VI. Transformation of the Logging Industry and Legal Framework Warrant Repeal

VI. Transformation of the Logging Industry and Legal Framework Warrant Repeal2017-03-03T18:35:03+00:00

In this Report, we have discussed a myriad of factors that distinguish the commercial and legal environment existing at the time FWLWA was introduced in Ontario from that existing today. The accumulation of these factors, including the changes to the logging industry and commercial law environment as well as the shifting policy context, has led the LCO to conclude that FWLWA is commercially and legally obsolete.

From a historical perspective, the Act was intended to respond to commercial challenges quite different from those facing the modern logging industry. Today, the characteristics of the industry, including the nature of the relationship existing between loggers and mills, the technology employed in logging and the regulatory structure of the industry do not easily lend themselves to a lien regime.

Altough many Ontario loggers remain economically dependent on the mills they supply, this, on its own, is no longer sufficient rationale for the continued existence of a lien regime. It does not explain loggers who run relatively large operations and may extend hundreds of thousands of dollars in credit to mills. It fails to acknowledge that modern loggers are just as likely to be aware of a mill’s financial problems – or not – as any other creditor. And it does not take into account other similarly situated owner operators in the logging industry and elsewhere who have no statutory protection. A more modern approach to statutory protection for disadvantaged Ontario loggers would be to ensure that they are in the same position as creditors who are not so disadvantaged.[246] At most, this rationale would support a PPSA-style security regime for loggers which would place them in line behind the major bank lenders. It does not support continued super-priority for loggers over other commercial parties.

From a legal point of view, the Act is able to co-exist wth modern statutory wage protections and commercial regulatory statutes such as the PPSA but it is incompatible with some of the policy objectives underlying those regimes. Furthermore, there are a number of features of logging that distinguish it from repair work and other work more typically subject to commercial lien regimes. This also complicates reform and, more importantly, serves as another indicator that a lien regime is no longer the most appropriate tool for protecting Ontario forestry workers.

The LCO has also considered the potential consequences of repeal versus reform. FWLWA, as with other statutory commercial lien regimes, has a predominantly economic function. As Kevin McGuinness has written in relation to the CLA:

Stated in its most basic terms, the purpose of this statute is to accord preferential treatment to one group of creditors (namely, construction industry suppliers) over all other creditors. There is no apparent moral or social benefit to be derived from giving construction industry creditors such a preference. The justification, if there is one, must be an economic one, namely that by giving special protection to the construction industry, construction lien law enhances the efficient operation of the provincial economy.[247]

Whether the Act is repealed or reformed, there are likely to be economic consequences. One consideration is the interdependence of forest products companies and logging contractors. Contractors rely on forest product companies to purchase their harvested wood just as forest product companies rely on logging contractors to supply it. Each has a vested interest in the economic health of the other. Statutory protection for loggers must take into account these intertwined interests. A reformed forestry worker lien regime would provide better protection for contractors in a cyclical industry. On the other hand, forest products companies are concerned that a reformed regime would adversely impact their borrowing capacity and the cost of credit.[248]

An underlying economic consideration is the need to balance the protection offered by the Act to forestry workers with the corresponding cost to other secured and unsecured creditors. This balancing exercise must take into account that fact that loggers falling within the scope of the Act have had a statutory right to claim a lien for 122 years. Repeal of FWLWA would remove this statutory right but would put loggers in a similar position to many other small Ontario businesses and, from that perspective, would rationalize the rights and remedies typically available to creditors within Ontario’s commercial law framework.

In sum, FWLWA was enacted in response to a specific set of economic conditions existing in Ontario’s logging industry at the end of the 19th century. The LCO’s consultations and research revealed a contemporary logging industry that has changed so dramatically through mechanization, regulation and business practices that it no longer bears a clear resemblance to that industry long ago. And this modern logging industry operates within a very different commercial and legal context than that in force when the Act was introduced. Although many Ontario loggers continue to bear financial risk due to industrial conditions, a lien remedy providing loggers with super-priority over most other claims in the wood is no longer proportional to the rights and remedies of other creditors in Ontario’s economy. The LCO has concluded in all the circumstances that, while it may be possible to reform the Act roughly along the lines of the BC FSPPA, it would not be appropriate to perpetuate this outdated lien regime. On balance, the LCO recommends that the FWLWA be repealed rather than reformed.

 

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