I have previously used this space to discuss the powerful remedies available to the provincial government's Forest Revenue Audit Program ("FRAP") under Part 11.1 of the Forest Act (the "Act"). By way of recap, if a "commissioner" appointed pursuant to that program considers (for any number of reasons) that stumpage was underpaid on harvested Crown timber, the commissioner may make an assessment of the underpayment on any basis that the commissioner considers "adequate and expedient" and the amount of the assessment becomes due and owing on top of any stumpage already paid on the timber at issue.
The government has other rights available under the Act to adjust the stumpage owing on harvested timber after the fact. Sections 105(5.1) and (5.2), combined with provisions of BC's stumpage appraisal manuals, require a "changed circumstances" reappraisal of the stumpage rate payable on harvested timber if the district manager concludes that the circumstances encountered in the field were sufficiently different from those contemplated in the original stumpage appraisal submission. As well, if government concludes (again, after the fact) that a stumpage rate applicable to harvested timber was appraised on the basis of "inaccurate information," the government is authorized under section 105.2 of the Act to reappraise the stumpage rate on the basis of information that government considers accurate. In either case, the difference between the stumpage paid on the basis of the original stumpage rate and the amount owing under the reappraised stumpage rate, will become due and owing.
While reasonable people would not take issue with the right of government to insist upon payment of the stumpage properly due and owing on harvested Crown timber, the translation of this right into the Act creates security issues for those who enter into agreements for the purchase and sale of Crown timber. The commissioner under FRAP may make an assessment on Crown timber harvested anytime up to six years prior to the assessment. A district manager may require a changed circumstances reappraisal for timber harvesting under any cutting permit issued prior to July 31, 2005. The government may require a reappraisal of stumpage applicable to harvested timber on account of inaccurate information "at any time." And the government can file a certificate in court under the Act with respect to any stumpage owing that, effectively, becomes a judgment of the court, anytime within seven years after the amount became owing.
The real difficulty arises on account of the fact that persons other than the party responsible for the appraisal of stumpage may be potentially liable for payment of any retroactive stumpage bills. Under the Act, anyone who acquires or deals in Crown timber is potentially responsible for outstanding stumpage owing on that Crown timber. Consequently, even if timber is sold on the stump and the buyer assumes tenure management responsibilities — including appraisal of stumpage — the seller could still find itself on the hook for any stumpage shortfall years afterwards if stumpage was subsequently reappraised. Similarly, a purchaser of logs produced by a tenure holder could find itself liable for a retroactive stumpage reappraisal long after the conclusion of its purchase.
All of the foregoing raises the question of how a party to a log purchase agreement can protect itself from a retroactive stumpage appraisal potentially years in the future. Withholding the estimated stumpage from the purchase price pending satisfactory proof that stumpage was paid, or simply paying stumpage directly to the government, will not assist if stumpage is reappraised years afterwards.
Theoretically, if the party responsible for payment of stumpage holds substantial assets, then the exposed party could take some form of longterm charge against those assets. If not, the exposed party could insist upon a guarantor of substance. The problem is that the party responsible for stumpage payments will probably not agree to encumber its assets for a lengthy period of time, or manage to find a guarantor willing to do so. Ultimately, most timber purchases proceed without out any security against future retroactive stumpage appraisals and, presumably, this risk is accounted for in the purchase price.
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