SpruceRoots Magazine - November, 1999

by Ian Lordon

Hang on to your wallet because you're going to pay if Husby Forest Products can't log in Duu Guusd. If this strikes some as absurd, think again. Haida Gwaii's second largest logging company is putting itself in position to claim compensation from the provincial government if it isn't allowed to cut a big chunk out of the forests the Council of the Haida Nation designated as protected in 1982.

For years thanks to that designation the Ministry of Forests has postponed logging in most of Duu Guusd, and exempted a 150,000 hectare expanse of old growth forest on the north west corner of Graham Island from development. But now Husby, which has harvesting rights to a large portion of the Timber Supply Area, is claiming the company won't be able to meet its cut quota if it doesn't get access to Duu Guusd.

"The issue has been needing resolution for years and we know it's starting to have greater and greater effects on our operation," says Husby's operations manager Bob Brash. "Obviously the government and the Ministry of Forests have to make some decisions."

On October 5, the government avoided doing just that when Forests Minister David Zirnhelt announced cabinet had passed an order-in-council that spares Duu Guusd from logging for six months. And although the order represents a highly unusual stalling tactic, it does nothing to resolve the issue of Husby's access.
"In simple terms all we are is a company that wants to go logging," Brash says. "If we can't do that, there are some pretty obvious routes we'd have to go."

Chief among those routes would be to sue the province for lost harvesting rights. If Husby were successful, the provincial taxpayer could be forced to pony up millions of dollars in compensation for the company simply because the Haida and the communities on Haida Gwaii have plans for Duu Guusd which don't necessarily include logging.

Even if Husby succeeds in gaining access to Duu Guusd, and the taxpayer avoids the expense of paying off the company, this won't be the last time a logging operator sues the province for lost harvesting rights. With over fifty native treaties in progess, and a growing demand for more parks from the public, it's entirely conceivable BC residents could wind up paying hundreds of millions, even billions, of dollars to displaced logging companies in future compensation settlements.

Government is confronted with compensation every time it wants to change the way land in BC is used. The problem is there are more uses for the land than there is land to go around. And if the government decides to create a park, a new private residential or commercial area, grant land to any First Nation as part of a settlement, or even reallocate tenure to communities, it will be doing so at the expense of some other third party interest. Most likely a forestry or mining company.

When land is redesignated, it is almost inevitable that the affected company will litigate in order to recoup what it has lost. And to date, whenever this happens the province immediately turns to closed-door negotiations to work out a payoff.

What follows is a battle of wits between lawyers representing the public and those of the affected company. The public, which ostensibly owns the land in question, is locked out of the process and winds up footing the bill for whatever settlement the two sides finally reach.

In 1992, the province moved to address the problem and struck the Commission of Inquiry into Compensation for the Taking of Resource Interests. Dr. Richard Schwindt, professor of economics at Simon Fraser University, headed up the inquiry and late in the same year released a comprehensive report complete with recommendations.

In his report, Schwindt recognized that companies which lose resource interests as a result of government expropriation are owed compensation. He outlined in general terms the grounds for claiming it, and he recommended that government adopt policy or legislation defining what resource interests actually amount to.

"...the definition of resource interests should be clarified," Schwindt wrote in his report. "The absence of clear agreement on their status, and on principles of compensation, gives rise to conflicts between resource holders, interest groups, and governments. At the present time these conflicts are not easily resolved through negotiation and give rise to unnecessarily expensive and acrimonious litigation. In effect, the lack of a clear definition of what is compensable has raised settlement costs to an unacceptable level.

Today, Schwindt still stands by his report and its recommendations. He claims if anything the need for clarity from government regarding compensation has become even more pronounced since he examined the issue in 1992.

"A clear definition would reduce the cost of compensation settlements because the moment you've got a formula in place, right or wrong, you follow the formula. There isn't all this litigation," Schwindt says. "What we want is transparency so that everybody knows how that value will be calculated.

When Schwindt released his report, Attorney General Colin Gabelmann announced the province would develop legislation providing fair compensation for BC's forest and mining companies in the event of any government expropriation of resource interests. Gabelmann promised it would be introduced during the spring session of the legislature in 1993, however, seven years later legislation on the issue still hasn't seen the light of day.

Since then the province, and by extension the BC taxpayer, was nailed several times in lengthy and expensive compensation settlements stemming from land use disputes like the Kemano completion project (final price tag- $1-billion), and the Windy Craggy mine claim ($166-million). And at this very moment provincial representatives are conducting closed-door negotiations to determine third party compensation for companies who lost resource interests as a result of the Nisga'a treaty.

With dozens of treaties still before the province, it's safe to say that as each one is settled the government will be subjected to a long, steady stream of third party claims for compensation in the future. To top it off, every time this happens the public will be expected to pay millions of dollars in compensation to companies who have profited from exploiting publicly-owned land as a result of negotiations it was never privy to.

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Although government's ambitions for legislating some kind of solution to the compensation question appear to have died years ago, the issue and the problems associated with it remain alive and well. And last summer the province received one more explicit reminder that its lack of a clear policy for dealing with compensation claims is causing confusion and resentment among members of the public

The reminder was contained in lawyer David Perry's report on the MacMillan Bloedel Parks Settlement Agreement which he released after touring more than a dozen communities affected by the deal. The agreement handed MB over $83-million in return for harvesting rights the company lost when the province created several new parks on Vancouver Island.

Members of the public at Perry's meetings were incensed by the prospect of shelling out millions in tax dollars to a company simply because they wanted to use Crown land for parks instead of tree farms. In his report, presumably so that he or his successors would not be subjected to similar public outrage as a result of future settlements, Perry called for legislation dealing with compensation claims.

"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," he wrote. "...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. 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."

Yet despite the persistent, compelling, and burgeoning grounds for government intervention of some kind, there appears to be absolutely no-one within the legislature or the bureaucracy today examining the issue or possible solutions to it.
Ken Baker, a project manager with the Ministry of Forests, says it hasn't always been that way. Following the Schwindt report a few legislative options were considered, including changes to those portions of the Forest Act dealing with compensation, but the province balked at following through because intense opposition from the forest industry made any action politically unpalatable.

"The forest companies would go ballistic," Baker says. "There have been several times when politicians stepped up to the plate, but they took one look at the pitcher and headed back to the dugout."

David Boyd, professor of Environmental Law at Simon Fraser University, says industry is opposed to compensation law because it is enjoying so much success with the status quo. Meanwhile he contends that government, already burdened with enough controversy, is content to leave well enough alone

"It's probably easier to do one-off deals where you're simply facing one adversary than to try and put together a comprehensive policy where you're going to face opposition from every single mining and forestry company trying to make your policy from a taxpayer's view, as weak as possible, and from a corporate view as generous as possible," he says. "The reality is that if you're a company and you're looking at the deals that have happened, the ad hoc approach looks pretty good."

Boyd believes sooner or later government is going to have to face up to its legislative responsibility and deal with the compensation question because a cash-strapped province can't afford to continue offering rich settlements, and the issue isn't going to go away.

"Oh no, if anything it's only going to become more and more prominent," he says. "We know that we're still creating parks, and we know that aboriginal treaty settlements are going to have a huge impact in terms of compensation negotiations. We're already riding at a gallop down this road and it's up to the public to pressure this government to bring in a policy or a program that protects the taxpayer's interest in this matter."

Even industry isn't entirely at ease with the province's current approach to compensation. MacMillan Bloedel's Chief Forester Bill Cafferata, who was at the negotiating table which struck the Parks Settlement Agreement, says although he feels the company got a reasonably fair deal, how the two sides arrived there remains a bit of a mystery

"We finally agreed on a number," he says. "We did it. A deal's a deal, but you always think you could do better."

Which isn't to say the government behaved unscrupulously, only that engaging in a process where there is so much on the line without any clear rules inevitably casts doubt upon the outcome.
"I think the government people we dealt with acted with integrity," Cafferata acknowledges, "but negotiations with anybody, especially with government, are never a place to be with comfort."

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Nevertheless, the province continues to ignore policy changes in favour of the ad hoc approach. Assistant Deputy Minister of Forests, Bruce McRae, is responsible for negotiating compensation for third party interests affected by the Nisga'a treaty. He's been at the table for more than a year, steadily incurring negotiation costs, but to date most of the claims remain unsettled.

McRae is smack dab in the middle of the compensation policy void. He's hammering away at the table, beyond the eyes of the public, and after more than a year he's getting nowhere. It's exactly this sort of dragged-out, closed-door settlement that Schwindt wanted government to correct with a clear compensation policy.

Like every treaty the government will ultimately negotiate, the Nisga'a deal must accommodate the First Nation concerned, and any interests displaced through that accommodation. McRae suspects the character of treaty settlements will change depending on where title is claimed. If, for example, a First Nation is claiming an area that is now urban in nature, the settlement will be largely cash-based. If the area is rural, there will probably be a larger land component. Naturally, it will be in settlements of the second kind where there is more compensation paid out to third party interests.

"What's being done here is essentially no different from what's being done with the parks," he says, adding that compensating these interests is government's only recourse when the entire provincial land base is already tied up in tenure of one form or another. "There's nowhere to move the tenure, the trees are all committed."

McRae says he has a maximum of $25-million to settle claims from third party interests affected by the Nisga'a treaty, and that figure includes compensation for fishing, mining, and forestry interests. Because many treaties won't involve any land transactions, and because the Nisga'a deal is one of the larger ones, McRae believes the final bill for settling third party claims for every treaty in BC will not be as high as some fear it may be.

But the nagging question many people in the province ask every time one of these deals is struck remains- how is it that taxpayers can be held financially liable for telling a company to get off their land? Particularly when the company has enjoyed years of profit from using the land in the past.
The simple answer is that it's the law.

Section 53 of BC's Forest Act essentially obliges the province to compensate tenure holders whenever the government takes away more than five percent of the company's cutting rights. Like it or not, that's the way it is.

The existing law is an inelegant compromise in the debate over to what degree resource interests like forest tenure can be considered property. Or, in other words, to what extent is resource tenure considered resource ownership. Schwindt explains the debate this way:

"A large number of environmentalists say that these things (tenures) have been created, they're at the pleasure of the Crown, and the Crown should be able to take them away. People didn't pay anything for these things, so we should be able to take them right back," he says. "At the other extreme are the forest companies that think because they are such valuable contracts they are private property."

Schwindt falls somewhere in between. He says when the province grants tenure to companies it creates the expectation that they will be able to continue harvesting trees for a certain period of time. Based on that expectation these companies make investments in roads, mills, and other infrastructure they wouldn't otherwise have made, and if their tenure is revoked they stand to lose money.

The law reassures companies and investors by providing them with some security. So that should the province renege on tenure, the company involved will receive compensation. Without that reassurance, Schwindt says no company would be willing to invest money in developing a tenure which could vanish at any given moment.

"The analogy you might want to use is with the people that have invested in housing on Musqueam reserve land," he muses. "It's true the Musqueam can do as they please. And they are raising the rent. And they are bankrupting a number of people. People will leave. Why? Because these people have made investments based on what they supposed to be a promise of reasonable rents."

Similarly, the province has every right to pass laws allowing BC to expropriate tenure whenever it wants without paying compensation, but that freedom would come at a price. Namely that investors would be loath to continue putting money into resource development without any form of security and soon after the economy would suffer. Schwindt predicts the current situation on the Musqueam reserve will have much the same outcome

"Absolutely, the Musqueam have the right to do what they're doing, but they're going to change people's behaviour in the future."

So how can the province meet industry's need for security while simultaneously redesignating some of the land base to others without selling out the taxpayer? Well, it could start by developing policy or legislation.

Boyd definitely leans towards some sort of compensation policy that is more successful at representing the interests of the taxpayer than the status quo. But recognizing there is a good chance the province may never get around to dealing with the issue, he has some suggestions on how to handle some of the more pressing demands like native title within existing legislation.

"An obvious interim solution would be to use the provincial government's ability to takeback five percent from all the licensees without compensation and give it to First Nations," he proposes. "It's happened before - in 1988 the Socred government, under pressure from small logging operators, took back five percent from every major licensee and put it into the Small Business Forest Enterprise Program without paying a cent of compensation. The question I ask everybody is: Who has got a stronger claim to having five percent of the wood taken back and given to them? The small business program, or the First Nations of this province? It doesn't matter if you're a redneck, you can't answer that one the wrong way."

And Boyd is absolutely right. The Province could take back five percent from every major tenure in the province without paying compensation. In fact, the Province has the legal right to take even more than five percent - provided every single tenure holder in BC suffered a reduction of the same percentage. Unfortunately, if you happen to be a taxpayer, the government seems reluctant to antagonize the forest industry to quite that extent.

This is only one option among several, but so far the province has chosen to ignore them. Won't even consider them. And as long as the issue remains neglected the government will continue settling these claims one drawn-out, litigious deal at a time, the companies will continue profiting by winning rich settlements, and the public will continue to be kept in the dark and left holding the bag.

SpruceRoots Magazine - November, 1999