Teal Cedar Products Ltd. v. British Columbia (Ministry of Forests), 2012 BCCA 70

In Teal Cedar Products Ltd v. British Columbia (Ministry of Forests), the British Columbia Court of Appeal clarified the circumstances surrounding compensation provided under s. 7 of the Protected Areas Forest Compensation Act ("Compensation Act") and s. 60 of the Forest Act. Justice Saunders held for the court that compensation can only be calculated starting from the date of the reduction in the allowable annual cut.

In April 1993, Teal Cedar Products Ltd purchased a forest license under the Forest Act to harvest a stipulated volume of wood annually from an area called Chart Area 112. Shortly before the purchase, the Ministry of Forests had suspended logging in part of the area while considering the possibility of a provincial park, which materialized in July 1995. Although the park's creation prohibited further logging in that part of Chart Area 112, Teal's allowable annual cut was not impacted until it was reduced on April 1, 1999. British Columbia appealed from an order to compensate Teal for its loses from July 1995 to April 1, 1999.

Saunders J. held that although the government's actions were a "taking," the relevant compensation scheme was dictated by s. 7 of the Compensation Act and s. 60 of the Forest Act, rather than the provincial Expropriation Act. Justice Saunders disagreed with both the arbitrator and trial judge's interpretations and found that the two provisions provided a complete code of compensation. She distinguished this case from Toronto Area Transit Operating Authority v. Dell Holdings, which provided compensation for losses from a preceding period where they were caused by a scheme associated with the "taking", holding that the language of s. 60(4) of the Forest Actonly provides compensation from the date of the reduction in the allowable cut. Saunders J. held that compensation commences from April 1, 1999 when the allowable annual cut was reduced, and allowed British Columbia's appeal.

February 13, 2012
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Adrienne Ho
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Daishowa Paper Manufacturing Ltd. v. Canada, 2011 FCA 267

In Daishowa Paper Manufacturing Ltd. v. Canada, the majority of the Federal Court of Appeal ("FCA") affirmed the characterization of reforestation liabilities as proceeds of disposition for the purposes of the Income Tax Act (“ITA”). Mainville J.A., in dissent, held that such liabilities should flow with the property.

The case arose when the appellant sold two of its subsidiary timber businesses. Both sales included the assumption by the purchasers of medium-term silviculture (reforestation) liabilities whose values were fixed by the terms of sale. These liabilities arise when a stand of trees is cut down, but are not satisfied until a sufficiently reforested tree crop surpasses a free-growing growth point, typically after eight to fourteen years. Since subpara. 39(1)(a)(iv) of the ITA excludes timber resource properties from capital gain treatment, the Minister of Revenue (“Minister”) viewed the amounts as proceeds of disposition within the meaning of s. 13(21) of the ITA, and accordingly included them in the appellant’s income for the relevant taxation years.

The Tax Court of Canada agreed that the amounts were proceeds of disposition, but discounted the long-term liability for tax purposes to recognize that the actual cost of the liability cannot be known until some years after the sale. The FCA held that it was not open to the court to discount the liabilities, but Justice Nadon (Layden-Stevenson J.A. concurring) agreed that the reforestation liabilities should be included in the appellant’s proceeds of sale. Justice Nadon noted that both contracts agreed to a specific valuation of the reforestation liabilities, and held that this must be the valuation used for income tax purposes. He emphasized that for the purposes of the ITA, the distinction between absolute and contingent liabilities is irrelevant; the key question is how the parties have chosen to value the iability in their contract of sale. Furthermore, the deduction in price that the appellant assumed based on the assumption of liability by the purchaser cannot lead to a reduction of the value for income tax purposes.

Justice Mainville, dissenting, would have found that, as reforestation liabilities form an integral part of the forestry business, and as the government will not allow the sale without the inclusion of the liabilities, the liabilities flow with the property. Consequently, they cannot be regarded separately from the rest of the sale and should not be added to the proceeds of disposition. Justice Mainville held that the majority's approach would create a system in which vendors who do not specifically value their liabilities would escape taxation.

September 23, 2011
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Zarya Cynader, Marc Gibson & Mary Phan
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Maritime Electric v. Summerside (City of), 2011 PECA 13

In this case, the Prince Edward Island Court of Appeal assessed whether the constitutents to be considered in the "public interest and necessity" test in section 2.1(2) of the Electric Power Act include province-wide customers of Maritime Electric's service, or simply those directly provided with electricity by the proposed City of Summerside electric energy plan. Justice McQuaid, writing for the majority, held that only customers to be provided with "service" under the proposed plan could be considered. In partial dissent, Chief Justice Jenkins found that all of Maritime Electric's customers were potentially affected, and should be considered within the test.

This appeal and cross-appeal were brought by the City of Summerside and Maritime Electric, following an application to the Island Regulatory and Appeals Commission for a permit allowing the City to construct a line and connect its substation to Maritime Electric's Bedeke station. In deciding to grant the permit, the Commission was to consider the public convenience and necessity of the area the applicant, the City, intends to service. Justice McQuaid found that the simple transmission of electrical energy over a geographical area does not constitute "service". According to s.1(1)(g) of the Act, "service" is the transmission or provision of electric energy for the benefit of customers and for compensation. Thus, only customers actually receiving the transmitted energy and paying fees in exchange are to be considered in the public convenience and necessity test. This includes customers of the City utilities within the city boundaries and beyond, but not customers of Maritime Electric in overlapping or other areas.

In partial dissent, Chief Justice Jenkins found that Maritime Electric customers further afield should also be considered in the test. Jenkins C.J. undertook a consideration of s.2.1 based on a modern interpretation of the Act in the context of the modern electric service franchise granted to Maritime Electric in exchange for guaranteed service to all areas of PEI. He rejected any analysis of analogous terms in former incarnations of the legislation and previous cases, noting that they had been decided when the legislation was aimed at standardizing quality and access across a number of small, independent electric providers across the province, each with a defined area of service. Relying on the language in the preamble of the Act, Jenkins C.J. argued that the present Act was designed to encourage reasonable and publicly justifiable rates for electrical power, and that a broader definition of "service" was required to achieve this goal.

July 13, 2011
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Webnesh Haile