Crown Forest Utilization – Shareholder Agreements used with Sustainable Forest Licences (cont’d). – Part 3

As part of the process of putting in place a Sustainable Forest Licence having multiple participants, the participants themselves enter into a shareholder agreement, setting out their respective rights and obligations vis-à-vis one another, as shareholders of the licensee, including their respective rights to share the benefits arising from harvesting timber on the Crown Forest, and the associated obligations.

Shareholder agreements, working in conjunction with the Articles and By-laws of a corporation, and the corporate statute under which the corporation is incorporated (often the Business Corporations Act (Ontario) (the “OBCA”)), are very common in many industries in Ontario. Among other things, they will often set out procedures for decision-making within the corporation and provide methods for resolving disputes.

When a question arises as to how a shareholder agreement is to be interpreted, in dealing with a situation that is not expressly addressed in the agreement, it will often be prudent to consult a lawyer.  An important role of the lawyer is to determine how a judge might be expected to answer the question, if the matter were ever to go to court. Once the relevant facts have been assembled, the advice given may be based upon a number of investigations, including reviews of the shareholder agreement itself, the Articles and By-laws of the corporation, the relevant statute of incorporation (often the OBCA) and any other applicable legislation, any court case or decision of a quasi-judicial body that might be a precedent, and any accepted practice within the industry that a judge might consider to be persuasive in pointing to the answer to the question. Often, in finding the answer to the question, an attempt is made to determine what the parties to the shareholder agreement intended when they entered into the agreement, and any information or analysis that can help answer that question may be useful. All of these steps might be involved in interpreting any shareholder agreement; they would equally be involved in interpreting a shareholder agreement used with a Sustainable Forest Licence.

The types of questions that arise might include:

–    whether a “right of first refusal” is applicable, and if so, how it is to be exercised
–    whether a change in circumstances in one of the shareholders requires a change in that shareholder’s rights and obligations under the shareholder agreement, and, if so, what actions need be taken to reflect the change
–    if an amendment to the shareholder agreement, itself, might be appropriate, and if so, how to prepare the amendment documents

Where a dispute among two or more of the parties arises, the shareholder agreement will often set out ways the dispute may be resolved. A lawyer can advise on the relative strengths of the opposing positions on the issue, and the potential risks, costs and delays associated with the various options for resolving the matter, to help the parties find the optimal path forward.

This series of articles has focused on shareholder agreements as an example of the role a commercial lawyer, familiar with the legal framework used in the forest products industry, might play in facilitating the use of its standard agreements.  Lawyers can, for the same reason, play a very useful role in dealing with issues that arise under other agreements the industry uses, such as Sustainable Forest Licences and Forest Resource Processing Facility (mill) Licences.

Email me if you would like to know more.


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