Timberwest Forest Corp. v. Canada

Timberwest Forest Corp. v. Canada
Court (s) Database
Federal Court Decisions
Date
2007-02-08
Neutral citation
2007 FC 148
File numbers
T-1390-01
Decision Content
Date: 20070208
Docket: T-1390-01
Citation: 2007 FC 148
Toronto, Ontario, February 8, 2007
PRESENT: The Honourable Mr. Justice O'Keefe
BETWEEN:
TIMBERWEST FOREST CORP.
Plaintiff
and
HER MAJESTY THE QUEEN
IN RIGHT OF CANADA
Defendant
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is a proceeding brought by the plaintiff, TimberWest Forest Corp., pursuant to subsection 48(1) of the Federal Courts Act, R.S.C. 1985, c. F-7, challenging the validity of a federal scheme controlling the export of logs harvested from private lands in British Columbia. The plaintiff contends that the federal export scheme promulgated under the policy statement, Notice to Exporters Serial No. 102 (Notice 102), is not authorized by the Export and Import Permits Act, R.S.C. 1985, c. E-19 (EIPA), and moreover, is unconstitutional as being an attempt by the federal government to regulate in an area of provincial jurisdiction.
[2] The plaintiff seeks:
(1) a declaration that Notice 102 is ultra vires and of no force or effect;
(2) a declaration that EIPA does not authorize the establishment of a unique legislative and administrative scheme applicable to the export of logs harvested from privately owned lands situated in British Columbia that is distinct and different from that which prevails for the export of logs harvested from other privately owned lands situated in any other province or territory in Canada; and
(3) costs of the trial.
[3] The defendant requests that this action be dismissed with costs.
[4] Furthermore, in the amended statement of claim, the plaintiff at paragraph 1(c) seeks “damages in the amount of $250 million for losses suffered by the plaintiff as a result of the Notice”, and at paragraph 18(g), is asserting losses of $250 million since issuance of the Notice. However, pursuant to the order of case management judge, Justice O’Reilly, dated April 13, 2005, this matter proceeded to trial without requiring the parties to adduce evidence at trial on any issue of fact relating solely to these allegations of damages and losses (the bifurcated issues). If, following trial, it appears that any of the bifurcated issues require determination, a hearing under Rules 107 and/or 153 shall by conducted to determine them, including necessary documentary and oral discovery. The question of whether such hearing shall proceed by way of further trial or reference and the procedure to apply in respect of any such proceedings shall be determined by the trial judge.
Background
[5] TimberWest is the largest owner of private timberlands in B.C. It sells the logs harvested from its lands in the B.C. market as well as to buyers in the U.S. Pacific Northwest, Japan, Korea, Taiwan and China. Logs command a higher price in the international markets than in the domestic market. TimberWest and other log producers therefore have a significant financial interest in the export of logs.
[6] The cost of moving logs over land between B.C. and other provinces is prohibitively expensive due to the mountain ranges in B.C. Logs from B.C. are thus seldom shipped to other provinces. However, the province’s access to salt water ports and the lower cost of shipping over water provide for easier access to international markets, particularly, the U.S. Pacific Northwest and Asia. B.C. is the largest provincial exporter of logs by volume and number of shipments. Log exports from B.C. generated $527 million in revenues in 2005. Ontario, the second largest provincial exporter of logs, generated log export revenues of $55 million in 2005.
[7] That said, only a small percentage of raw logs are actually exported out of Canada. Statistics Canada estimates that in 2003, 6.2% of the logs harvested in B.C. were exported, and 1.2% of the logs harvested in Ontario were exported. (At trial it was pointed out by David Gyton, a consulting forester, that this estimate is not reliable because Statistics Canada relies on data obtained from U.S. Customs. Nevertheless, this is the best available information.) The logs that are not exported are used in the domestic log processing industry. They are processed into wood products such as softwood and hardwood lumber, pulp and paper products, panels, and value added products, for example, moulding and furniture. B.C. is the largest provincial exporter of lumber products. B.C. lumber exports generated $6.4 billion in revenues in 2005, 12 times more than those for B.C. log exports.
[8] This case concerns export controls for logs, as opposed to wood products. Under federal legislation, the export of logs is prohibited unless an export permit is issued by the Minister of Foreign Affairs and International Trade (the Minister). This permit requirement is set out in the EIPA, sections 7 and 13, and the Export Control List, S.O.R./89-202, item 5101 (Export Control List).
[9] For a long time, the issue of log export controls has been a sensitive political, social and environmental issue in B.C. Log processors support the banning of log exports, since the processing of logs within the province creates employment and adds value to local industry. Environmentalists also support the banning of log exports, arguing that increasing exports results in greater deforestation and unnecessary environmental destruction. By contrast, log producers, which benefit from the higher prices in the international market, are opposed to log export controls.
[10] The federal government and the B.C. government have co-operated in the field of export controls over B.C. logs, by adopting a restrictive log export policy so as to ensure an adequate supply of logs for log processors in B.C. Generally, logs proposed for export must be offered first to domestic log processors by way of advertisement for sale on a bi-weekly list. If no fair offers are received in response to the advertisement, the logs are considered to be surplus to domestic needs and an export permit is issued by the Minister. Conversely, if fair offers are received, the logs are not considered to be surplus and an export permit is normally refused.
[11] A consequence of this export scheme is that it pits log producers against log processors in a strategic game in which deals are struck to ensure that proposed log exports are not blocked from export. Log producers are of the view that log processors should always approach log producers directly to purchase logs, rather than submit offers on logs that are advertised on the bi-weekly list. Log producers refer to any offers made on proposed log exports as “blocking” offers because they prevent the log exports from reaching their intended customer in the international market. Log processors, however, view the process of making an offer on logs advertised on a bi-weekly list as simply a means to obtain a supply of logs if the log producer is unwilling to supply the logs. TimberWest’s strategy to reduce the number of blocking offers is to negotiate with sawmills to give them supplies of logs in exchange for an agreement not to block the log exports. This strategy is also followed by a number of other B.C. log producers, including Darkwoods Forestry, Merrill & Ring, and Island Timberlands.
[12] TimberWest and other log producers claim that the export scheme in B.C. favours the log processing sector at the expense of the log producing sector. They claim that it has the effect of artificially lowering the price of logs in the domestic market because log producers are ensured an adequate supply of cheap logs. Also, international buyers discount the price they are willing to pay for a parcel of logs given that shipments of logs are not guaranteed, as export of logs may be blocked by an offer from a domestic purchaser.
[13] The provincial log export restrictions are set out in Part 10 of the Forest Act, R.S.B.C. 1996, c. 157 (The B.C. Forest Act). Section 127 provides that timber harvested from Crown land or from private lands granted by the Crown after March 12, 1906 must be used and manufactured in the province. Exemptions to this rule may be granted where (a) the timber would be surplus to the requirements of log processors in British Columbia, (b) the timber cannot be processed economically, or (c) the exemption would prevent the waste of or improve the utilization of timber (see section 128 of the B.C. Forest Act).
[14] The first ground of exemption is known as the surplus test. It operates by permitting B.C. log processors to make offers on timber that is proposed for export. If offers are received, the provincial Timber Export Advisory Committee (TEAC) considers these offers and determines whether they are reasonable. If no reasonable offers are received, the logs are deemed surplus to domestic needs and the province exempts the logs from the application of section 127 of the B.C. Forest Act. Where logs are given provincial authorization to leave B.C., the provincial government charges a “fee in lieu of manufacture” which is intended to capture the benefits that are lost to the province when logs leave the province for processing elsewhere.
[15] Once the province approves export pursuant to the TEAC process, a federal export permit is still required to export the logs. It is usual practice for such a permit to be granted following the provincial authorization for export.
[16] The export restrictions in Part 10 of the B.C. Forest Act do not apply to timber from private lands granted by the Crown before March 12, 1906 (the date on which the province enacted province-wide legislation restricting the export of logs). To fill in the gap, the federal government adopted a policy which applies the surplus test to proposed log exports harvested from lands in B.C. which are not subject to the control of Part 10 of the B.C. Forest Act. It is this federal export policy that is presently being challenged by TimberWest. The vast majority of TimberWest’s private timberlands were originally granted by the Crown before March 12, 1906 and therefore is subject to the federal policy.
[17] To put the export restrictions in context, it should be noted that in B.C., provincial Crown lands comprise 95% of the land holdings, federal Crown lands comprise 1%, and private lands comprise the remaining 4%. Almost two-thirds of the B.C. softwood log exports in 2005 came from private lands. TimberWest and Island Timberlands together own 75% of the private lands on the B.C. coast.
[18] The federal export policy came about because the B.C. government had approached the federal government for assistance in managing their forest industry and protecting local jobs and industry by restricting the export of logs from B.C. To formalize the co-operation in the field of export controls over logs, the two governments signed a Memorandum of Understanding (MOU) on March 30, 1998. It is stated in the MOU that its purpose is to “recognize the importance of export controls in ensuring an adequate supply of logs for domestic manufacture”. Don Ruhl, the current chairman of TEAC and long-time secretary, explained at the trial that he understood that this reference to “domestic manufacture” meant “manufacture in the province” because he looked at it in the context of provincial export controls.
[19] The MOU was followed by Notice 102, published on April 1, 1998 by the Department of Foreign Affairs and International Trade (DFAIT). Notice 102 is a statement explaining the policy and administrative practice that the Minister will generally follow in exercising his discretion to issue export permits for logs harvested from lands in B.C. which are not subject to the control of Part 10 of the B.C. Forest Act. With respect to such logs, the practice stated in Notice 102 is as follows:
(1) An exporter of logs obtained from private lands in B.C. must first submit to the Export Controls Division (ECD) of the DFAIT an application to advertise the logs for domestic sale. A copy of this application must be sent to the regional office of the B.C. Ministry of Forests (BCMOF) where the logs will be advertised. (See paragraph 2.1 of Notice 102.)
(2) Upon receipt of the application to advertise, the ECD/DFAIT will request the BCMOF to notify potential domestic purchasers that logs are available for domestic sale and that they may submit written offers, normally within 14 days of the notification date. (See paragraph 2.2 of Notice 102.)
(3) If offers are made within the required time period, the offers are forwarded by the ECD/DFAIT and/or the BCMOF to the Federal Timber Export Advisory Committee (FTEAC) (see paragraph 2.4 of Notice 102). The FTEAC considers whether any offers made are fair and makes a recommendation to the ECD/DFAIT, which will then review the FTEAC recommendation and any other relevant factors in determining whether or not an adequate supply of logs exists. The Minister then decides on whether to issue an export permit. In making this decision, the Minister considers whether the logs are surplus. (See paragraph 4.4 of Notice 102.)
(4) If no offers are received within the required time period, the ECD/DFAIT will consider this and any other factors in determining whether the logs are surplus to domestic requirements. If the logs are determined to be surplus, the exporter is asked to submit an application form for an export permit, and the ECD/DFAIT will undertake to process the application. (See paragraph 3.0 of Notice 102.)
[20] Evidence was adduced at trial showing how export permits for B.C. logs are issued in practice. Parcels of logs proposed for export are advertised for domestic sale on a bi-weekly list, which is available on a B.C. government website, not on a federal government website. Each page of the bi-weekly list is headed with the words “Ministry of Forests, Province of British Columbia” and the seal of the province of British Columbia. Log applications which are covered by Part 10 of the B.C. Forest Act are listed under the heading “provincial timber”. Log applications which are not covered by Part 10 are listed under the heading “federal timber”. Both federal and provincial timber applications appear on the same bi-weekly list and are organized by region.
[21] In the majority of cases, no offers are received in response to the advertisements in the bi-weekly list. As a general practice, the Minister grants export permits for federal applications where no offers have been received.
[22] In the few cases where offers are received, the offers are reviewed by a pair of committees, TEAC and FTEAC, to determine whether they are fair offers—in other words, whether the offers reflect fair market value in the domestic market. The same surplus test is applied to federal and provincial timber applications. Timber is considered to be surplus to the needs of B.C. if no fair offers have been received.
[23] FTEAC then makes a recommendation to the Minister as to whether an export permit should issue on a federal application. If the offer on the proposed log exports is fair, the FTEAC usually recommends that the Minister refuse a permit. If the offer is unfair, FTEAC usually recommends that the Minister issue a permit. The Minister follows the recommendation in most cases.
[24] However, the Minister does take into account other considerations in the exercise of his discretion, including considerations raised by log producers in their representations to the Minister. The types of representations that are made by log producers include the following:
(a) the offer is invalid as it was made by a company which has exported logs within the preceding 90 days (paragraph 4.3(a) of Notice 102);
(b) the offer is invalid as it was made by a company which is not a log processor (paragraph 4.3(c) of Notice 102);
(c) the offer should be dismissed as it does not represent fair market value; and
(d) the offer should be dismissed because the log parcel on which the offer is made is the only one of its kind that received offers, and as such, those logs are not in short supply (see, for example, Trial Exhibit D-1, letter from Merrill & Ring to Mr. Jones dated December 23, 2002).
[25] Thomas Jones, the federal representative on FTEAC from 1998 to 2004, testified that he invited log producers to submit representations with respect to whether the offers were valid or reflected fair market value. In many cases, he forwarded their representations to the Minister for consideration. There was evidence that Merrill & Ring had made verbal and written representations to DFAIT concerning certain offers, and the Minister responded by dismissing the offer and issuing a permit in some of those cases.
[26] There was also evidence that the Minister does not always apply the surplus test for proposed log exports. An Order-in-Council (OIC) is issued by provincial Cabinet to exempt logs from provincial control under Part 10 of the B.C. Forest Act. Sometimes such orders are issued without application of the surplus test and the TEAC process. For example, provincial OICs are often issued under the economic criteria test set out in paragraph 128(3)(b) of the B.C. Forest Act. In such cases, a federal export permit is usually granted authorizing those logs to leave Canada, without consideration of the surplus test. Moreover, federal export permits are sometimes granted for timber harvested from private lands adjoining the OIC lands and which are not subject to provincial control under Part 10 of the B.C. Forest Act. This is done without application of the usual surplus test, in order to ensure equal treatment of similarly situated logs.
[27] The composition and practice of TEAC and FTEAC demonstrate that the federal government is dependent on the provincial government for administration of the log export policy. FTEAC is composed of the members of TEAC plus a federal representative. Apart from the federal representative who is appointed by the federal government, all the committee members (currently there are eight members plus a secretary) are appointed by the B.C. Minister of Forests. The federal government is consulted on such appointments but it has never objected to an appointment.
[28] Compensation to the committee members, in the form of a per diem honorarium plus expenses, is paid by the B.C. government. The federal government pays the travel expenses of the federal representative. TEAC and FTEAC have never met outside of B.C., and they often meet in a B.C. government office.
[29] There is one agenda for the combined TEAC/FTEAC meetings and one set of minutes is produced. Both federal and provincial timber applications are reviewed at the meetings.
[30] The written procedures on which TEAC and FTEAC operate are provincial ones, as no federal procedures exist. Data for all applications which are considered by TEAC and FTEAC are handled by a provincial government computer system, and is not available on a federal government computer system, although efforts are being made to migrate the federal data to a federal system.
[31] Since April 1, 1998, the date on which Notice 102 was issued, two individuals have sat as the federal representative on FTEAC, namely, Thomas Jones (from 1998 to 2004) and Judy Korecky (from 2005 to the present). Both of them are based in Ottawa and have not had personal first-hand experience in the B.C. forest industry, other than their membership on the committee. Mr. Jones and Ms. Korecky rely on the expertise of the other committee members in the market review portion of the meetings and in assessing the fairness of the offers received on proposed timber exports. The other committee members have ties to the B.C. log processing industry and have considerable experience in the forestry markets.
[32] While Mr. Jones and Ms. Korecky have travelled to B.C. for TEAC and FTEAC meetings, they have mainly participated in meetings via teleconference. TEAC and FTEAC have often met without the federal representative being present or participating in any way. For example, Mr. Jones missed nearly two consecutive years of meetings between 2000 and 2002. He explained that his primary responsibility was to deal with the export of strategic and military goods, and such duties took him out of the country for significant periods of time.
[33] A previous challenge to the federal export policy for B.C. logs was brought in K.F. Evans Ltd. v. Canada (Minister of Foreign Affairs) (1996), [1997] 1 F.C. 405 (T.D.), appeal dismissed for being moot (1998) 223 N.R. 212 (F.C.A.). K.F. Evans was a judicial review of the Minister’s refusal to issue export permits for logs harvested from private lands which were not subject to the provincial forestry act. The applicant argued that the Minister’s discretion had been fettered pursuant to the policy expressed in Notice 23 (the predecessor to Notice 102). The Court found that the Minister had improperly fettered his discretion because he adopted a policy of not granting permits unless export was approved by TEAC. As a result, the impugned decisions were referred back to the Minister for re-determination.
[34] The present challenge to Notice 102 is structured differently than the challenge to its predecessor notice in K.F. Evans. In the present case, the issue is whether the practice under Notice 102 falls within the EIPA and the constitutional authority of the federal government.
[35] The plaintiff claims that the core defect in the old regime which had been criticized by this Court in K.F. Evans (namely that the government is abdicating its authority under the EIPA to regulate the export of resources in a single province to the provincial regulatory regime) was not remedied. The plaintiff argues that it is time for this Court to issue a definitive pronouncement that any regime with the basic characteristics of Notice 102 is illegal and unconstitutional.
[36] It is worth noting that with one exception, logs are the only product in Canada for which a notice to exporters has been issued which treats goods differently based on province of origin. The exception is roe herring, which requires an export permit only if it is obtained off the B.C. coast. The plaintiff suggests that roe herring is clearly within federal jurisdiction because of the federal government’s responsibility over oceans and fisheries.
Issues
[37] The plaintiff framed the issues as follows:
Does the plaintiff have standing to challenge Notice 102, and can Notice 102 be declared invalid by this Court even though it is neither a statute nor a regulation? Is Notice 102 invalid as not being authorized by the Export and Import Permits Act? Is Notice 102 invalid as being an attempt by the federal government to regulate in an area of provincial jurisdiction?
[38] The defendant framed the issues as follows:
Is Notice 102 subject to limited review as a non-statutory instrument? Is Notice 102 consistent with the Export and Import Permits Act? Is Notice 102 consistent with the federal jurisdiction under the Constitution Act, 1867 (U.K.), 30 & 31 Vict., c. 3, reprinted in R.S.C. 1985, App. II, No. 5.?
Plaintiff’s Submissions
I. TimberWest has standing to challenge Notice 102 and Notice 102 can be held invalid although it is neither a statute nor a regulation
(a) Notice 102 is subject to judicial review
[39] The plaintiff submits that Notice 102 is not immune from review. It is submitted that all non-statutory instruments (guidelines, policies and government programs) can be challenged as being illegal on administrative law grounds or as unconstitutional. The plaintiff cites a leading Ontario Court of Appeal decision in Ainsley Financial Corporation v. Ontario Securities Commission (1994), 21 O.R. (3d) 104 (C.A.), where the Court at page 109 recognized three circumstances in which a non-statutory instrument will be struck down: (i) where it contradicts a statutory provision or regulation; (ii) where it pre-empts the exercise of a regulator’s discretion in a particular case; or (iii) where it imposes mandatory requirements enforceable by sanction such that the regulator is issuing de facto laws disguised as guidelines. The plaintiff submits that all three circumstances are at issue in this case.
[40] The plaintiff also refers to Independent Contractors and Business Association of British Columbia v. British Columbia, [1995] 7 W.W.R. 159 (B.C.S.C.), where the British Columbia Supreme Court held that the Fair Wage and Skills Development policy adopted by the provincial government went beyond the mere formulation or articulation of governmental policy, but it was “the means by which Cabinet’s decision regarding the policy was implemented”. The policy was declared a nullity because it was in conflict with the Wages (Public Construction) Act, which precluded the adoption and implementation of a policy purporting to regulate wages in an area already regulated by the Act. The plaintiff submits that like the Fair Wage and Skills Development policy, Notice 102 transforms political direction into an enforceable and coercive instrument and it is amenable to judicial review.
[41] The plaintiff submits that in the context of the EIPA, notices to importers have twice been challenged, in Canadian Association of Regulated Importers v. Canada (Attorney General), [1994] 2 F.C. 247 (C.A.) and Maple Lodge Farms Ltd. v. Canada, [1982] 2 S.C.R. 2. It is further submitted that in K.F. Evans, above, the Court commented extensively on the propriety of Notice 23, while ultimately not having to rule on that point because the case did not entail a challenge to the policy itself but was an application for judicial review of a decision made under that policy.
(b) TimberWest has standing to mount a challenge to Notice 102
[42] The plaintiff submits that the evidence adduced at trial amply demonstrates that it has a very direct interest in Notice 102, including, among other things, a significant financial interest in whether the regime survives or falls. As such, it is submitted that the plaintiff has private interest standing to attack Notice 102. Moreover, if it were necessary to invoke it, it is submitted that the plaintiff would easily meet the test for public interest standing (see Canada (Minister of Justice) v. Borowski, [1981] 2 S.C.R. 575 at 598).
II. Notice 102 is not authorized by the EIPA
[43] The plaintiff submits that Notice 102 expressly relies on subsection 3(e) of the EIPA as the basis upon which it is promulgated. Paragraph 2 of Notice 102 states:
While all logs exported from Canada require Federal export permits for all destinations, this Notice provides information with respect to the export of logs from British Columbia. Log exports are controlled for the purposes set out in Section 3(e) of the Export and Import Permits Act (EIPA):
“3(e)to ensure that there is an adequate supply and distribution of the article in Canada for defence or other needs.”
[44] The plaintiff submits that a policy which purports to rely on a specific statutory provision should be required to be justified on the basis of that provision, and should be struck down if it cannot be. The plaintiff submits that the government should not be permitted to search after the fact for another statutory basis (namely, other parts of section 3) to justify Notice 102. Therefore, it is submitted that Notice 102 is only valid if it comports with subsection 3(e).
[45] In support of these arguments, the plaintiff cites a line of cases, including the Federal Court of Appeal decision in Canadian Association of Regulated Importers, above, which held that a policy decision may not be based predominantly or entirely on considerations irrelevant or extraneous to the statutory purpose.
[46] The plaintiff submits that the starting point for analyzing whether Notice 102 is consistent with subsection 3(e) of the EIPA is in K.F. Evans, in which Madam Justice Reed undertook a comprehensive analysis of whether Notice 23 was consistent with this provision. It is submitted that Justice Reed’s analysis, while technically obiter, is very instructive. Like Notice 102, Notice 23 stated on its face that it was based on subsection 3(e) of the EIPA. The Minister argued that he could take into account other factors listed in section 3 of the EIPA, including subsections 3(b), 3(c.1) (now repealed), and 3(d). Justice Reed held that subsections 3(b) and 3(c.1) are irrelevant because they were added to the EIPA after logs were added to the Export Control List. She also dismissed the application of subsection 3(d) as there was no intergovernmental arrangement or memorandum of understanding in place. She then turned to subsection 3(e). After noting that the Federal Court of Appeal had stated in Teal Cedar Products (1977) Ltd. v. Canada (1988), [1989] 2 F.C. 158 (C.A.) that “other needs” in subsection 3(e) could refer to needs other than defence, Justice Reed wrote at page 425:
[. . .] The Court held that “other needs” could refer to needs other than defence. While this is clearly so, phrases such as “for . . . other needs”, when used as those words are used in paragraph 3(e), must be interpreted in accordance with the ejusdem generis rule of construction. The words “other needs” are not synonymous with “for any other purpose”. As I read the words of paragraph 3(e), “other needs” must at least have a national or federal character and there must be a “need”. I have difficulty accepting that the existence of a provincial policy, simpliciter, falls within the wording “defence or other needs”. In any event, I do not have to decide this issue.
The plaintiff submits that this is an impeccable exercise of statutory interpretation. It is submitted that “other needs” must be read restrictively. To read it as meaning “for any purpose” would render the rest of section 3 superfluous.
[47] The plaintiff submits that the evidence adduced at trial reveals that there is no federal purpose to Notice 102, as it is not about the adequate supply of logs in Canada. The purpose of Notice 102 is to ensure an adequate supply of logs for log processors in B.C., but it does nothing to ensure an adequate supply in other parts of Canada, such as Alberta, Ontario and Quebec, where sawmills are in fact facing log shortages at the moment. The plaintiff submits that Notice 102 directs the exercise of discretion to be based on considerations which are extraneous, irrelevant and collateral to the statutory purpose and object of the EIPA. As such, it is submitted that Notice 102 is not authorized by the EIPA and should be declared invalid.
III. Notice 102 is unconstitutional as being a provincial scheme in federal garb
(a) The constitutional issue to be determined
[48] The plaintiff submits that the primary objective of an administrative scheme must be identified in order to determine its constitutional validity. The constitutional issue to be determined is whether, in pith and substance, the regulatory regime created by Notice 102 falls within federal or provincial jurisdiction. More precisely, does it fall within the federal power enumerated in subsection 91(2) of the Constitution Act, 1867 (“the Regulation of Trade and Commerce”) or does it fall within a provincial power enumerated in subsections 92(13) or (16) (“Property and Civil Rights in the Province” and “Generally all Matters of a merely local or private Nature in the Province”)?
(b) The effort by Notice 102 to regulate a local trade within a province is constitutionally fatal
[49] The plaintiff submits that the regulatory regime under Notice 102 does not fall within federal jurisdiction, but it is an unconstitutional attempt by the federal government to regulate the B.C. forest industry.
[50] The plaintiff submits that a line of cases dating back to Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96 (P.C.) establishes that the federal power over trade and commerce does not extend to the regulation of a particular business or trade within a province.
In particular, the plaintiff cites the following passage at page 113 of the Parsons case:
Construing therefore the words “regulation of trade and commerce” by the various aids to their interpretation above suggested, they would include political arrangements in regard to trade requiring the sanction of parliament, regulation of trade in matters of interprovincial concern, and it may be that they would include general regulation of trade affecting the whole dominion. Their Lordships abstain on the present occasion from any attempt to define the limits of the authority of the dominion parliament in this direction. It is enough for the decision of the present case to say that, in their view, its authority to legislate for the regulation of trade and commerce does not comprehend the power to regulate by legislation the contracts of a particular business or trade, such as the business of fire insurance in a single province, and therefore that its legislative authority does not in the present case conflict or compete with the power over property and civil rights assigned to the legislature of Ontario by No. 13 of sect. 92.
The plaintiff submits that MacDonald v. Vapor Canada Ltd. (1976), [1977] 2 S.C.R. 134 at 160 affirmed that the Parsons case continues to be good law.
[51] The plaintiff reviews a number of cases where federal legislation has been held to be unconstitutional as being primarily directed at the regulation of trade within a province: Canada v. Eastern Terminal Elevator Co., [1925] S.C.R. 434, Reference re Natural Products Marketing Act, 1934, [1937] A.C. 377 (P.C.), Reference as to the Validity of Section 5(a) of the Dairy Industry Act (1950), [1951] A.C. 179 (P.C.), and Re Agricultural Products Marketing Act, [1978] 2 S.C.R. 1198. The plaintiff also cites Carnation Co. v. Quebec (Agricultural Marketing Board), [1968] S.C.R. 238, which was an unsuccessful challenge to provincial legislation.
[52] In Canada v. Eastern Terminal Elevator, the Supreme Court of Canada struck down the federal Canada Grain Act, which was found to be an unconstitutional attempt to regulate particular occupations (grain traders and elevator operators) and local works and undertakings (grain elevators), which are matters assigned exclusively to the provincial legislatures. Despite the fact that most harvested grain was exported from Canada, Parliament could still not regulate it locally.
[53] In Reference re Natural Products Marketing Act, 1934, the Privy Council struck down a federal statute which established a marketing board to regulate the quantity, quality, grade, class, sale and distribution of dairy products. The statute covered transactions which were completed within the province, with no connection to inter-provincial or export trade. As such, the statute purported to affect property and civil rights in the province, a matter beyond the competence of Parliament. The fact that provinces were in support of the federal scheme was not enough to save its constitutionality.
[54] In Reference as to the Validity of Section 5(a) of the Dairy Industry Act, the Privy Council struck down a federal statute which prohibited the manufacture, offer, sale or possession of margarine. It was held that the purpose of the statute was to protect and encourage the dairy industry, and the federal power over the regulation of trade and commerce does not permit the regulation of individual forms of trade and commerce confined to the province.
[55] In Re Agricultural Products Marketing Act (also known as the “Egg Reference”), the federal and Ontario governments passed co-operative legislation to regulate the marketing of eggs in intra-provincial, inter-provincial and export trade. The Supreme Court of Canada ruled that Parliament had overstepped its authority in providing local boards with authority to fix prices, through adjustment levies, in respect of intra-provincial marketing. The Court emphasized that it will look through any scheme to strike down all attempts to do indirectly what cannot be done directly; regard must be had to the substance and not to the mere form of the enactment.
[56] In Carnation Co. v. Quebec (Agricultural Marketing Board), an evaporated milk manufacturer—which purchased raw milk from farmers and processed it into evaporated milk at its plant—brought a constitutional challenge to provincial legislation that controlled the price of raw milk in Quebec. The manufacturer argued that the scheme was an improper attempt to regulate inter-provincial trade, given that a significant portion of its evaporated milk was exported out of Quebec. The Supreme Court of Canada rejected this argument and upheld the legislation, finding that the scheme was not directed at the regulation of inter-provincial trade but only incidentally affected the regulation of inter-provincial trade.
[57] The plaintiff submits that the evidence demonstrates that Notice 102 aims to regulate the B.C. forest industry by favouring B.C. log processors at the expense of B.C. log producers, exactly as the parallel provincial scheme does. It is submitted that this is an effort to regulate trade within a province, an effort which falls outside the jurisdiction of the federal government.
(c) The lack of a federal character to Notice 102 is also constitutionally fatal
[58] The plaintiff refers to three cases for the proposition that the federal power over the regulation of trade and commerce requires a federal character: MacDonald v. Vapor Canada Ltd. (1976), [1977] 2 S.C.R. 134; Labatt Brewing Co. of Canada v. Canada (Attorney General) (1979), [1980] 1 S.C.R. 914; R. v. Dominion Stores Ltd. (1979), [1980] 1 S.C.R. 844.
[59] MacDonald v. Vapor Canada Ltd. struck down subsection 7(e) of the Trade-marks Act, which purported to create a cause of action with respect to business practices that were “contrary to honest industrial or commercial usage”. The defendant in that case was alleged to have disclosed and used trade secrets contrary to subsection 7(e). The Supreme Court of Canada ruled that subsection 7(e) was ultra vires because it merely extended civil causes of action that were known in the provincial courts and reflected issues falling within provincial legislative competence. The Court stated that it was not enough that the legislation applied throughout Canada, and noted that the absence of a regulatory scheme under section 7 demonstrated a lack of national character.
[60] Labatt Brewing Co. of Canada v. Canada (Attorney General) struck down federal regulations which prescribed the alcohol content of malt liquors that could be labelled as “light beer”. The Supreme Court of Canada held that the impugned provisions could not be founded in the federal trade and commerce head of power. The impugned provisions were not concerned with the control or regulation of the extraprovincial distribution of the products or their movement through any channels of trade. Rather, the Court found that the impugned provisions were aimed at the regulation of the production process of a single industry, namely, the brewing industry. This industry was substantially local in character given that transportation to distant markets was expensive.
[61] R. v. Dominion Stores Ltd. held that federal legislation controlling the grading of apples had no validity in relation to purely intra-provincial transactions, and quashed the charges laid against the appellant. The appellant had been charged under the impugned federal legislation for selling apples under the grade “Canada Extra Fancy”, which did not meet the prescribed requirements of that grade because they were bruised. The transaction in question took place wholly within the province of Ontario. The federal government argued that it had jurisdiction to establish a voluntary marketing scheme, and that the federal legislation was voluntary in the sense that the grading requirements did not apply unless the products were offered for sale under a grade n