The Contractual Framework of Crown Forest Utilization in Ontario – Shareholder Agreements for Multiple Stakeholders – Part 1

Unlike in the United States and many other parts of the world, the forests of Ontario are largely owned by the government; in particular, the provincial government.  Ontario or, more formally, “the Crown in right of Ontario” owns approximately eighty per cent of the Province’s forest lands. Furthermore, the Canadian constitution gives provincial governments control (with some minor exceptions) over the regulation of all aspects of the forest products industry in a province, regardless of the source of its timber. Through its roles as both owner and regulator, the Ontario government has comprehensive control over the way in which forest lands owned by the province (traditionally called “Crown Forests”) are used.

When timber from Crown Forests is used to produce lumber, pulp and paper, and other wood-based products, the contractual arrangements between the owner of the forest resource (namely, the Province) and the industries that need the timber, are somewhat different from the commercial arrangements one might otherwise expect, because the government takes into consideration additional objectives above and beyond those of private owners. The owner of an asset that produces a commercially valuable resource might normally be expected to try to maximize revenues from the sale of that resource. A farmer, for example, will in the normal course use his land to produce crops that produce the greatest financial yield when those crops are sold. Contractual arrangements with persons employed to harvest crops and with buyers of the crops would normally be expected to be designed with this end in mind. A prudent owner of an asset will also take into account longer-term considerations, such as a farmer choosing crops and harvesting methods that protect and enhance the productivity of his land, to preserve the value of his asset in future years.

When designing the contractual arrangements for the utilization of Crown Forests, the Province also takes into account these considerations, namely generation of revenues and the preservation of the value of the asset. But the Province has additional considerations, superimposed on these, that reflect the special responsibilities a government has in conducting its affairs, and that are important factors in designing its contractual arrangements.

Ever since Confederation in 1867, the Province has seen the encouragement of economic activity, particularly in northern Ontario, as a major objective to be reflected in its forest development policy. The primary phase of the forest products industry involves harvesting logs from forests (largely Crown Forests), delivering the logs to mills, and manufacturing, at those mills, the wide range of wood-based products that consumers need. Each step provides jobs for workers, economic activity for the communities of the North, and wealth for the general public, in addition to significant direct and indirect revenues to government.

Over the years, new economic and other benefits to be derived from Crown Forests have been identified, including tourism, hunting, fishing, wildlife preservation, environmental protection and carbon sequestration. The Province has begun seeking out multiple users for certain forests, to reflect the multiple benefits those forests might optimally produce, and the multiple stakeholders in northern communities wishing to participate in the opportunities they afford.

Significantly, the courts have recently recognized rights of First Nations peoples, including Metis, with respect to traditional lands of their ancestors, which the Province has also needed to take into account.

Contractual arrangements for utilization of Crown Forests have evolved over the years to address all these factors. The next article in this series will examine an example of those contractual arrangements.

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Peter Love
Pilot Law LLP
M: 647 960 7601 | O: 416 521 7200
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