Collection Remedies for Loggers - Part 1

Unpaid loggers have a number of arrows in their quiver, for collecting money owed to them.

Ordinary court

Like any unpaid creditor, the ability exists to sue the debtor, to seek from the court a judgment against the debtor. A claim up to $35,000 can be brought in the Small Claims Court. A claim of any size can be brought in the Supreme Court. Once a judgment is obtained, there are various remedies available to enforce that judgment.

An ordinary lawsuit, if successful, will result in a judgment. Sometimes that is an adequate result for the logger, with that judgment then getting paid. Sometimes the result is inadequate. If the debtor is having solvency problems, the court judgment ranks low on the list of priorities. Government debts and secured lenders (like the debtor's bank) are usually paid first, and only if there are assets left over do the unsecured creditors share in those.

B.C. loggers have other avenues to pursue, that raise them up in the rank of creditor priorities.

FSPP Act

The Forestry Service Providers Protection Act became law in April 2013. The legislation is unique to British Columbia, and the drafters of it were breaking new ground when the law was written. This statute gives a logger both a lien and a charge.

The lien exists over the licensee's timber inventory. Timber inventory is a fluctuating thing­ new timber gets harvested or bought, and it is added to the inventory. Existing timber gets sawn into lumber, or it gets sold as raw timber to someone else, and it stops being timber inventory.

When new timber is brought into inventory, the contractor's lien extends to it. When timber leaves inventory, the contractor's lien stops applying to that departing timber.

When the licensee sells its timber or lumber, it turns that product into a receivable from its buyer. This statute gives the logger a charge over all of the licensee's accounts receivable. Similar to inventory, when accounts receivable are paid to the licensee the charge no longer applies. But, when new accounts receivable arise, the charge attaches to them.

Having a lien over timber is one thing; enforcing that lien is another. It takes a process in the B.C. Supreme Court to enforce that lien claim. The court is asked to issue an order which would have a bailiff go out and seize timber, and to have that timber subsequently sold with the court having control over how the proceeds of sale are distributed.

Similarly, for a charge to be of any use it must be enforced. That requires that a notice of attachment be served on the party owing the licensee. This is going to capture the money owed, and have that money paid to a sheriff, where it will in turn be paid into court and likely litigated over.

While the lien and charge rights may appear to be powerful, loggers must be aware debts owed by the licensee to the federal government, to the provincial government for unpaid stumpage, and to the licensee's secured lenders, usually take priority over the contractor's claims. The contractor will be in a better position than all of the other, non-logger, unsecured creditors.

The legislation provides for unpaid contractors to share pro rata in all of the licensee's timber, and to share pro rata in the licensee's receivables. In practice, two contractors working for the same licensee - each under completely different licences - may feel uncomfortable about a pro rata distribution. A contractor harvesting on timber sale X might be uncomfortable about his brother contractor, who did no work in relation to timber sale X, coming and claiming a lien over that timber and a right to the receivables for the subsequent sale of that timber.

It is important to know, at the seizing stage, just how many unpaid contractors there are making lien claims to the same timber. One wants to seize enough timber to ensure that all contractors, as well as creditors with priority claims, are going to be fully paid.

Interestingly, some of the cases I have been involved with have been in the northwest part of the province, and we are often dealing with raw log exports. Once logs leave the jurisdiction of British Columbia, and if the accounts receivable is from an offshore company, there really is no jurisdiction to enforce liens and charges. So, an unpaid contractor needs to act before jurisdiction is lost.

I had a frustrating experience due to unpaid stumpage taking priority over a contractor lien. In that case, a licensee had three BC timber sales. One of those was an area-based sale, and it was three-quarters logged when the licensee became insolvent and the contractor stopped working. A court order permitted a seizure and sale of the timber.

Going into court, we thought we knew how much the government was owed. But, after seizure, more stumpage bills were issued, including a final installment for the area-based sale. After the sheriff took his fees and the government took its unpaid stumpage, only 4% of the value of the timber was recovered for the contractors. Essentially the contractors, at their own expense, had acted as the government's tax collectors.

There may be some good news, however. See my article "Part 2". Sub-contractors In a lesser way, the FSPP Act also protects sub-contractors. It gives sub-contractors a charge over its contractor's accounts receivable. It does not, however, give a sub-contractor any lien over the logs.

The intention is to have sub-contractors ride on the coat tails of their contractors. They will, indirectly, enjoy the benefit of their contractor's lien over timber, and of their contractor's charge over the licensee's accounts receivable.

A contractor's receivable rises as work is performed, and falls as payment is made. If a sub­ contractor is to attach that receivable, the timing needs to be right. If the contractor is no longer working for the licensee, and if the licensee has fully paid its contractor, there is nothing for the sub-contractor to attach.

Woodworker Lien Act

Although the intention had been to repeal the Woodworker Lien Act, that was never done. The WWL Act still exists.

The WWL Act provides a lien over timber to wage-earners. That phrase "wage-earners" has been broadly interpreted by the courts to include someone supplying and operating a piece of heavy equipment, and even someone who is doing that through an alter-ego limited company. Ordinary contractors, with two or more employees, don't qualify.

Interestingly, that same sub-contractor that has no lien under the FSPP Act can have a lien under the WWL Act. There are frailties with the WWL Act. There is a short timeframe within which to act; there is an archaic legal procedure to follow; and subcontractors are required to point to timber and say "I worked on that"--once the particular timber that they worked on has been cut into lumber, that lien claim if gone.

As a side note, there are payroll provisions in the WWL Act that can sometimes force a licence­ holder to pay twice to the same services. If the licence-holders pays the contractor, and the contractor fails to pay its sub-contractors and other wage-earners, then those parties can go after the licence-holder for payment.

John Drayton is a lawyer with Gibraltar Law Group who practices in the areas of forestry and motor transport law.