B.C. Court clarifies limits on forestry licence rights amid reconciliation and ecosystem-based management efforts

The British Columbia Supreme Court’s decision in Teal Cedar v British Columbia^[1] provides new guidance as to the limited nature of rights that forest licences in British Columbia convey to the licensee. The case also rejects novel arguments put forward respecting “partial constructive taking” where licenses may be affected in some way by changes to the regulatory landscape and confirms that an additional factor, reconciliation with Indigenous peoples, is indeed contemplated by B.C.’s forestry regime.

While the case explores many issues in expropriation law and the legal character of forest licences, questions remain to be answered in future cases as to the precise legal character of bodies established under government-to-government arrangements between Indigenous governments and the Crown.

Background

In 2010, the Province of British Columbia (the “Province”) enacted the Haida Gwaii Land Use Objectives Order (“LUOO”) to implement ecosystem-based management (“EBM”) on Haida Gwaii and further reconciliation with the Haida Nation.^[2]

The LUOO arose from and operationalizes a 2007 government-to-government Strategic Land Use Agreement (“SLUA”) between the Province and the Haida Nation.^[3] It contemplates a significant change in forest management on Haida Gwaii, including the application of EBM objectives and protecting Haida cultural values.

The Haida Gwaii Management Council (“HGMC”) was established under the KaayGuu Ga ga Kyah ts’as – Gin ‘inaas ‘laas’waadluwaan gud tl’a gud giidaa (Stewardship Law) and the Haida Gwaii Reconciliation Act to implement the LUOO and set the allowable annual cut (“AAC”) of timber on Haida Gwaii through a joint decision-making process.^[4] The 2010 LUOO and HGMC’s 2012 AAC determination resulted in a decreased amount of timber available for harvest on Haida Gwaii.^[5]

Teal Cedar Products Ltd. (“Teal”) held two tenures on Haida Gwaii: Tree Farm Licence 58 (“TFL 58”) and Forest Licence A16870 (“FL A16870”) (collectively, the “Tenures”).^[6] Teal argued that the new or expanded restrictions related to implementation of the LUOO prevented Teal from operating the Tenures in an economically viable way. Teal sold the Tenures and sought damages from the Province and HGMC on three grounds:

1. Breach of the duty of good faith,
2. Partial constructive taking, and
3. Breach of an alleged oral promise by the Province to “keep Teal whole.”

The Court dismissed Teal’s action in its entirety, finding no liability against the Province or the HGMC.

Decision

a. Breach of duty of good faith

Teal argued that the LUOO was established for the purpose of reconciliation, and that this purpose is extraneous to the purposes of the venture to which the Tenures give effect. Teal also argued that the Province’s enactment of the LUOO consisted of a breach of its duty to exercise its contractual discretion reasonably. Teal relied on the SCC’s decision in Wastech Services Ltd. v Greater Vancouver Sewage and Drainage District, 2021 SCC 7, which confirmed a duty to exercise contractual discretion in good faith.

In rejecting Teal’s argument, the Court found that the enactment of the LUOO and setting of the AAC were not exercises of contractual discretion, but rather exercises of statutory power. As such, the Court found that those decisions did not attract the duty of good faith contractual performance. The Court held further that, in any case, reconciliation is not extraneous to the Tenures because they are part of a broader statutory and constitutional framework that contemplates reconciliation. Finally, the Court held that legislation, the Tenures themselves and applicable case law, such as the Supreme Court’s decision in Haida Nation v British Columbia, 2004 SCC 73, “all contemplate recognition and protection of Aboriginal interests and rights on Haida Gwaii” and that the recognition and protection of Indigenous rights and interests are aspects of reconciliation.^[7]

b. Constructive taking / injurious affection

Teal also argued that that the Tenures conferred to it a property interest capable of being subject to a constructive taking, and that the restrictions associated with the LUOO, including prohibition of logging in “reserves,” amounted to a constructive taking of its property interests in the Tenures, and particularly TFL 58.

The Court found that the Tenures did not confer a property interest or right to Teal akin to those described in existing case law, such as a profit à prendre, and that the Tenures did not provide a vested right. The Court held that “[r]ather, [the Tenures’ use] was contingent on the licensee obtaining various permits or authorizations, like a road or cutting permit.”^[8] As such, the Court found that the Tenures, on their own, did not grant Teal a property interest capable of giving rise to a constructive taking. Nevertheless, the Court conducted a detailed analysis of whether there was a taking under the applicable test.

Under the analysis from CPR v Vancouver, 2006 SCC 5 and Annapolis Group Inc. v Halifax Regional Municipality, 2022 SCC 36, a constructive taking requires (1) acquisition by the state of a beneficial interest in the property, and (2) removal of all reasonable uses of the property (the “CPR/Annapolis Test”).^[9] Notably, Teal’s position depended on a “partial” constructive taking, “because Teal did not lose the ability to harvest in non-restricted areas”.^[10] As noted, Teal relied on a series of prior case law to argue that constructive takings could be partial in nature, and that injurious affection provided for compensation for the diminution of land that was not taken.

The Court disagreed and found instead that the cases relied on by Teal predated CPR/Annapolis, and thus hadn’t applied the relevant legal test. The Court also found the injurious affection claim to be unsupported because injurious affection only applies to de jure (as opposed to de facto or constructive) takings, and a statutory right to compensation. As such, the Court found no constructive taking.

For Teal to successfully meet the CPR/Annapolis Test, the Province must have acquired a beneficial interest in the Tenures (assuming first that they were a form of property). However, the Court found that no “beneficial interest” had accrued to the Province. Rather, the Court compared the circumstances to Altius Royalty Corporation v Alberta, 2024 ABCA 105, a case where the Alberta Court of Appeal confirmed that legislated phase out of coal-fired electricity did not amount to Alberta acquiring a beneficial interest because the predicted health and environmental benefits were not “an ‘advantage’ flowing to the state.”^[11]

Similarly in this case, the Court commented that because the LUOO regulates forestry, the outcome did not confer the necessary benefit or advantage to the Province “any more than any legislation or regulation provides a benefit to the Province” as a general concept.^[12] Further, the Court noted that Teal’s rights had not been taken in full, since the Tenures still had economic value (as evidenced by Teal’s sale of the Tenures to a third party). As such, Teal had not been left “with no reasonable use of the tenures.”^[13]

c. Promise to keep Teal whole

Teal also argued that a 2008 oral agreement with then-Minister of Forests amounted to a guarantee or promise that, if the AAC were reduced, the Province would compensate or otherwise ensure Teal kept its full harvest volume intact. The Court held that no clear, enforceable agreement arose from these verbal discussions capable of meeting the legal test for an enforceable agreement. Specifically, the Court found that the alleged “promise” lacked sufficient certainty of terms and was not made with contractual intent. Accordingly, the claim advanced by Teal on the basis of an oral promise to “keep Teal whole” also failed.

Conclusion and potential implications

This decision underscores that reconciliation forms part of the objectives underpinning B.C.’s forestry regime. Further, it suggests that actions of a regulatory nature by the Crown that are grounded in statutory authority (here, enacting a new land use regime that has the effect of restricting harvesting) do not constitute exercises of contractual discretion in a manner that would attract the duty of good faith contractual performance. The decision also clarifies that claims grounded in “partial constructive expropriation” cannot be advanced in B.C., at least in this context.

The Court did not address issues which had been raised relating to HGMC’s legal personality, including whether it has the necessary standing to sue or be sued. As such, the decision leaves open the question of whether a body of this nature which has been established under a government-to-government arrangement can sue or be sued independently from the governments that established it.

Accordingly, as a result of the Court’s decision in this case, forest licensees contemplating litigation directed to the effects of regulatory changes should consider whether the relevant changes are capable of giving rise to a compensable claim before litigating the matter.