectares of helicopter logging for Block 6842, and 9 hectares of helicopter logging for Block Cutblocks 6827 and 6828 Cutting Permit 305 On March 16, 1998, MB applied to have the operational plans amended for Blocks 6827 and 6828 to change the harvest method from conventional logging to helicopter logging. The amendments also included significant revisions to the boundary of Amendments to the FDP were approved by the District Manager on April 7, 1998, amendments to the LPs were approved on May 19, 1998 and amendments to the silviculture prescriptions ( SPs ) were approved on May 13 and July 23, Notwithstanding that the normal practice was to submit an appraisal data sheet for the approved harvest method, MB was requested by the PMFD to submit two sets of appraisal data sheets; one reflecting conventional logging and another reflecting helicopter logging. MB complied with this request and submitted two appraisal data sheets dated May 11, Cutblock 8901 Cutting Permit 31 With respect to Block 8901, on March 12, 1998, MB applied to amend its operational plans to entirely helicopter logging. The boundary of the block was also amended at this time. The FDP and LP amendments were approved by the District Manager on April 21, 1998, and the SP amendments were approved on June 24, Again, MB stated that it intended to only submit an appraisal data sheet that reflected the amended operational plans, but the PMFD requested two data sheets, one that reflected conventional logging and the other that reflected helicopter

5 APPEAL NO FAB-01 Page 5 logging. MB complied with this request and submitted two appraisal data sheets. The Board received an undated copy of the appraisal data sheet reflecting conventional logging. The appraisal data sheet reflecting helicopter logging was dated March 20, Cutblocks 6842 and 6844 Cutting Permit C Cutblock 6842 was originally approved for primarily conventional logging with a small component of helicopter logging in MB s FDP. Cutblock 6844 was originally approved for entirely conventional logging. MB submitted an appraisal data sheet dated January 15, 1998 for Cutting Permit C to MOF, which was consistent with the original harvesting plans. Subsequently, MB requested that MOF hold off on the appraisal process for Cutting Permit C while it prepared an amendment to convert the blocks from conventional to helicopter logging. On March 17, 1998, MB applied to amend its operational plans to change Block 6842 to primarily helicopter logging, with a small component of conventional logging, and to change Block 6844 to entirely helicopter logging. The amendments also included revisions to the boundary of Block MB also submitted a second appraisal data sheet dated March 17, 1998 that reflected the change to helicopter logging. On April 7, 1998, the MOF approved the amendments. Reasons for the Amendments Prior to the amendments being approved, the PMFD requested that MB supply a rationale for the amendments being proposed to the five cutblocks. This was submitted by letter dated March 26, The letter was generic and not site specific. The reasons for the change to helicopter logging included primarily economic and environmental reasons. Greg Westwood, Area Planner, MB Port McNeill Division, testified that the letter was in response to specific concerns raised by the PMFD that jobs might be lost if the change was made from conventional to helicopter logging. Mr. Westwood said that the letter addressed this concern, and that MB s first point was that there would be a greater chance of employment with helicopter logging. The letter also noted that Hayes Forest Services Limited had a helicopter that had been idle since October 1996, and was anxious to get its crew back to work. At the hearing, Mr. Westwood and John Foster, Divisional Engineer, MB Port McNeill Division, outlined the specific reasons for the amendments to the plans for each of the cutblocks. They testified that the reason for reconfiguring Block 6827 and changing the harvesting method from conventional to helicopter logging was concern about windthrow. Mr. Westwood and Mr. Foster indicated that the reason for the amendments for Block 8901 was that there was concern about the potential for slides associated with road construction.

6 APPEAL NO FAB-01 Page 6 They testified that the reason for the amendment for Block 6842 was that blasting from road construction on the block posed an unacceptable safety risk to the nearby Gilford Village, a First Nations community. Finally, respecting Blocks 6828 and 6844, Mr. Westwood and Mr. Foster testified that the reason for the amendments to these blocks was that the amount of road required to access the blocks was too large for the volume of timber available to be harvested, providing both a cost concern and an environmental concern to MB. Stumpage Appraisals On June 17, July 13, and July 23, 1998, the Vancouver Forest Region issued Stumpage Advisory Notices to MB for Cutting Permit C, Cutting Permit 305 and Cutting Permit 31. Each Notice used predominantly conventional logging methods to determine operating costs. After the Stumpage Advisory Notices were issued, the District Manager verbally confirmed that he would approve any request to amend the operational plans from helicopter logging back to conventional logging in accordance with section 41 of the Forest Practices Code of British Columbia Act (the Code ). This was confirmed in a letter dated August 21, 1998, from the District Manager to MB. On July 3 and July 30, 1998, MB requested a review of the Stumpage Advisory Notices pursuant to section 144 of the Forest Act. MB argued that the operating cost estimates for the stumpage rates were based on harvesting patterns (conventional logging) that were not possible under the cutting authorities as required by section 4.1 of the CAM. MB sought to have operating costs estimated primarily on the basis of helicopter logging. On January 8, 1999, in a single decision, the Review Panel upheld the three Stumpage Advisory Notices without variation, on the basis that conventional logging produced the least cost estimate and was possible. MB appealed the decision of the Review Panel to the Appeal Board on January 22, ISSUES MB has raised two issues in this appeal. The first is whether stumpage must be appraised according to the method of harvesting authorized under the cutting authority and set out in the approved operational plans. MB submits that MOF is compelled by law to appraise a stumpage rate for a cutting permit on the basis of harvesting methods authorized under the applicable approved operating plans. In the alternative, MB submits that, while the CAM requires MOF to use the least cost principle to estimate operating costs in a stumpage appraisal, this only applies once MOF determines that the harvesting method at issue is appropriate under the circumstances. MB argues that, given the circumstances of each cutting permit, conventional logging was an inappropriate harvesting method, and MOF was

7 APPEAL NO FAB-01 Page 7 wrong in using conventional logging as the least cost harvesting method to estimate operating costs in the stumpage appraisals. RELEVANT LEGISLATION AND POLICY Section 105 of the Forest Act has been referred to above. At noted above, section 4.1 is the key section of the CAM considered in this appeal. It provides as follows: Section 4.1 Cost Estimates: The Appraisal Coordinator must estimate operating costs for a cutting authority area in a manner which will produce the least total operating cost for the cutting authority area. To do this, the Appraisal Coordinator must base estimates of harvesting and transportation costs on the operating cost estimates set out in this manual for the method, which will produce the least total cost estimate to the point of appraisal, unless that particular method of harvesting or transportation is not possible under the cutting authority. An appraisal assumes compatible operating phases. Phase cost estimates for specified operations, helicopter logging operations, and conventional logging are weighted according to the applicable net cruise volume under the cutting authority for each system. Section 1.3 of the CAM defines cutting authority to include a cutting permit issued under, inter alia, a forest licence, tree farm licence or a timber licence. Section 1.4 of the CAM authorizes certain employees of MOF to determine stumpage rates. These include Regional Managers, Regional Appraisal Coordinators or Officers, or other employees authorized by the Regional Manager, and the Director of the Revenue Branch and employees of the Revenue Branch. Section 2.2 of the CAM provides that for each new cutting authority, the licensee shall include with the application to the District Manager a completed coast appraisal data sheet and appropriate support information. The District Manager or designate reviews the available data and, if in agreement with the submission, signs the data sheet and advises the licensee in writing. The District Manager is to provide a signed appraisal data sheet to the regional office and the licensee. Regional revenue staff will notify the licensee, in writing, of the stumpage rate and the summary of appraisal information used in determining the stumpage rate. Helicopter logging is a yarding method, and is treated as part of the tree-to-truck component of a stumpage appraisal. Section of the CAM provides an operating cost estimate for conventional logging methods, while section of the CAM provides a cost estimate for helicopter logging operations. As noted above, section 4.1 of the Manual provides that where both helicopter logging and conventional logging are used under a cutting authority, the estimates

8 APPEAL NO FAB-01 Page 8 are weighted according to the applicable net cruise volume under the cutting authority for each system. DISCUSSION AND ANALYSIS 1. Whether stumpage must be appraised according to the method of harvesting authorized under the cutting authority and set out in the approved operational plans. MB argues that MOF is compelled by law to appraise a stumpage rate for a cutting permit on the basis of harvesting methods authorized under the applicable approved operating plans. MB relies on the terms of each cutting permit and the Code to support this proposition. Part 7 of each of the relevant cutting permits issued to MB provides: 7.01 This cutting permit is subject to (a) the Forest Act and the regulations made under that Act, and (b) the Forest Practices Code of British Columbia Act and the regulations and standards made under that Act The Licensee must (a) comply with the Acts, regulations and standards referred to in paragraph 7.01, and 7.03 Nothing in this cutting permit is to be construed as authorizing the Licensee to harvest timber or engage in or carry out any other forest practices until (a) all applicable operational plans have been approved by the District Manager, 7.04 Nothing in this cutting permit is to be construed as authorizing the Licensee to carry out any operations or engage in any activities otherwise than in accordance with the requirements of the Acts, regulations and standards referred to in paragraph At the time of the appeal, section 67(1) of the Code provided: 67 (1) A person who carries out timber harvesting and related forest practices on (a) Crown forest land,

9 APPEAL NO FAB-01 Page 9 must do so in accordance with (d) this Act, the regulations and standards, (e) any silviculture prescription, and (d) any logging plan. MB submits that the cutting permits require a licensee to comply with the Code and that the Code requires a licensee to comply with its operational plans. As the amended operational plans for each of the cutting permits require MB to helilog each of the blocks subject to this appeal, MB argues that MOF was not entitled to estimate operating costs based on conventional logging. MB submits that conventional logging was not approved under MB s operational plans at the time of harvest and, therefore, was not legally possible under the cutting authorities. MB also refers to the evidence of Mr. Foster and Mr. Westwood that the request by the PMFD to submit two appraisal data sheets had not happened to MB before. The usual procedure is to submit appraisal data sheets that reflect the method of harvesting approved under the cutting authority which, in this case, was helicopter logging. At the hearing, Mr. Dryburgh, District Manager, testified that the request for two sets of appraisal data sheets arose from conversations he had with staff in the Regional Office. Under questioning, Mr. Edwards, the Regional Appraisal Coordinator, stated that, typically, he would not receive two sets of appraisal data sheets. Mr. Edwards also indicated that, when a cutting authority is appraised, the plans and prescriptions are not asked for or considered. Rather, the appraiser simply calculates stumpage from the data supplied by the licensee on the appraisal data sheet. In support of its position that the appraisal should be based upon the approved operating plans and cutting authority, MB refers to the British Columbia Court of Appeal s decision in Canfor. Like the case presently before the Board, Canfor concerned an appeal regarding stumpage assessments. In Canfor, the appellant harvesting company transported timber to its sorting area by rail which was authorized in its operational plans. After previously determining stumpage fees based on rail transport, MOF decided to calculate fees based on the more prevalent and less costly method of truck transport. The harvesting company appealed to a Forest Appeal Board. The Appeal Board concluded that, in order to achieve neutrality among licensees, planning and cutting authority documents are not to be considered in the stumpage appraisal process and upheld the stumpage assessment based on truck transport. However, the Court of Appeal overturned the Appeal Board s decision, stating: the essential issue in this matter is the proper interpretation of section 4.1 of the CAM. As I indicated earlier, I consider that the Board erred when it failed to give meaning to the words under the cutting authority,

10 APPEAL NO FAB-01 Page 10 when it concluded that planning and cutting authority document were not to be considered in the stumpage appraisal process. It is to be recalled that cutting authority means, inter alia, cutting permit. I appreciate that the Appellant was not expressly required by the terms of its cutting permit to use the railroad rather than road haul, but the cutting permit cannot be divorced from the legislation, the regulations and the plans, when, as counsel for the Ministry conceded, their effect is to preclude Canfor from using road haul rather than the railway in its approved specified operation at TFL 37 (p. 232). [emphasis added] MB submits that MOF has, as was the case in Canfor, taken the position that the determination of what is possible under the cutting authority is made without reference to approved, binding operational plans. MB submits that if the CAM works in the way the Respondent says it does, then it operates as a disincentive for licensees to operate in a manner that is better for the protection of forest resources. In this regard, MB points to the fact that helicopter logging is better for protection of the environment and forest resources than conventional logging, and is the preferred method of harvesting in almost every respect. It also states that the only reason that helicopter logging is not prescribed in every instance is due to the fact that it is generally more expensive. Some of the benefits of helicopter logging were outlined in a February 2000 memorandum prepared by MB staff entitled Reasons helicopter harvest is preferred over conventional harvest. Some of the benefits listed include: less degradation on the harvesting site due to the elimination of roads and skid trails, less risk of siltation and terrain failures, less damage to residual trees, increases the productivity of the forest, allows the operator more flexibility to select species and minimal impact on wildlife. MB also refers to the evidence of Mr. Rowan, a witnesses called by the Respondent, who also agreed that, on balance, helicopter logging is better than conventional logging in terms of the imprint it leaves on the site. MB also referred to Mr. Foster s testimony that it is generally accepted that road construction is the most environmentally damaging activity within the logging industry. MB submits that road construction increases the rate of soil erosion, enhances the prospect of terrain failures that can disrupt drainage patterns, and results in the permanent loss of productive forest land. MB refers to the MOF s Soil Conservation Guidebook (April 1995) which states: Minimizing the amount of productive forest land occupied by (roads and other permanent access structures) is an important objective of forest management. Finally, MB argues that assessing stumpage on the basis of the approved method under the cutting authority makes sense from a policy perspective, as it requires a stumpage appraisal to support the other considerations that go into the planning and regulation of forestry activities. MB submits that it provides for consistency

11 APPEAL NO FAB-01 Page 11 between the harvesting methods that, by law, a licensee is required to use, and the cost allowances that determine the stumpage rate that the licensee must pay. The Respondent submits that to interpret Canfor as authority for the proposition that appraisals must be done simply on the basis of what has been approved in the operational plans, overlooks the importance that the practical context played in that case. The Respondent submits that the Court of Appeal in Canfor stated that the words possible under the cutting authority in section 4.1 of the CAM, must be construed to take into account of the real conditions under which the licensee or licensees operate. The Court considered the real conditions of the rail operation in Canfor and found that truck transportation was not practically possible, as it required local road improvements, operational changes and major costs. The Court stated: having regard to the way in which this particular area has long been managed and was being harvested, it is difficult for me to conceive how truck transportation of timber harvested under even one cutting permit would be practically possible. The Board did not look to the practical realities in determining what was possible under (the cutting permit) (p. 230). The Respondent argues that possible in section 4.1 of the CAM is not limited to what is approved in the operational plans. Rather, it argues that possible encompasses that which can happen. The Respondent submits that its interpretation is consistent with the ordinary meaning of possible read in the context of the appraisal scheme as a whole. The Respondent argues that in this case, conventional logging was physically possible and that MB had the ability to obtain approval to harvest using conventional means. It notes that the initial approved plans authorized conventional logging and the District Manager indicated, in his letter of August 21, 1998, that he would have approved an amendment back to conventional logging. Thus, the Respondent argues that the practical reality is that conventional logging could have been carried out with an amendment to the operational plans. Therefore, the Respondent argues that conventional logging should be considered a possible method under the cutting authority.

12 APPEAL NO FAB-01 Page 12 The Respondent also submits that MB controlled the method of harvesting approved in the plans by virtue of section 41 of the Code. Pursuant to that section, the District Manager must approve an amendment if it was prepared and submitted in accordance with the Act, the regulations and standards, and the District Manager is satisfied that the amendment will adequately manage and conserve the forest resources of the area to which it applies. Section 41(1) of the Code states: Approval of Plans by a district manager or designated environment official 41 (1) The District Manager must approve an operational plan or amendment submitted under this part if (a) the plan or amendment was prepared and submitted in accordance with this Act, the regulations and standards, and (b) the district manager is satisfied that the plan or amendment will adequately manage and conserve the forest resources of the area to which it applies. The Respondent says that the District Manager had to approve the amendment to helicopter logging, and that he would have approved an amendment back to conventional logging. In response, MB submits that there are two problems with the Respondent s argument. To say that it remained open for MB to amend its plans and, therefore, make it possible to conventionally log is to make the stumpage system the driving engine, rather than the plans. MB submits that it is the method of harvesting set out in the plans that must be the engine, and that the stumpage rate should flow from the approved method set out in the plans. It argues that, as the CAM is equivalent to a regulation, and not legislation, it cannot take precedence over the Code, which is legislation. MB argues that there is no dispute that helicopter logging is the best harvest method. It says that once the District Manager has approved the plans with helicopter logging, that is then the method approved in the plans, and the stumpage appraisal should flow from that approval. Second, MB submits that the Respondent s position would strip Canfor of meaning, as one s plans can always be amended. MB argues that, in Canfor, nothing physically prohibited the company from road hauling, however, its plans were only for rail transport. MB says that the Court of Appeal clearly stated that operational plans cannot be divorced from the stumpage appraisal process, yet the Regional Appraisal Coordinator testified that he did not receive any copies of plans along with the appraisal data sheets. MB submits that the approach it is advocating is consistent with the CAM. MB says that it is not dealing with a unique operator situation, but rather applying the principle of least cost, based on a notional average operator, to the method of harvesting approved in its plans. It is not applying for the specific costs incurred by MB.

13 APPEAL NO FAB-01 Page 13 MB also referred the Board to the decision of an Appeal Board in TimberWest Forest Limited v. The Province of British Columbia (Ministry of Forests) (Appeal No. 97- FAB-07, March 4, 1998)(unreported). This decision sets out the principles of the stumpage pricing system included in a document entitled MINISTRY OF FORESTS TIMBER PRICING PRINCIPLES. Key principles include: Licensee Neutrality In the absence of explicit government direction to the contrary, the determination of a given stumpage rate should be the same, regardless of who a potential buyer of the timber might be. Stumpage appraisal estimates should not be different for different applicants. Contract Requirements and Limitations To the extent authorized by approved policies, each stumpage appraisal should take into account the requirements and limitations imposed by the relevant cutting authority documents. [emphasis added] Use of Stand Appraisal Estimates The application of appraisal tables and formulae should not be tied to a given licensee s past or prospective practices. Rather, it should be based upon the typical method of operating in the situation at hand, in concurrence with the approved logging plan, and with the approved appraisal policies. A stumpage appraisal should not deviate from standard policy so as to capture a given licensee s unique efficiency in harvesting or processing. [emphasis added] The issue before the Board comes down to an interpretation of the phrase possible under the cutting authority, and whether the fact that approved plans only provide for helicopter logging is determinative of the issue. As was apparent from the submissions of the parties, there are two different interpretations of the Canfor decision. The Respondent stresses the uniqueness of the facts in that case, and also emphasizes that the Court looked at the real conditions of the operation and the fact that truck haul was not practically possible in the circumstances. The Respondent also focuses on the phrase practical reality as used by the Court, arguing that the reality in this case was that conventional logging could have been carried out by MB. Conversely, MB argues that the ratio of the Canfor case was that an appraisal cannot be divorced from the planning and cutting authority documents. The Board agrees with MB s interpretation of the Canfor decision. First, the Board notes that the reason the Appeal Board in Canfor had commented on the uniqueness of that case was that Mr. Edwards was unable to point to any other appraisal situation where a licensee, with an approved specified operation, was appraised using methods other than the specified operation and that this had made it an unusual, if not unique, situation. The Board finds that the case before

14 APPEAL NO FAB-01 Page 14 it may be equally unique, as the evidence from MB was that it had never been asked to submit two appraisal data sheets in the past, and Mr. Edwards testified that he does not typically receive two sets of appraisal data sheets from a licensee. In otherwords, the usual procedure is that the approved harvest method is set out in the appraisal data sheet submitted by the licensee and forms the basis of the appraisal. Second, while the Court in Canfor looked at the history of Canfor s operation, it overturned the decisions below on the basis that there was an error in interpretation of section 4.1 of the CAM. The Court states: However, as the Board found, the essential issue in this matter is the proper interpretation of s. 4.1 of the CAM. [emphasis added] While the Board agrees that the Court stated that the Board did not look to the practical realities in determining what was possible under the cutting permit, the Court went on to explain what it meant by this phrase. The Court quoted the Appeal Board decision and highlighted portions of the Board s reasons. The Court then stated: As is apparent in the emphasized portions of its reasons, the Board concluded that the appraisal must be divorced from both planning and cutting authority documents to achieve neutrality among licensees. The Court goes on to conclude: As I indicated earlier, I consider that the Board erred when it failed to give meaning to the words under the cutting authority, when it concluded that planning and cutting authority document were not to be considered in the stumpage appraisal process. [emphasis added] The Board finds that the Court s reference to the real conditions under which the licensee or licensees operate, and the practical realities to be considered in determining what is possible under the cutting authority must include an examination of the cutting permits which, in this case, limit the licensee s method of harvesting to helicopter logging or predominantly helicopter logging. The Respondent has submitted that since conventional logging was physically possible, and since the District Manager indicated that he was willing to amend the plans to provide for conventional logging, the appraisal should be based on conventional logging. As stated above, the Board disagrees. The Board finds, first of all, that the term possible under the cutting authority is not limited to a determination of whether it is physically possible. It was physically possible to road haul in the Canfor case, but the Court of Appeal said that was not enough, and that one cannot divorce the appraisal from the planning and cutting authority documents. The Board finds that, pursuant to Canfor, it is bound to consider the cutting permits in concert with the Forest Act, Code, regulations and plans. In this case, the

15 APPEAL NO FAB-01 Page 15 cutting permits require MB to comply with the Code and the Code requires MB to act in accordance with its operational plans. The Board agrees with MB that it was not legally possible to harvest the cutblocks conventionally once the plans for helicopter logging were approved. To do so would be to contravene the terms of its cutting permits as well as the Code. It is not an answer to simply say that plans can be amended. Until plans for conventional logging are actually approved, conventional logging is not legally possible. The Board finds that the fact that the approved plans only provide for helicopter logging, or predominantly helicopter logging is determinative of the issue. The Board also notes that section 4.1 of the CAM provides that cost estimates for helicopter logging operations and conventional logging are weighed according to the applicable net cruise volume under the cutting authority for each system. This supports the Board s findings that it is the method or methods authorized under the cutting permit that determines the stumpage rate. The Board s conclusion on this issue is also supported from a policy standpoint. It requires stumpage appraisal to support other considerations that go into the planning and regulation of forestry activities. The Court of Appeal, in Canfor, commented on the elaborate structure of regulation related to the harvesting of timber. It stated: Today, licensees have to deal with environmental concerns, tourism considerations and issues relating to aboriginal interests among others. Also to be considered is the long-term sustainability of the provincial resource. The Crown provincial through the Ministry seeks to get a fair return on the forest resource and endeavours to ensure that a licensee will behave in a responsible way to realize the maximum potential of the forest resource and at the same time not degrade the environment (p. 228). Pursuant to section 41 of the Code, a District Manager is not required to approve a plan unless he or she is satisfied that the plan adequately manages and conserves forest resources and complies with the Code. If a plan meets this standard and is approved, then operating costs should be assessed based on the harvesting method which is required by the plan. In this case, both parties agree that helicopter logging is the preferred method of harvesting in terms of meeting the objectives and provisions of the Code. Further, the Board s interpretation means that operational plans will drive the appraisal process rather than the appraisal process driving the plans. The Board agrees with MB that to allow otherwise requires the tail to wag the dog. Further, this interpretation of possible under the cutting authority does not undermine the objectives behind estimating operating costs in stumpage appraisal. Operating cost estimates are set off against the value of the timber to allow licensees to recover operating costs based on the average operator standard. As stated in Canfor, the objective of this approach is to encourage efficient operations, as more efficient operators will benefit while less efficient operators will suffer. In

16 APPEAL NO FAB-01 Page 16 this case, MB s actual operating costs for helicopter logging would not be taken into account. The costs appraised according to the method set out in the operating plans will still be assessed on the basis of the average operator. Thus, the average operator principle is not affected. Finally, the fundamental principle that operating cost estimates should not be dictated by licensee preference is not violated here, as it is the approved method of harvesting that is dictating the stumpage rate, and the rate is determined by the least cost to the notional average operator. As MB has submitted, licensees are not going to be extravagant and always apply to helicopter log as it is generally more expensive. However, once plans are approved for helicopter logging, and that is the only method that is legally possible, then the stumpage rate should flow from that determination. As MB has stated, the stumpage system is not about the licensees making money, but about the cost recovery of funds spent on a cutblock. In summary, the Board finds that, given that the approved plans authorized helicopter logging, conventional logging was not legally possible. Therefore, MB s alternative argument and the particular circumstances relating to the five cutblocks at issue need not be considered. DECISION Section 149(1) of the Forest Act provides that an appeal board may confirm, vary or rescind the decision appealed from, refer the determination, order or decision back to the person that made it with or without directions, and make any order that the appeal board considers appropriate in the circumstances. The Board rescinds the administrative review decision of January 8, 1999 and remits the matter back to the Regional Appraisal Coordinator to set the appropriate stumpage rates based on the appraisal data sheets submitted by MB which reflected helicopter logging in relation to Cutting Permit 31 and Cutting Permit 305, and predominantly helicopter logging for Cutting Permit C. The appeal is allowed. Toby Vigod, Panel Chair Appeal Board May 23, 2000