John and Susanna Cayer v. Dairy Farmers of Ontario

In the matter of the Milk Act and Section 16 of the Ministry of Agriculture, Food and Rural Affairs Act.

And in the matter of:
An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by John and Susanna Cayer, of Chesterville, Ontario, from a decision of the Dairy Farmers of Ontario to deny their request for exemption from the November 17, 2006, Quota Policy on Transfer Assessments.

Before:
Claire Belluz, Vice-Chair; Jane Sadler Richards, Member; Richard Smelski, Member

Appearances:

• Donald Good, counsel to John and Susanna Cayer, the appellants

• Aaron Hirschorn, assistant to counsel to John and Susanna Cayer, the appellants

• John and Susanna Cayer, appellants

• Dr. John Burke, witness for the appellants

• James Kinkaid, witness for the appellants

• Jacqueline Pemberton, witness for the appellants

• Geoffrey Spurr, counsel to the Dairy Farmers of Ontario, the respondent

• George MacNaughton, on behalf of the Dairy Farmers of Ontario

• Ron Versteeg, witness for the respondent

• Bruce Saunders, witness for the respondent

Decision of the Tribunal

This appeal was heard in Ottawa, Ontario, on Friday, October 31, 2008, and Monday, February 2, 2009.

Introduction

Nature of the case

John and Susanna Cayer, of Chesterville, Ontario, were active dairy farmers under licence number 596361. Due to Mr. Cayer's failing health, the Cayers were executing plans to leave the dairy industry in an orderly fashion when the DFO implemented a policy that applied a 15% transfer assessment on all production quota sold on the exchange effective November 17, 2006. The Cayers sold their quota in January 2007, as planned. The application of the 15% transfer assessment effectively lowered the income from the sale of their quota by $114,492.80. The Cayers asked DFO to provide information on what was required to seek relief from the policy based on medical reasons. Their enquiry was forwarded by a DFO staff member as a request for exemption from the November 17, 2006, Quota Policy on Transfer Assessments to DFO's Quota Committee. The Committee recommended, and the Board agreed, that the request placed before them be denied. The Cayers requested a hearing and appeared before DFO, in person, to present their case for an exemption from the policy for medical reasons. The Board upheld its original decision and denied a medical exemption from the November 17, 2006 Quota Policy on Transfer Assessments.

John and Susanna Cayer appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) for relief from the decision of DFO to deny their request for exemption from the November 17, 2006 Quota Policy on Transfer Assessments.

Issues to be decided

1. Should the Cayers be granted an exemption from the November 17, 2006 Quota Policy on Transfer Assessments?

Structure of this decision

This decision first provides an introduction outlining the nature of the case, the issues, and the structure of this decision. An overview follows, which includes information that is essential to understanding this case. An analysis of the issue lists the topics of importance including the health and welfare of Mr. Cayer, the status of the Cayers' plans to exit the dairy industry and the DFO request procedure in the Cayer case. Finally, this Tribunal decision draws conclusions based on the analysis of facts, provides a recommendation and indicates the orders of the Tribunal.

Overview

Mr. Cayer's health

Medical evidence provided by Dr. Burke, Mr. Cayer's family physician of 20 years, indicated that Mr. Cayer had had several significant health problems beginning in the 1990s including: a cyst on his bowel requiring surgery; an infection of the bowel; severe pain due to a trauma; and an inflammation of the heart envelope. Dr. Burke indicated that Mr. Cayer "is in chronic pain, cannot work as a dairy farmer and even has problems with his activities of daily living". Dr. Burke explained that the pain experienced by Mr. Cayer is debilitating and, at times, affects his ability to walk. He is significantly disabled and not able to do any manual or physical labour. Dr. Burke concluded that Mr. Cayer would be unable to return to his duties as a dairy farmer now or in the future.

Mr. Cayer indicated that a turning point in his ability to cope with his health problems occurred when he suffered an injury to his tailbone after falling on a tractor 3-point hitch. Mr. Cayer said that he tried to work through the injury since he thought it would go away. He eventually sought medical assistance. Mr. Cayer said that the pain he experiences affects everything - his physical and mental well being - even the smallest of life's tasks.

Mrs. Cayer testified about the toll the pain took on Mr. Cayer: "… he went from someone who worked 16 hours a day to someone who slept 16 hours a day. … the drain on his body, emotionally and physically, was evident. He couldn't keep events straight. He doesn't remember things. You know, there were times when we would talk and I didn't know what he was talking about ... it went from a farm where we were always trying to improve and do things better, to a farm of just keeping status quo, trying to keep the cows healthy, trying to fill our quota, and that was it."

Testimony also revealed additional contributing factors to the general long-term health and welfare of Mr. Cayer including: the previous illness and death of his first wife in 1991; the responsibility of raising a family of 4 young children (aged 7, 5, 3 and 1 yr) as a single parent while still trying to dairy farm; and the stress of deciding to leave dairy farming, a way of life he had known almost his entire life.

The November 17, 2006 Quota Policy on Transfer Assessments

Mr. MacNaughton (Director of the Production Division and Director of Regulatory Compliance, DFO) testified that the DFO continually monitors the situation with regard to milk pricing. These considerations lead to the implementation of the November 17, 2006 Quota Policy on Transfer Assessments. The Tribunal heard that the DFO had moved to a tariff-based system. During 2003, the combination of tariffs, the rising Canadian dollar and low imports meant there was a risk the price of milk would have to be reduced. The DFO was convinced that rising quota prices coupled with falling milk prices posed a long term threat to the sustainability of the dairy industry. Discussion of the situation reached the point in 2006 where policy aimed at curbing the rising cost of quota was adopted by the Board. A letter to producers dated November 21, 2006 (Exhibit 1 Tab E14) outlined the policy changes that took effect on November 17, 2006 including:

1. A 15 per cent transfer assessment for quota sold on the quota exchange at prices up to $30,000. The level of transfer assessment will be adjusted upward for prices above $30,000.

2. Exemptions from the transfer assessment will apply on same-site quota transfers and a one-time quota transfer to each child of a licence-holder. There will also be no transfer assessment applied on the last 10 kilograms of quota held by each licence.

3. Producers will pay what they bid above the Market Clearing Price.

4. All existing Letters of Direction will be terminated in 10 years. New Letters of Direction will be limited to a 10-year term with specific kilogram amounts and will only be permitted for Farm Credit Corporation (FCC) and Banks.

Evidence of an orderly and imminent exit from the industry

The Cayers provided testimony and evidence supporting their claim they were actively exiting the industry when the DFO transfer assessment policy took effect. They stated they began thinking about exiting in 2005 and sought financial advice in 2005, 2006 and 2007. They produced evidence of financial advice they had sought regarding options for an orderly exit of the industry. Witnesses testified they provided advice and knew the Cayers were planning to complete their exit plans i.e., sell their quota, in early 2007. The Cayers transferred quota to Mrs. Cayer's name to split the quota to capture the capital gains. They aggressively paid down debt and over-credit on their milk production. They did not install an upgrade in equipment, i.e. a time-temperature recorder, because they were thinking about exiting the industry. The Cayers planned to sell quota in 2007 so their reported income would not include milk sales and thus improve their tax position. They did not notify DFO about their exit plans but there was no requirement for them to do so. It was determined that exiting the dairy industry is effective once the quota is sold, although cows may remain on the farm for several months following the sale of quota. Their future plans included sheep farming by Mrs. Cayer and crop production in cooperation with a neighbour.

During testimony, Mr. MacNaughton said that "if the producer is able to make a compelling argument that, yes, we see the documentation where there was definitely a desire to enact prior to the policy changes, the board … granted exemptions to several producers where it was clear that there was a plan to exit on a specified date, and that was not presented to the DFO [by the Cayers]". Mr. MacNaughton testified he thought there were inconsistencies in the evidence related to the Cayer exit plan, especially in their financial plans and articles in the press.

Finally, the evidence confirmed that while the producer members of DFO, including the Cayers, had prior warning that a transfer assessment policy was being contemplated they had no prior warning of how or when a transfer assessment policy would be implemented. This provided no opportunity for the Cayers to accommodate the impacts of this policy change within an orderly exit plan.

Other decisions by DFO

Two cases submitted by DFO and one case submitted by the Cayers showed that DFO could and did decide to allow exemptions from the transfer assessment. A review of the exhibit material showed these cases all involved some combination of intent to exit or financial stress, with elements involving compassionate or medical circumstances. In the first case (Exhibit 1 Tab 4), the reasons for granting the exemption were not clear although testimony by Mr. MacNaughton indicated that financial stress was the reason. In the second case (Exhibit 1 Tab 5), the Board noted a combination of factors i.e., medical problems and timing of the new policy, made the producer's situation unique and warranted relief from the transfer assessment policy. Finally, in the Meinen case (Exhibit 4), the decision letter to the Meinens indicated "The Board grants exemptions from its policies if extraordinary circumstances exist". These included a prior intent to sell quota that was influenced by medical problems. The letter summarized the extraordinary circumstances as follows: "A combination of Mr. Meinen's health situation / hospitalization and the timing of quota policy changes made this situation unique and therefore warranted an exemption from the 15 per cent transfer assessment policy".

Mr. MacNaughton testified that since the transfer assessment policy took effect, DFO has had approximately 80 requests for special consideration with 6 granted.

DFO request procedure

The DFO request procedure involves a 2-stage approach. Section H Appeal Procedures and Deadline Dates of the publication entitled DFO Policies (August 1, 2007) indicates that requests for special consideration "for reason of not being able to comply with a particular policy" of DFO should be directed, in writing with details, to the Quota Committee. The Committee will make a recommendation on the request to the Board of DFO, who will make a decision and notify the producer. A producer may request reconsideration of a decision by the Board and appear in person to present their case. If the producer does not agree with the decision arising from the reconsideration, they may appeal to the Tribunal, which hears the case presented by both parties and renders a decision. A similar procedure was outlined in the testimony provided by Mr. MacNaughton, which confirmed that the first step in the procedure involves consideration of written material from the producer and DFO staff by the Quota Committee. Mr. MacNaughton also testified that "… DFO did not have any process to apply for medical exemptions, nor did they have a policy that grants … special consideration for medical reasons".

Chronology of communications between the Cayers and DFO

The record of communications between the Cayers and DFO spans November 28, 2006 to April 26, 2007 (Exhibit 1 Tab D). The record shows that:

1. On November 28, 2006 Mrs. Cayer requested, by email, a "list of the documentation required to be considered for a medical exemption".

2. On December 1, 2006 a DFO staff person responded, by email, explaining the procedure for producer requests for exemption from any of DFO's quota policies. The staff member indicated the Quota Committee would first consider the request "based on information provided by the producer" and that he was forwarding her request for information to George MacNaughton, Director of DFO's Production Division for follow up.

3. On January 16, 2007 Mrs. Cayer indicated, by email, that she had not received follow up from Mr. MacNaughton; that she was submitting notification they were "seeking an exemption from the 15% transfer assessment, based on medical problems"; and that they would submit relevant documentation.

4. On January 22, 2007 a DFO staff member confirmed receipt of the email request [request for what was not specified], that the Quota Committee would consider it and make a recommendation to the Board.

5. In January, 2007 the Quota Committee report showed a recommendation that the Cayers were "not exempt from the transfer assessment for medical reasons since they have been shipping milk since July 1, 1994".

6. On January 30/31, 2007 the recommendation of the Quota Committee was accepted by the Board.

7. On February 7, 2007 DFO indicated to the Cayers, by letter, the following:

   1. this letter was a response to their request, by email, for the list of documentation required to support a request for exemption;

   2. that "if you are requesting consideration for medical reasons, you should send information that describes the medical condition or conditions"; and

   3. that the Board had decided that the Cayers "would not be exempt from the application of the transfer assessment for medical reasons" and that the Board considered the fact that they had shipped milk since 1986.

8. On February 8, 2007 the Cayers provided, by letter, documentation related to their exit plans and the medical condition of Mr. Cayer [given the dates of the letters it was assumed by the Tribunal that the letters crossed in the mail].

9. On February 14, 2007 DFO indicated, by letter, that "If you wish to commence the appeal process seeking relief from the application of the transfer assessment, the first step is to ask the Board to reconsider its decision. This can be done through written correspondence or you can appear before the Board."

10. On April 10, 2007 DFO indicated, by letter, the date for the Cayer appearance in person before the Board

11. On April 26, 2007 DFO indicated, by letter, the Cayer request seeking relief from the quota transfer assessment was denied. The Board stated it "did not believe there were any unique circumstances in your case to warrant an exemption from the policy".

Analysis of Facts

In summary

Exemptions from the transfer assessment policy were granted by DFO in the past if they were convinced that circumstances, described as extraordinary or unique, warranted it. In summary, the Tribunal is of the opinion that the circumstances experienced by the Cayers warrant an exemption from the transfer assessment policy for any of three reasons: first, on the basis of compassion due to the ill health and family challenges experienced by Mr. Cayer causing undue hardship; second, on the basis that an orderly exit from the industry was in progress prior to the implementation of the transfer assessment and that exit from the industry was imminent when the policy was implemented; and third, on the basis that the Quota Committee and the Board of DFO were not provided with a full and balanced presentation of the circumstances due to errors and omissions throughout the exemption request procedure.

Should the Cayers be granted an exemption from the November 17, 2006 Quota Policy on Transfer Assessments?

Mr. Cayer's health

There is no doubt Mr. Cayer has suffered from significant personal health problems for many years. Although the evidence focused on the physical aspects of his health, the testimony of Mr. and Mrs. Cayer left no doubt they have suffered a mental toll as well. After years of poor health, pain and stress, and at the point of making a final and irrevocable change in their lives, the Cayers were faced with yet another challenge - the uncertainty, anxiety and worry imposed by the implementation of the transfer assessment and its potential effect on their financial security and future plans.

The Tribunal agrees with DFO's final submission that "DFO's mandate is to administer [the] quota system for the producers as a whole"; but the Tribunal does not agree with DFO's next statement that "there's no room for compassionate grounds relative to [the] quota system". In reaching this finding, the Tribunal took under advisement DFO's caution that in considering whether to grant the Cayer appeal on compassionate grounds the Tribunal must "consider whether or not you effectively are making a policy, because if you set the threshold too low on any of these types of things and it's too easy for other producers to get at, you have the effect of undermining the policy".

In his 1986 convocation address to the University of Toronto Faculty of Law, Chief Justice Dickson of the Supreme Court of Canada made the following remarks about law and compassion:

I view law as the means by which we order social relations to create social conditions for human cooperation and the attainment of justice. By compassion, I mean a feeling of empathy, or sympathy for the hardships experienced by others--a feeling, which extends to a sense of responsibility and concern to alleviate hardship at least in some measure . . . What is the relationship between these two concepts - law and compassion? It is my belief and contention that for the law to be just, it must reflect compassion. For a judge to reach decisions which comport with justice and fairness, he or she must be guided by an ever-present awareness and concern for the plight of others and the human condition . . . Compassion is not some extralegal factor magnanimously acknowledged by a benevolent legal decision-maker. Rather, compassion is part and parcel of the nature and content of that which we call "law".

The Tribunal is persuaded by the reasoning of Chief Justice Dickson and seeks to apply considerations of justice, fairness and compassion in its decision. The Tribunal is of the opinion that the Cayers have suffered enough. The Cayers deserve consideration for the extraordinary circumstances they have experienced and it is the opinion of the Tribunal that extraordinary circumstances include compassionate and medical circumstances that have caused undue hardship. In fact, DFO has granted exemptions in the past for, in part, medical reasons (Exhibit 1 Tab 5; Exhibit 4). These exemptions suggest there are circumstances where exceptions to the statement "there's no room for compassionate grounds relative to [the] quota system" do exist.

Was there evidence that an orderly exit from the industry was imminent when the policy was implemented?

The Tribunal agrees with DFO that the evidence suggests the Cayers may not have planned prior to the November 17, 2006 implementation of the transfer assessment to sell their quota on the January 2007 exchange. However, the Tribunal is convinced that the sale of quota was planned for early 2007, within a few months of the implementation of the transfer assessment. The Cayers provided strong evidence they were taking steps prior to implementation of the transfer assessment policy to affect an orderly exit from the industry. The fact the quota was sold in early 2007 provided compelling evidence the Cayers were prepared for imminent exit and did exit the industry, despite the uncertainty of the situation.

The Tribunal reviewed the financial plans prepared for the Cayers. Advice and plans, by their nature, provide a variety of options for clients to consider. The fact the financial plans examined the implications of a variety of time horizons when exiting the dairy industry is consistent with standard practice. The Tribunal is not convinced this showed the Cayers were planning to exit some time in the future, well beyond early 2007.

The Tribunal gives no weight to information and quotes about the Cayers' future plans in the dairy industry that were presented in press articles because many factors influence what is said to the press, what the press records and how the press reports the events. Resulting articles may not best represent the actual situation.

The Tribunal finds that there was no requirement for the Cayers to notify or discuss their exit plans with DFO, nor to document their exit plans so they could be presented as clear and coherent evidence. Mr. MacNaughton said that 50% of producers who plan to exit call DFO to consult about their exit plans. Therefore 50% do not. The Tribunal is of the opinion there should be no penalty or prejudice toward the Cayers because they did not let DFO know they were planning to exit or because the evidence of an exit plan was not formally documented or contained a few apparent inconsistencies.

Finally, DFO complained the Cayers did not present evidence of their exit plans when their request was made to the Board; that the major evidence in this regard was provided only at the Tribunal appeal level. This complaint suggests to the Tribunal that this evidence might have made a difference to the Board's decisions, especially in light of the testimony of Mr. MacNaughton that exemptions had been granted to producers with compelling arguments that they had prior plans to exit on a specified date.

Mr. MacNaughton testified that the Board discussed the Cayers' exit plans at a Board meeting. The Tribunal gave this testimony no weight since it was not evident to the Tribunal that the Board's discussions were based on a full knowledge and assessment of the Cayers' exit plans.

Were the Cayers provided adequate opportunity to present their case for an exemption from the November 17, 2006 Quota Policy on Transfer Assessments?

The outcomes of one of the DFO example cases (Exhibit 1 Tab 4) and the Meinen case (Exhibit 4) suggest that DFO could be moved to grant relief from the transfer assessment by some combination of intent to exit with elements involving compassionate or medical circumstances. However, the Cayers were not provided an adequate opportunity to develop this basis for their case or present it to the Board.

The DFO request procedure, as published, addresses only situations of non-compliance with DFO policies. It does not address situations requesting exemption from DFO policies. However, testimony provided by Mr. MacNaughton, and in Exhibit 1, Tab A, and Exhibit 4 indicated that "The Board grants exemptions from its policies if extraordinary circumstances exist" (Exhibit 4). Yet DFO provides members, such as the Cayers, with no written indication of this or how to present a case for exemption based on extraordinary circumstances in their policies document. Mr. Saunders, a long-time member of the Board, testified that his definition of extraordinary circumstances includes a "severe, debilitating disease bordering on … death within the family of the principal operator" but the Tribunal was not convinced this was the definition held by all members of the Board.

The record of communications showed errors and omissions made by DFO:

1. DFO staff erred when the request for information by Mrs. Cayer was turned into a written request for exemption for medical reasons by DFO staff and presented to the Quota Committee. The Committee recommended, and the Board agreed, that the request placed before them be denied. This effectively set the stage for a request for an exemption based on medical reasons without allowing the Cayers to consider other options or strategies.

2. DFO staff omitted the step which provided for written submissions from the Cayers to be presented to the Quota Committee, on their behalf, during the first stage of the request procedure.

3. The Quota Committee and Board erred when they did not appear to question the lack of information from the producer and based their decisions on information provided by only DFO staff.

4. DFO staff erred in their response to the Cayers' request for information. The DFO response was out of sequence since it was included in the same letter that notified the Cayers that their written request for information - a request they did not know was being ruled upon as a request for exemption based on medical reasons - was denied. The response by DFO also provided a 'faint hope' that an exemption for medical reasons could be successful since it did indicate what information should be provided to the Board for their consideration, although, during testimony, Mr. MacNaughton indicated that exemptions for medical reasons were not granted by the Board.

5. DFO staff mislead the Cayers when they told them that asking the Board to reconsider was the first step in the appeal process. In fact, the initiation of the request procedure itself is the first step in obtaining relief from a DFO policy. This step was missed by the Cayers due to a lack of timely and informative communications from DFO and due to the errors and omissions made by DFO as described in items 1 to 4 above.

As a result, the request for an exemption procedure was flawed in the Cayer case and did not provide the Cayers with adequate opportunity to determine a strategy, and prepare and present their case. The Tribunal is of the opinion this was particularly important at the initial stage of requesting an exemption. This was the time when the Cayers should have had the opportunity to persuade DFO staff, the Quota Committee and the Board of the merits of their case, before the individuals involved developed a position on the matter.

Conclusion

The Tribunal concludes that an exemption from the transfer assessment policy should be granted to the Cayers for any one of three reasons.

First, on the basis of compassion due to the ill health and family challenges experienced by Mr. Cayer causing undue hardship. Second, on the basis that an orderly exit from the industry was in progress prior to the implementation of the transfer assessment and that exit from the industry was imminent when the policy was implemented. Third, on the basis that the Quota Committee and the Board of DFO were not provided with a full and balanced presentation of the circumstances due to errors and omissions throughout the exemption request procedure.

Recommendation

Since members considering a request for exemption from a DFO policy generally do not have experience in exemption requests, and DFO staff and Directors do have experience, it is incumbent on DFO to ensure the grounds and procedures for making a request for an exemption are open and transparent to all. The impacts of errors or omissions can multiply when the errors or omissions are not recognized or rectified.

Therefore, the Tribunal recommends that:

1. The DFO should develop a separate written policy allowing requests for exemption from the effects of a DFO policy based on extraordinary circumstances. This policy should be separate and distinct from the policy on requests for special consideration (DFO Policies, Section H.2). The policy should state that extraordinary circumstances may include, but may not be limited to, compassionate and medical circumstances that have caused undue hardship.

2. DFO should provide a written Standard Operating Procedure (SOP) outlining the exemption request procedure to members making a request for an exemption from a DFO policy. DFO staff and Directors should be trained to follow the SOP. A supplementary document to the SOP should advise members on how to prepare a case for an exemption request.

Order of the Tribunal

The Tribunal orders that:

1. the appeal of John and Susanna Cayer for relief from the decision of the DFO to deny their request for exemption from the November 17, 2006 Quota Policy on Transfer Assessments be granted. This appeal is granted for any one of three reasons:

   1. on the basis of compassion due to circumstances experienced by Mr. Cayer causing undue hardship; or

   2. on the basis that an orderly exit from the industry was in progress prior to the implementation of the transfer assessment and that exit from the industry was imminent when the policy was implemented; or

   3. due to errors and omissions during the DFO exemption request procedure.

2. the Cayers receive payment of $114,492.80 (no interest applied) from DFO within 30 days of the date of this decision.

Dated at Thunder Bay, Ontario, this 31st day of March, 2009.