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William Denby et al. v. Dairy
Farmers of Ontario
In the matter of thh Farm Products Marketing 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 William, John and Betty Denby, Sunderland, Ontario, Keith and Ron Jarvis,
Seagrave, Ontario, and Dale McFeeters, Woodville, Ontario, from a decision
of the Dairy Farmers of Ontario to deny requests for exemptions from the
November 17, 2006 Quota Policy on Transfer Assessments.
Before:
Appearances:
-
William (Bill) Denby, on behalf of himself, John and Betty Denby,
appellants
-
Keith Jarvis, on behalf of himself and his brother Ron Jarvis, appellants
-
Dale McFeeters, appellant
-
Sunil Mathai, counsel to the appellants
-
Julian Falconer, counsel to the appellants
-
George MacNaughton, Director of Production and of Regulatory Compliance,
Dairy Farmers of Ontario, witness for the respondent
-
Peter Gould, General Manager, Dairy Farmers of Ontario, witness for
the respondent
-
Bruce Saunders, Chair, Dairy Farmers of Ontario, witness for the
respondent
-
Geoffrey Spurr, counsel to the respondent
Decision of the Tribunal
This appeal was heard in Guelph, Ontario, commencing on Monday, February
11, 2008, and continuing on February 12, 13 and 14, 2008, and on April
23 and 24, 2008. William, John and Betty Denby, Keith and Ron Jarvis,
and Dale McFeeters, (the Denby Group) appealed to the Agriculture, Food
and Rural Affairs Appeal Tribunal (Tribunal) from the decision of the
Dairy Farmers of Ontario (DFO) to deny their requests from exemptions
from transfer assessments made under the DFO's November 17, 2006 Quota
Policy.
The following decision is the result of a direction for reconsideration
by the Tribunal from the Minister's review pursuant to s. 18 of the Ministry
of Agriculture, Food and Rural Affairs Act in the Minister's decision
issued the 28th of August, 2008.
Statutory Context
Subsection 16(2) of the Ministry of Agriculture, Food and Rural Affairs
Act states:
Idem
(2) Subject to subsections (4) and (5), if a person is aggrieved by
an order, direction, policy, decision or regulation made under the Farm
Products Marketing Act by a local board or under the Milk Act by a marketing
board, that person may appeal to the Tribunal by filing with the Tribunal
and sending to the local board or marketing board written notice of
the appeal. R.S.O. 1990, c. M.16, s. 16 (2); 2006, c. 19, Sched. A,
s. 16 (3).
Facts
William Denby, Evidence-in-Chief
-
William Denby's farm is located in the City of Kawartha Lakes at
11523 Simcoe St, RR 4, Sunderland. He shares a licence for the production
of milk with his father, Jack Henry Denby (who died on October 13,
2007), along with his mother, Betty Denby. Prior to January, 2007,
Mr. William Denby was marketing milk; after that, he exited the milk
industry. Prior to exiting, he had approximately 30 cows in production.
-
Mr. William Denby originally produced milk in Maple, Ontario. The
licence to produce and market milk was only in his father's name at
that time. Mr. Denby was added to his father's licence in 1992. Mr.
Denby is no longer in the dairy industry, having sold his quota and
having had his licence cancelled.
-
On October 19, 2006, a memo signed by Bruce Saunders, Chair, Dairy
Farmers of Ontario (DFO) was addressed to "All Milk Producers"
regarding "November quota exchange cancelled pending potential
policy changes". Mr. Denby, as a producer, received a copy of
this memo.
-
The memo stated, "Dairy Farmers of Ontario (DFO) had decided
to cancel the November Quota Exchange and any other quota transfers
that would have an effective date of December 1, 2006. The decision
relates to speculation about potential quota policy changes and incomplete
or inaccurate information that could result in unfair conditions for
this month's exchange. The Quebec board (FPLQ) has cancelled its quota
exchange for the same reasons".
"DFO and FPLQ have been in discussions about potential quota
policy changes with a focus on enhancing long-term sustainability
for present and future dairy farmers and mitigating the upward trend
in quota prices".
"The objectives of the potential policy changes are to: stabilize
and/or reduce quota prices; minimize financial impact of quota purchases;
foster the sustainability of existing farms and the future of supply
management by facilitating access to quota".
"The proposal could introduce two levels of quota transfer assessment.
Quota acquired that would be effective January 1, 2007 (the December
Exchange) or later would be subject to a 50 per cent assessment when
it is later sold. The transfer assessment on pre-January 1, 2007 quota
would gradually increase by 10 per cent in August of each year for
three years. The assessments on pre-January 2007 quota under the proposal
would be:
0 per cent on quota sold effective January 2007 to July 2007;
10 per cent on quota sold effective August 2007 to July 2008;
20 per cent on quota sold effective August 2008 to July 2009; and
30 per cent on quota sold effective August 200 and later".
-
In a letter dated October 22, 2006, addressed to John Karn of the
DFO, Mr.. Denby, on behalf of Dencleo Farms, responds to the DFO memo
of October 19, 2006. In the memo, Mr. Denby is critical of the proposed
policy changes. He states, "After reviewing the Milk Act, know
(sic) where is it stated, that the Board has the power to implement
policy that has the ability to influence the price that producers
sell and buy quota, on the exchange…I am requesting that at the
end of October board meeting, that the Board votes NO, not to implement
this proposal and follow the proper procedure for developing and implementing
policy changes in the province of Ontario. The board also is legally
obligated to inform the producers of what driving forces, if any,
drove them to take such radical actions that have the implications
to undermine Supply Management".
Mr. Denby testified that prior to a phone call that he had received
from a reporter, Mr. Ian Cumming, regarding the October 19, 2006 DFO
memo describing a proposed change to quota transfer policy, he had
heard nothing about a transfer assessment being contemplated. He felt
that the policy proposal would erode the equity that producers have
built into the quota over time. Further, he stated that the policy
reduced the amount of quota that would be available to producers who
would need additional quota to cover production increases.
Mr. Denby also testified that his request in his letter to the DFO
to identify their powers under the Milk Act - specifically regarding
quota pricing - went unanswered.
-
A letter dated January 4, 2007 was sent to John & Betty Denby
and William Denby from George MacNaughton, Director of the Production
Division of DFO. The letter advises that the Denby's have "…sold
44.5 kilograms of quota subject to increases or decreases, at $29,600
per kilogram, on the January 2007 quota exchange". Of the 44.5
kilograms, 10 kilograms were exempt from the transfer assessment;
34.5 kilograms were subject to the 15% transfer assessment leaving
29.325 kilograms of saleable quota. The total amount of saleable quota
was 39.325 kilograms. Payment in the amount of $1,164,004.10 was to
be sent to the FCC on approximately the 20th of February. The letter
also noted that 6 kilograms of quota had been cancelled effective
February 1, 2007.
In his testimony, Mr. Denby agreed that this information described
the circumstances surrounding the amount of quota that he sold. However,
he indicated that the amount of quota sold should have been 50.5 kilograms.
He testified that a letter was sent almost immediately to bring attention
to this. Under questioning, Mr. Denby testified that there was nothing
that he knew of in 2003 that would have precluded the DFO from netting
out six kilograms of quota from a sale of quota by Mr. Denby.
-
In a letter dated April 10, 2003 addressed to John and Betty Denby
and to William Denby from John Karn, Secretary to the Board of DFO,
Mr. Karn writes, "This concerns your offer to sell all kilograms
of quota on the April exchange. Your offer was rejected by DFO and
was not entered on the exchange. This action was taken in light of
alleged violations of DFO regulations and an impending DFO Hearing
to consider the matter. Until this matter is resolved, please be advised
that the DFO will not permit you to sell or transfer any quota".
Mr. Denby testified that:
-
This was the first written notification of this kind that he
had received from DFO;
-
He wanted to exit the market;
-
He believed he had been notified verbally of this matter by Peter
Gould or George MacNaughton around the 1st or 2nd of April;
-
His offer at the April, 2003 exchange had been the first time
that year that he had attempted to sell his quota;
-
At no time between April 2003 and January 2007 had he been notified
by the DFO, or the Appeal Tribunal or the Divisional Court that
all his quota had been frozen; and;
-
He did not in any way create a forged document; the copy of the
letter that had been reproduced in the "Book of Documents
of the Applicants" had been in a drawer for some period of
time.
-
In a letter dated May 5, 2003 to Betty, John and William Denby and
signed by John Karn, Secretary to the Board, DFO, the Denbys are advised
of the results of a Hearing held by DFO on May 2, 3003. The purpose
of the Hearing was to hear evidence that the Denbys, "…sold,
offered to sell or marketed milk to other than DFO, in contravention
of the regulations as detailed in the Notice of Hearing dated April
10, 2003". "Based on the evidence, the Board determined
that John, Betty and William Denby #585343 contravened Sections 3(1),
3(2), 3(3) and 3(4) of DFO Milk General Regulation 08/03". The
letter also stated that the Denbys' licence to produce or market milk
would be cancelled effective June 1, 2003 and that 10 kilograms of
quota fixed and allotted to the Denbys would be cancelled effective
the same date.
Mr. Denby testified that subsequent to the DFO Decision, through
the appeal process and the court process, the DFO's revocation of
the Denbys' licence was reversed and the cancellation of the quota
was reduced from 10 kilograms to six.
-
In a letter dated June 12, 2003 addressed to John and Betty Denby
and to William Denby from Grant Kennedy, Manager Quota Administration
and Field Services, Mr. Kennedy writes, "This concerns your offer
to sell your total quota on the June exchange. Your offer was not
accepted, as your total quota is not saleable. Note that you will
be subject to the quota exchange service fee, which will be deducted
from your June statement".
In his testimony, Mr. Denby:
-
Confirmed that after reading this letter he felt he was not going
to be allowed to sell his quota; and,
-
That prior to January 2007, no one from DFO wrote back to him
to tell him that he could sell quota.
-
In a memo dated November 21, 2006 to "All Milk Producers",
Bruce Saunders, the Chair of DFO discusses Ontario quota policy changes
and announces that the December exchange will be open November 27
to December 11, 2006. The memo states, "The Board of Dairy Farmers
of Ontario met on November 17 to consider quota policy changes following
four weeks of extensive consultations with Dairy Producer Committees
and dairy farmers across the province. It considered hundreds of letters
and e-mail messages from producers with a wide variety of suggestions".
The memo identified four changes regarding quota polices that were
to take effect immediately. These included:
-
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.
-
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.
-
Producers will pay what they bid above the Market Clearing
Price.
-
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.
Regarding the four weeks of extensive consultations in the November
21, 2006 memo, Mr. Denby testified that he attended a meeting regarding
the policy changes in Lindsay. Later, he attended another similar
meeting in Uxbridge; he estimated the attendance at that meeting
to be a little over 100. The DFO Board was represented by Mr. Wicks.
-
A circular signed by Chair of the DFO Board, Bruce Saunders, addressed
to "All Milk Producers" and dated November 1, 2006 states,
"DFO seeking input on possible quota policy changes before Nov.
17". Further, "The DFO Board has decided not to support
the proposal described in the letter to all producers dated October
19th . Producer input from across the province indicated that the
assessment levels in this specific proposal were not an acceptable
way of achieving the objectives of reducing upward pressure on quota
prices and fostering increased sustainability of existing farms and
the future of supply management by facilitating access to quota".
"The Board decided to consult with Dairy Producer Committees
on the quota policy issue over the next two weeks and review a range
of alternatives.
-
The alternatives will include the following possible actions:
-
A transfer assessment on the sale of existing quota;
-
A transfer assessment on quota that was purchased after November
1, 2006; and,
-
No longer accepting direction of proceeds from quota sales.
"These actions can be considered independently or as any combination.
Producer opinion on the timing and level of any assessment will be
important to assist in the Board decision…
"The Board will meet on November 17, 2006, at which time it
will decide what, if any, changes will be made to DFO quota policy.
"Following communication to all producers regarding the decision,
the Board plans to run the December quota exchange on its regular
schedule".
Mr. Denby testified that at the time this document was released,
the quota exchange was still closed. He advised that, related to the
circular, he attended a third meeting for Region 5 at Port Perry on
or about November 14, 2006. He recalled that about 100 people were
in attendance. Two Board members, Lloyd Wicks and Sid Atkinson, were
in attendance, as was one DFO staff member, George MacNaughton. Mr.
Denby testified that there were a number of votes taken, but, that
there was no clear result.
-
Following the Port Perry meeting, Mr. Denby wrote a letter addressed
to John Karn, Secretary to the Board of DFO, dated November 10, 2006.
Mr. Denby testified that the letter was a standard letter that had
been faxed to various groups across the province. Groups were asked
to fill in their region, sign the letter and mail it or fax it to
Mr. Karn. The letter concludes by stating, "We are recommending
to the Board, that at the November 17th meeting, that the status quo
remain and the board review its authority given to you by the Province
of Ontario on quota transactions. If the Board has failed to do so,
we recommend that you all consider handing in your resignation to
the Farm Products Marketing Commission as soon as possible".
In his testimony, Mr. Denby could not recall receiving a response
to his letter from DFO.
-
In a letter dated November 16, 2006, Mr. Denby again wrote to John
Karn of the DFO, regarding, "DFO seeking input on possible quota
changes before November 17/2006 To the DFO Board of Directors".
The letter raises concerns regarding a fraud investigation. Mr. Denby
testified that as of the date of writing, the quota exchange was still
not open and that the DFO Board did meet on November 17th. Further,
he testified that as a result of the November 17, 2006 meeting, the
circular of November 21, 2006 was done, which created the transfer
assessment without notice.
-
A letter on the letterhead of "The Office of the Director of
Regulatory Compliance" from George MacNaughton, Director, Production
Division, DFO and dated February 1, 2007 was addressed to John &
Betty Denby and William Denby. Mr. MacNaughton indicates that the
letter is in "response to your letters and attachments of January
8, 2007 and your letter and attachments of January 14, 2007".
The letter addresses the issues of exemption from the application
of the transfer assessment with respect to quota sold on the January
2007 exchange. In addition, the letter notes that "a Board decision
as amended by the Agriculture, Food and Rural Affairs Appeal Tribunal,
as further amended by the Ontario Divisional Court, cancels the six
kilograms of quota held by DFO licence 585343".
Mr. Denby testified that:
-
in this letter, there was reference to the notion that his quota
wasn't able to be sold because of its pricing;
-
on the last chart of page 2 of the letter, there are details
of his effort to offer his quota for sale;
-
several of the offers recorded on the chart were "protest
votes"; and,
-
they successfully sold all their quota on February 1st, 2007.
-
In a letter dated January 8, 2007 to John Karn, Secretary to the
Board, DFO, William Denby writes on behalf of John, Betty and Gwen
Denby and himself, regarding the "New Quota transfer assessment
policy November 17th, 2006". In the letter, he states that:
-
Under a partnership agreement between the four Denbys, the quota
holding is divided equally among all parties;
-
Under advice from legal council (sic) the 15% transfer assessment
does not apply;
-
Regarding licence # 585343, "the new quota policy does not
apply to us because our issue between DFO and ourselves is still
in the courts"; and,
-
"There is disagreement with the volume sold in a letter
received January 4th, 2007 by Mr. MacNaughton stating 50.5 kgs
of quota. We feel this should be 51.20 kgs of quota with no transfer
assessment applied, withholding the proceeds from the 6 kgs of
quota".
-
Mr. Denby testified receiving a letter from George MacNaughton of
the DFO dated February 15, 2007. The letter is addressed to John &
Betty Denby and William Denby. It states:
-
Your January 2007 milk statement and cheque and a copy of the
statement and cheque sent to the Farm Credit Corporation, for
all of the quota proceeds due to you and directed by you to the
Farm Credit Corporation, are enclosed for your information".
-
The matter of the cancellation of six kg of quota will not be
reviewed unless DFO receives a court order or direction".
-
The matter of your request for an exemption from the application
of the transfer assessment in the amount of 5.175 kg of quota
will be considered by the Board".
-
You will be advised of the Board's decision after their consideration
of your request".
-
Mr. Denby acknowledged receiving a letter from George MacNaughton
of the DFO to John & Betty Denby and to William Denby dated October
4, 2006, The letter, in part, states:
"This is to advise you that your offer to sell 44.5 (50.5 kg
minus the reduction of 6.0 kg) kilograms of quota, subject to increases
or decreases, at $32,000 per kilogram on the October quota exchange
was not successful".
"The market-clearing price on that exchange was $30,995.00 per
kilogram".
Mr. Denby testified that he had made such an offer but that it too,
was a "protest vote", even though it was very close to Exchange
Clearing Prices.
William Denby, Cross Examination
-
With regard to the DFO letter dated October 4, 2006, Mr. Denby
testified that he would have made this offer between September
20th and October 1st of 2006. He acknowledged that:
-
he was experiencing some somatic cell counts that were abnormally
high at that time and that this was an issue that he had appealed
to the Tribunal; and,
-
the Tribunal heard this case and that it upheld the imposition
of penalties and fines.
-
On January 1, 2007 at 11:41 pm the DFO received a Quota Exchange
Bid from John & Betty Denby and William Denby to sell all
their kilograms of quota for $27,999/kg.
Mr. Denby testified that:
-
This was one of four bids he had made on the January exchange;
-
He had spoken to George MacNaughton, who had asked Mr. Denby
to pick one of the four bids that he had submitted;
-
The four bids were not protest bids;
-
There was no discussion with Mr. MacNaughton regarding the
application of the transfer assessment or the decision of
the Divisional Court regarding the cancellation of the six
kilograms of quota.
-
A letter dated October 2, 2003, and addressed to John & Betty
Denby and to William Denby was signed by Grant Kennedy, Manager,
Quota Administration and Field Services, DFO. The letter concerned:
1) a Request to Bid on Quota Exchange; and, 2) a Request Concerning
Licensing.
Mr. Denby testified that:
Dale McFeeters, Evidence-in-Chief
-
The farm of Dale McFeeters is located at 1301 White Rock Road,
City of Kawartha Lakes. Prior to January, 2007, he was producing
milk at the farm on White Rock Road. He started marketing milk
in 1982 with approximately 30 cows. He obtained a licence to
market milk in 1982. His name was the only one on the licence
at that time. His former wife, Ruth McFeeters was, for a period
also named on the licence. He did not market milk after January,
2007, as he had sold all his quota and had quit the dairy industry.
He had sold 43.87 kilograms of quota.
-
A letter dated January 4, 2007 from George MacNaughton is addressed
to Darmar Farms Inc. of Woodville, Ontario. The letter states:
"This is to advise you that you sold 41.37 kilograms of
quota, subject to increases or decreases, at $29,600 per kilogram,
on the January 2007 quota exchange.
Mr. McFeeters testified that:
-
He is Darmar Farms and that Darmar Farms incorporated in
1997;
-
He had received the letter;
-
31.37 kilograms of his quota was subject to the transfer
assessment;
-
The transfer assessment cost him $139,268;
-
The 2.5 kilogram loss was the result of an export program;
the 2.5 kilograms represented a penalty;
-
He had originally been subject to a 5 kilogram penalty,
his licence had been revoked, and he had been advised that
no production credits would be accumulated;
-
He had appealed the DFO decision to the Appeal Tribunal,
who had reduced the penalty to 2.5 kilograms of quota; however,
the Tribunal had maintained the cancellation of his licence;
and,
-
He had appealed the Tribunal's decision to the Divisional
Court, as Mr. Denby had. The Divisional Court restored Mr.
McFeeters's licence, but, the 2.5 kilogram quota penalty
remained in effect.
-
On October 22, 2006, Mr. McFeeters wrote to John Karn, Secretary
to the Board, DFO. In his testimony, Mr. McFeeters acknowledged
that he had written the letter. In the letter,
-
He asked that his concerns be brought immediately to the
DFO Board members;
-
He stated that he was vehemently opposed to the changes
outlined in the October 19, 2006 DFO letter to all milk
producers;
-
He expressed concern about the decrease in the value of
quota as a result of the proposed changes; and,
-
He stated, "To this end, I am expecting that this
Board without question turn down this policy change at the
October meeting and that they act diligently in repairing
the damaging effect that they have caused in this industry".
-
On November 12, 2006 Mr. McFeeters again wrote to John Karn,
Secretary to the Board, DFO. In the letter he requested that
it be directed to the DFO Board prior to their November 17,
2006 meeting. Further, he expresses his "…concerns
over the producer's wishes not being relayed to the Board by
the milk committee". "The Board must vote no to any
quota policy changes at this time". In a letter dated November
16, 2006 , Mr. McFeeters expresses his concerns about the proposed
policy changes following an information meeting for producers
in Port Perry. He raises concerns about conflict of interest
for Board members in general and about a specific board member
in attendance at the Port Perry meeting in particular.
-
On December 20, 2002, the World Trade Organization (WTO) released
the Report of the Appellate Body, entitled, "Canada - Measures
Affecting the Importation of Milk and the Exportation of Dairy
Products: Second Recourse to Article 21.5 of the DSU by New
Zealand and the United States". Paragraph 152 of the document
reads:
"Before concluding, we wish to comment on Canada's arguments
concerning the approximately 100 producers out of the 8,000
who sell CEM, and out of the total of 19,000 producers that
do not participate in the domestic market at all and sell solely
CEM. Canada argues that the Panel erred in finding that, for
these producers, sales of CEM involve payments "financed
by virtue of governmental action". We do not believe that
it is necessary for us to make any findings regarding these
100 producers. The complaint made by New Zealand and the United
States is that Canada has acted inconsistently with its export
subsidy commitments under the Agreement on Agriculture. Canada
may act inconsistently with these commitments, as we have found,
even if some producers never make payments financed by virtue
of governmental action".
Mr. McFeeters testified that:
-
he concluded from this paragraph that milk producers were
not able to export milk, if they held quota;
-
no ruling had been made regarding producers that held no
quota and that they were eligible to export milk;
-
he felt that if he sold his quota, that he could export
milk, and that others, including Mr. Hope and Mr. Denby
held a similar view at the time;
-
as a result of this decision by the WTO, the DFO re-regulated
all milk under their authority on April 1st, 2003; and,
-
he tried to sell milk into the United States in April of
2003 and that as a result, the DFO revoked his license.
-
Mr. McFeeters testified that he had seen a letter dated April
10, 2003 from John Karn, Secretary to the Board of DFO and addressed
to Isobel and Wayne Hope. The letter states, "This concerns
your offer to sell 1.2 kilograms of quota on the April exchange.
Your offer was rejected by DFO and was not entered on the exchange.
This action was taken in light of alleged violations of DFO
regulations and an impending DFO Hearing to consider the matter".
"Until this matter is resolved, please be advised that
DFO will not permit you to sell or transfer any quota".
Mr. McFeeters testified that,
-
from this letter he understood that his group was not able
to sell quota at that time;
-
he had wanted to sell quota; and,
-
the first time he attempted to sell the quota was on the
June, 2003 exchange - which ran from May 20, 2003 until
June 1, 2003 - and that this was done as a protest.
-
Mr. McFeeters received a letter addressed to Darmar Farms,
of Woodville, Ontario, dated February 6, 2007 from George MacNaughton,
Director, Production Division of DFO. The letter addresses:
Mr. McFeeters's request for a transfer assessment exemption;
his saleable quota; and, the cancellation of quota held by Mr.
McFeeters as a result of a Board Decision.
The third page of the letter shows a table of quota offered
for sale by Mr. McFeeters for the Exchange Months of June, 2003;
July, 2003; October, 2006; and, January, 2007. Mr. McFeeters
testified that the June, July and October offers were "protests".
Dale McFeeters, Cross Examination
-
In cross examination by Mr. Geoff Spurr, Mr. McFeeters testified
that:
- He had been a cream producer for five years and had held
quota as a cream producer;
- He sold his cream quota when he became a milk producer;
there was no transfer assessment on the cream quota when it
was sold;
- He had participated in various export programs that DFO
had administered when there was an export program in place;
at one point approximately 50% of his production was for the
domestic market and 50% was for export purposes;
- With regards to the November 21, 2006 DFO circular to "All
Milk Producers" on Ontario quota policy changes, it was
fair to say that he was advocating for the status quo, which
meant no transfer assessment, no pay-what-you-bid and no limit
on the letters of direction; and,
- The November, 2006 policy changes had a very negative effect
on his business, and, in part, his position to maintain the
status quo.
Keith Jarvis, Evidence-in-Chief
-
The home farm of Keith Jarvis is located at 1660 Scugog Line
12 in Durham Region. Mr. Jarvis's father, Leonard, had purchased
the farm in the late 1950's with the intent of operating it
as a dairy farm. In 1977, Mr. Jarvis and his brother Ron both
took 1/3 shares in the farm. Since 1989, the farm has been split
on the basis of 40% for Keith Jarvis; 40% for Ron Jarvis and
the remaining 20% for their parents. Leonard Jarvis received
a milk license in 1965; the two sons were added to the license
in 2005.
-
The family sold 123 kilograms of quota in February, 2007 and
no longer runs a dairy operation. Mr. Jarvis testified that:
-
the quota was sold as a result of the quota policy changes
announced by DFO in November, 2006;
-
he'd had no notification that the transfer assessment changes
were going to take effect immediately;
-
he feared that the transfer assessment might further increase
to 25% within a few months after the implementation of the
November 21, 2006 policy changes;
-
the transfer assessment had eroded his equity by $511,305.52;
-
he was not supportive of the proposed quota policy changes
outlined in the October 19, 2006 circular addressed to All
Milk Producers; and,
-
After the February, 2007 sale of quota, he had not tried
to repurchase quota; his son had made enquiries regarding
financing of quota purchases, but, had not proceeded with
a purchase.
-
In a letter dated January 26, 2007 and addressed to John Karn,
Secretary to the Board of DFO, Mr. Keith Jarvis writes on behalf
of his father Len, mother Margaret, brother Ron and himself
regarding the sale of their quota. Mr. Jarvis advises that the
family members have decided to sell all their quota on the February
Quota Exchange, "…due to the quota policy that came
into effect on November 17th, '06". The letter continues
by requesting an exemption from the 15% transfer assessment
and that this matter be brought before the DFO Board at their
January meeting.
-
In a letter to Keith and Ronald Jarvis as Reachvale Farms
dated March 15, 2007, George MacNaughton, Director, Production
Division of the DFO writes, "The Board considered your
request to be exempt from the application of the transfer assessment
for the quota that you sold on the February 2007 quota exchange,
at the March 13, 2007 Board meeting. The Board did not agree
with your argument that the policy was inequitable to producers
as all producers have a 10-kilogram exemption, and denied your
request. Your request for an exemption from the Pay-What-You-Bid
Policy was not considered as you have not purchased quota since
this policy came into effect".
Keith Jarvis, Cross Examination
- In questioning from Mr. Spurr, Mr. Jarvis testified that:
- two farms had been purchased by family members subsequent to
the quota policy changes of November, 2006 and subsequent to the
sale of their quota;
- Reachvale Farms did not direct DFO to pay quota sales proceeds
to others; the cheque came directly to Reachvale; and,
- Of the proceeds from the sale of the quota, approximately $400,000
was used to pay off outstanding debt resulting in the farm being
debt-free at that particular time.
George MacNaughton, Evidence-In-Chief
-
George MacNaughton was raised on a dairy farm in Stormont
County that is still operated by his brother. He was hired by
the DFO on June 7, 1981 as a Fieldman in southwestern Ontario.
He worked as an account manager for the Bank of Nova Scotia
in 1990 and in 1991 returned to DFO as Field Service Supervisor.
In 1995, he was appointed Manager of Farm Policies and Programs;
in 1998, he took on responsibility for the management of the
Raw Milk Quality Program in Ontario. Today, he has two positions
within DFO; 1) Director of the Production Division; and, 2)
Director of Regulatory Compliance.
-
Under questioning by Mr. Spurr, Mr. MacNaughton testified
that:
- In 2006, Mr. Denby appealed a somatic cell count penalty
that was imposed by the DFO under Regulation 761 of the Milk
Act; Mr. Denby asked that the penalty be reconsidered, but,
Mr. MacNaughton denied the request; Mr. Denby subsequently
appealed to the Tribunal; the Tribunal upheld Mr. MacNaughton's
decision;
- In 2006, Dale McFeeters asked Mr. MacNaughton to review
a penalty imposed by virtue of an elevated somatic cell count
level; upon recalculating the weighted average somatic cell
count for the month of October 2006 the review turned out
in Mr. McFeeters's favour. The penalty against Mr. McFeeters
was refunded. These sorts of circumstances occur infrequently
- some 20 to 30 times per year.
- DFO policies, including quota policy can be revised on an
on-going basis; a number of factors are monitored, e.g. the
effectiveness of policies, and then revise them accordingly;
- The DFO tries to revise policies once annually, so that
there is consistency in policy;
- The August 1, 2007 version of the policy manual covers the
new quota transfer policy; there is a more up-to-date version
of the manual on the web that includes two minor revisions;
- Page 1 of the August 1, 2007 version of the policy manual
states, "(a) Quota is the property of the Dairy Farmers
of Ontario (DFO). It is fixed and allocated to producers on
such basis as DFO considers proper and is subject to the terms
and conditions of DFO's quota policies";
- This clause has been consistent during Mr. MacNaughton's
tenure with the DFO;
- Regarding Section "C" on page 4 of the policy
manual, a "same-site quota transfer" means that
"if you have an operating farm of what we refer to in
a lot of cases as an ongoing operation, then you can move
that entire operation to another entity. The majority of them
are inter-generational transfers or transferred within family
but it's not restricted to that. Any producer could actually
sell their entire farm operation including the quota to another
party. So, for example, if you owned a farm, I could purchase
it from you and obtain all of the quota"; the transfer
assessment would not be applicable in that circumstance;
- Additional quota acquired through the Quota Exchange increases
the quota allotment on the acquiring farm - is allocated to
one single licence;
- The Quota Exchange has far more transactions each month
than there would be in terms of same-site transfers; in terms
of volume approximately 40% of the quota transferred would
be an inter-generational transfer versus 60% being transferred
on the Quota Exchange;
- DFO has operated a Quota Exchange since 1980; prior to 1980,
"there were a number of mechanisms used to transfer quota…Producers
buying between themselves; there were rental agreements at
one point in time; you could purchase…cows on quota;
same-site transfers; within family transfers…various
methods…"; in each instance, the Board had to approve
the transfer from one producer to another; currently, the
Board approves all quota transfers on a monthly basis;
- The purpose of the Quota Exchange is to provide all producers
with equitable access to both selling and buying quota;
- He oversees the operation of the Quota Exchange and assumed
that responsibility in March, 2005; and,
- The Board has granted two exemptions to the transfer assessment
and three to letters of direction; "…the two that
were actually granted with respect to the application of the
transfer assessment were actually for compassionate reasons
that had to do with the death of the principal operator of
the farm"; regarding the three exemptions for letters
of direction, "…the primary reason for all three
decisions…the producers were actually dealing with matters
and trying to get their affairs in order prior to the change
in…policy".
George MacNaughton, Cross Examination
-
In questioning from Mr. Falconer, George MacNaughton testified
that:
-
At the time the DFO took over the Raw Milk Quality Program,
legal counsel to DFO, Geoff Spurr, described the legal obligation
of fairness, as well as errors of omission and commission.
-
The Section 7(1) of the Milk Act R.S.O. 1990, c. M.12 states:
Regulations with respect to regulated products
7. (1) The Commission may make regulations with respect
to regulated products generally or to any regulated product,
and, without limiting the generality of the foregoing, may
make regulations,…
14. authorizing a marketing board,
-
to require that a regulated product be
marketed on a quota basis,
-
to prohibit any person to whom a quota
has not been fixed and allotted for the
marketing of a regulated product or whose
quota has been cancelled from marketing
any of the regulated product, and
-
to prohibit any person to whom a quota
has been fixed and allotted for the marketing
of a regulated product from marketing any
of the regulated product in excess of such
quota;
15. authorizing a marketing board,
-
to fix and allot to persons quotas for
the marketing of a regulated product on
such basis as the marketing board considers
proper,
-
to refuse to fix and allot to any person
a quota for the marketing of a regulated
product for any reason that the marketing
board considers proper,
-
to cancel or reduce, or refuse to increase,
a quota fixed and allotted to any person
for the marketing of a regulated product
for any reason that the marketing board
considers proper, and
-
to permit any person to whom a quota has
been fixed and allotted for the marketing
of a regulated product to market any of
the regulated product in excess of such
quota on such terms and conditions as the
marketing board considers proper
-
Section 7(10) of the Milk Act R.S.O. 1990, c. M.12 states:
Acts of marketing board deemed administrative
(10) Everything that is done by a marketing board under the
authority of paragraph 15 of subsection (1) shall be deemed
to be of an administrative and not of a legislative nature.
R.S.O. 1990, c. M.12, s. 7 (10).
-
MacNaughton further testified that:
-
Section 6 of the Milk Act - O. Reg. 354-95 states:
Authority of Marketing Board
6. The Commission authorizes the marketing board,…
(j) to require that milk or cream be marketed on a quota
basis;…
(m) to fix and allot to persons quotas for the marketing
of milk or cream on such basis as the marketing board considers
proper;…
(p) to permit a person to whom a quota has been fixed and
allotted for the marketing of milk or cream to market milk
or cream in excess of the quota on such terms as the marketing
board considers proper;
40. Mr. MacNaughton testified that:
-
The DFO Board considers subsections 6(j), 6(m) and 6(p)
as key in establishing policy concerning quota;
-
"Transfer assessment" is one of the matters that
the Board considers proper for the purposes of the regulation;
and,
- There is no specific reference to "transfer assessment"
in Section 6 of the regulation; but that "transfer assessment"
is considered to be policy;
George MacNaughton, Re-examination
-
Mr. MacNaughton testified that, regarding the November 17,
2006 Board meeting that resulted in the new policy provisions,
it is a normal approach for the principles of a policy to be
established by the Board with elaborations or particulars being
added subsequent to the exercise; this has happened throughout
the history of DFO.
Peter Gould, Evidence-In-Chief
-
Peter Gould is the General Manager of the Dairy Farmers of
Ontario. He has worked with the DFO for many years in a variety
of positions; starting as an economist, then senior economist,
Director of Marketing Division, additional duties related to
the Production Division; Director of Regulatory Compliance and
now as the General Manager. George MacNaughton replaced him
as the Director of Regulatory Compliance.
-
In response to questioning from Geoff Spurr, Mr.Gould testified
that:
-
Since its inception, the DFO has had the authority to set
prices for milk;
-
The DFO Board has consciously and aggressively done everything
in its ability to ensure that there is no cost of the quota
in the cost of milk;
-
He believed William Denby was involved in an export scheme
that allowed producers to contract with companies to export;
DFO would have been involved in Mr. Denby's acquisition
of a FDA import permit by providing assurance that he was
qualified to produce;
-
Mr. Denby was allowed to begin exporting, but that this
was brought to a close due to the change in DFO regulations
resulting from the 2002 WTO decision;
-
There was concern within the DFO Board regarding the possible
outcome of the Doha Round of WTO negotiations which began
in 2001; emphasis on this round has been placed on agriculture;
high quota values were unsustainable in light of the Doha
negotiations;
-
The global milk market has changed since November, 2006
- the Canadian dollar has risen in value; international
milk prices have also risen, but, that can change quickly;
-
In addition to higher quota prices, the DFO Board was also
concerned that amortization periods were getting longer
and that risks related to interest rates were increasing;
-
The DFO had commissioned a study entitled "A Study
of Milk Quota Prices in Ontario" that was released
in January, 1988 by S. H. Lane and by G. H. Brinkman; as
a result of the report, the DFO made no changes regarding
quota transfer assessments, nor were any changes made to
the operation of the quota exchange;
-
The DFO did not commission a similar study for the 2006
quota transfer changes;
-
There are two concerns regarding the use of quota as collateral
for financing: 1) quota is the property of the DFO, not
the producer; 2) treating quota as collateral could increase
the security of the asset and could/would result in greater
lending and higher quota prices;
-
Amortization periods for quota had increased from 3 - 5
years in the 1980's and through the 1990's; by 2006, loans
were made with amortization periods of 20 years;
-
Quota was taking on the characteristics of a financial
instrument; there was no question that letters of direction
were a factor in the escalating prices of quota; and,
-
At least two meetings were held with financial institutions,
i.e. Farm Credit Corporation and with the Canadian Bankers'
Association regarding the implications of the proposed quota
transfer policy changes;
Peter Gould, Cross Examination
-
In response to questions from Mr. Falconer, Mr. Gould testified
that:
-
He did not entirely agree with Mr. MacNaughton's answers
to Mr. Falconer's questions regarding "fairness";
-
He did not recall having any training on "procedural
fairness" when he assumed the role of Director of Regulatory
Compliance, though he did recall covering the implications
of errors and omissions and related liability;
-
He did not believe that Mr. MacNaughton had received any
training on procedural fairness when Mr. MacNaughton had
taken on the role of Director of Regulatory Compliance;
-
He agreed that in the context of being the Director of
Regulatory Compliance, that the appearance of fairness was
very important;
-
He is Mr. MacNaughton's superior at the DFO;
-
He was aware of the March 25th, 2008 Agriculture, Food
and Rural Affairs Appeal Tribunal Decision of the appeal
of John and Susanna Cayer v. Dairy Farmers of Ontario;
-
The DFO had submitted a request to the Tribunal to review
that decision;
-
No steps had been taken as a result of the Tribunal's decision
on the Cayers v. DFO appeal;
-
No specific study or expert report had been undertaken
by DFO that advised that the 15% quota transfer assessment
had to be implemented without notice, or without providing
an opportunity to producers to exit the industry;
-
There was a desire by the DFO to move forward on the matter
of quota;
-
In November 2006, there was no urgency from the point of
view of something having necessitated it, but, once information
had been distributed to the Ontario and Quebec Boards and
then disclosed in an unorganized way to producers, the DFO
Board felt that it needed to act;
-
DFO membership is divided up into 48 committees, which
comprise 12 regions; the committees are based roughly on
geographical regions - close to counties; some of the committees
decided they would hold information meetings concerning
the October 2006 proposed quota policy changes;
-
The consultation process was not optimal; but questioned
whether the decision would have been any different;
-
The DFO Board looks at each case on its own merits when
dealing with requests for exemptions to the quota transfer
assessment; and,
-
The discussions with financial institutions were held more
to get feedback from the banks on what they consider to
be appropriate regarding any quota policy changes.
-
A letter to George MacNaughton, DFO dated October 4, 2006 from
Susan Rivett, Manager Finance Programs and from Rob Mabe, Vice
President, Sales of Maxium Financial Services Inc., states,
in part:
"During our meeting you made the following comments and
observations, recognizing that some of these comments may be
your personal observations versus the official position of the
DFO:
"…5. DFO expects there is a three to eight year window
before the WTO will implement tariffs; consequently DFO will
need to lower the price of industrial milk".
In response to a comment from Mr. Falconer that this statement
doesn't suggest urgency on the part of the DFO to implement
changes to quota policy, Mr. Gould indicated that there were
other factors that influence the price and markets for milk.
Peter Gould, Re-examination
-
Requests for Special Consideration of DFO quota policy decisions
are addressed in Section H, Page 21 of, DFO Policies: Quota,
Raw Milk Quality, Milk Transportation, Dairy Farmers of Ontario,
August 1, 2007. Part 2 of Section H states:
"If a producer requires special consideration for reasons
of not being able to comply with a particular policy(s) in Part
1, DFO'S Quota Committee should be advised of the problem, in
writing, providing all of the pertinent details as to why special
consideration has been requested.
"The Quota Committee will consider a request and make
a recommendation to DFO. DFO, in turn, will reach a decision
on the matter and the producer will be so advised.
"If the producer is not satisfied with a DFO decision,
the right is granted, under provincial legislation, to request
a Hearing and appear before DFO to present their case in person.
In this instance, the producer should advise DFO's Board Secretary,
in writing, of their wish to "appeal" DFO's decision.
Beyond DFO decisions, a producer still has the right to appeal
DFO's decisions to the Agriculture, Food and Rural Affairs Appeal
Tribunal.
"The producer must appeal a decision of DFO within 90
days of being advised of DFO's original decision".
Bruce Saunders, Evidence-In-Chief
-
Bruce Saunders has been the Chair of DFO for 3 years into
a 4 year term; he has been on the Board of DFO for 22 years
and has been a dairy producer for 38 years.
-
Mr. Saunders testified that:
-
He was out of the country when the decision to cancel the
November Quota Exchange had been made by the Board.
-
In 2005, he detected that a change within the membership
such that there was an interest in addressing the issue
of values; at the DFO annual meeting in 2006, the Board
decided that they would take up the interest the delegate
body had regarding quota policy; the Board had also heard
that the Quebec Board had a similar interest; DFO staff
were asked to meet with their Quebec counterparts to see
if they could develop a joint proposal that both boards
could review.
-
Why the November 21, 2006 DFO circular to "All Milk
Producers" indicated that the DFO Board had adopted
the policy changes "effective immediately"; "stability"
was a major reason; concerns that if the Board discussed
a policy change and then take no action, then there would
be the risk of someone with that knowledge putting the integrity
of the organization at risk;
-
At the time the Board reached a decision on the changes
to quota policy, it felt that the risk related to a possible
adverse WTO decision was continuing;
-
The level of interest among producers made the Board's
decision regarding quota policy very difficult;
-
For a number of Directors, the decision may have been one
of the most difficult as a board member, given the relatively
new board membership;
-
The rationale for cancelling the November, 2006 quota exchange
was to allow time to communicate the policy changes to all
producers; the Board felt that there was not enough time
for all producers to get the information before the November
quota exchange; and,
-
In terms of conflict of interest, Board members declare
them all the time; relative to the November 17, 2006 decision,
no member declared a conflict of interest, as all members
are dairy producers.
Bruce Saunders, Cross Examination
-
Bruce Saunders is quoted in an article entitled "Caution
urged for policies on quota value" in the November 2005
edition of MilkPRODUCER. The final paragraph in the article
states: "Interest in the board doing something is greater
than in the past," said board chair Bruce Saunders. He
added, however, that delegates appeared to want more of a fine-tuning
approach than anything too radical, and plenty of notice before
new polices are implemented".
Under questioning by Mr. Falconer, Bruce Saunders testified
that:
- He did not write the article in MilkPRODUCER;
- MilkPRODUCER had quoted him in the past;
- He had not contacted MilkPRODUCER to advise them that they had
their facts wrong;
- He could not recall saying that delegates wanted, "plenty
of notice" in the interview for the article;
- He did not agree that the 15% quota transfer assessment was
more than "fine tuning"; this was the same approach
as in 1996, the difference being in the value of quota at the
time;
- The Board of Directors did not commission a study to examine
the implications of the quota policy changes that were eventually
implemented; and,
- The Board's decision was based on,"gut feeling".
The Issues
-
Did DFO have the legal authority in November 2006 to levy
a quota transfer assessment?
-
If DFO did have the legal authority to levy a transfer assessment,
was the manner in which the transfer assessment was levied in
keeping with the basic principles of fairness?
- Was DFO's decision to deny the appellants' requests for exemptions
from the November 17, 2006 quota policy on transfer assessments
fair and reasonable
Findings & Reasons
1. Legal authority for DFO to levy a Quota Transfer Assessment
The Tribunal heard evidence that the legal authority by which the DFO
operates is derived from the Milk Act R.S.O. 1990, c.M.12 and Ontario
Regulation 354/95 to that Act. Section 7 of the Milk Act sets out the
criteria by which the Commission may make regulations with respect to
regulated products. This includes the delegation of authority to a marketing
board (the DFO) to market the product. (Section 7(1)15)
The evidence before us also demonstrates that the authority delegated
to the DFO is further detailed in Ontario Regulation 354/95 and provides
for the "control and regulation in any and all aspects of the producing
or marketing within Ontario of milk and farm separated cream, including
the prohibition of that producing or marketing in whole or in part."
(Section 2) Of particular importance is section 6 wherein the Commission
authorizes the marketing board to require that milk or cream be marketed
on a quota basis and to fix and allot, to persons with quota for the marketing
of milk or cream on such basis as the marketing board considers proper.
Mr. McNaughton testified that although there is no specific reference
to "transfer assessment" in the legislation, a transfer assessment
is considered to be a matter of policy by the DFO and as such, the DFO
Board of Directors considered the implementation of it proper for the
regulation of the dairy industry.
The Tribunal heard no testimony to refute this evidence and, as such,
we find that the legislation framework is in place for the DFO to levy
a quota transfer assessment when circumstances require it to do so.
2. Principles of Fairness
Evidence with respect to the DFO's actions
In the view of the Tribunal, the implementation of the applicable legislative
framework must be carried out in a manner that is required to be both
fair and just. The Tribunal heard evidence from Mr. McNaughton that, since
2002, the DFO had determined that the rising cost of quota was a serious
issue that had to be addressed. He testified he had been raised on a dairy
farm and had been employed in a number of capacities with the DFO since
1981. He is currently the Director of the Production Division and Director
of Regulatory Compliance. He noted he was aware that in exercising the
DFO's administrative power, he had a duty to ensure its actions were carried
out in a just and fair manner. With respect to this same matter, the Tribunal
also heard evidence from Mr. Gould that the DFO was concerned that the
high quota prices were unsustainable in light of the World trade Organization
(WTO) negotiations that had been ongoing since 2001. He also testified
there was concern with respect to the increasing length of amortization
periods for milk producer's loans and the risk of high interest rates.
Despite the fact that both Mr. McNaughton and Mr. Gould testified that
the cost of quota was a serious issue that needed to be addressed, Mr.
Gould in particular testified there was no urgency in addressing the issue.
We find this is confirmed, in part, by the DFO not taking the initiative
to conduct a specific study or to retain an expert in the field to assist
it in arriving at a solution to the issue in a fair and just manner as
was done by the DFO when the same issue arose in 1988. Rather, the DFO
chose to close the Quota Exchange, without notice to the producers. A
transfer assessment was then imposed.
We heard evidence that this decision was based on the likelihood of information
being leaked to some producers, resulting from an administrative meeting
held between the DFO and its Quebec counterpart in 2006 that the DFO was
considering instituting a cap on quota prices as had been done in Quebec.
In addition, the Chairman of the DFO Board of Directors, Mr. Saunders,
testified that a number of producers had contacted him and were adamant
that any quota policy changes not be radical. He believed, however, that
the price of quota needed to be stabilized.
Mr. Saunders also testified that his decision with respect to the immediate
implementation of the transfer assessment was based "on a gut feeling."
We find this not surprising as it appears from the evidence before us
that little else in the form of research or study was undertaken in support
of DFO's decision. All parties testified that the DFO had held a number
of regional meetings throughout the province between October 19 and November
1, 2006.
The Tribunal heard evidence from the appellants that although the issue
of the price of quota and the imposition of transfer assessments was discussed
at these meetings, no details were provided with respect to the action
DFO was likely to take, nor to the timing of any action that may be taken.
By the time the DFO had provided a written overview of its intended actions
on November 21, 2006, the Quota Exchange had already been closed. It would
not reopen until November 27, 2006. As the transfer assessment was put
in place during this time frame there was no opportunity for producers
to exit the industry without feeling the full effect of the newly imposed
15% transfer assessment.
No phase in period was put in place. This was seen as an important step
that many producers had requested should the DFO at some point in the
future seriously consider the implementation of a transfer assessment.
With the implementation of the 15% transfer assessment, the DFO effectively
cost Mr. Denby $153,180.00, Mr. McVeeters $139,268.00 and the Jarvis'
$511,305.52. Each of the appellants then approached the DFO with respect
to obtaining an exclusion from the transfer assessment but they were denied.
The appellants testified that as a result of the DFO's actions they had
lost faith and trust in their governing body and, therefore, decided to
exit the industry despite facing a large financial loss in doing so.
Application of the law to the DFO's actions
So how does the Tribunal view the actions of the DFO with respect to
its duty to uphold the general common law principle of procedural fairness
as determined by the Supreme Court of Canada in Cardinal v. Kent Institution
[1985] 2 S.C.R. 643?
We find that the DFO did not in fact uphold this principle in any manner
whatsoever. The evidence before us demonstrates a complete disregard for
the underlying principle which the Supreme Court states lies on every
public authority making administrative decisions which are not of a legislative
nature and which affects the rights, privileges or interests of an individual.
As detailed previously, the evidence before us shows that the DFO is
a public authority that makes administrative decisions which are not of
a legislative nature and, therefore, the decision of the Supreme Court
in Cardinal v. Kent applies to the facts before us.
Although we find the evidence presented on behalf of the DFO to be credible
we also find it to be inconsistent. This is demonstrated by the actions
of the DFO when they determined that the high cost of quota was an issue
that needed to be addressed. If it was indeed an issue that required immediate
attention, then the question arises as to reasons for the lack of proper
notification to the producers when the DFO determined it was a serious
issue as early as 2002. Instead, the matter was left unaddressed until
the eleventh hour when the administration and the Board felt a solution
needed to be put in place immediately. The evidence shows that, in its
haste to arrive at a solution, the DFO failed to keep its members fully
informed and involved as to its intended decision, that being the implementation
of a 15% transfer assessment. The DFO Board can reasonably be expected
to have been aware of the serious financial impact that such a move would
have on the producers, as the Board consists of active milk producers
as well as senior staff, who have been in the employ of the DFO for decades.
It is clear from the evidence presented in this case that all of these
individuals knew what was at stake for the producers. Therefore, they
reasonably should have realized that full disclosure of their intentions,
coupled with as much information on the topic as possible, was required
prior to making such an important decision. As demonstrated by the evidence
before us, the standards of fairness are not met by locking producers
in the market by closing the quota sale exchange, making significant changes
with respect to the sale of quota and then, once reopened, taxing the
producers a 15% tax (transfer assessment) should they desire to sell their
quota and leave the industry.
3. Fair and Reasonable
As discussed previously, in some detail, we do not find that the DFO
acted in a fair and reasonable manner with respect to the appellants.
The evidence shows that the Denbys, Mr. McFeeters and the Jarvis' used
every avenue available to them to vehemently oppose the recommended changes
to the Quota Policy that the DFO had originally detailed in its October
19, 2006 memorandum and which subsequently was not implemented.
However, the DFO continued on its course to implement the Quota Transfer
and, other than a number of hastily arranged regional meetings to discuss
high quota costs and the state of the dairy industry in Ontario, no further
notice was provided to the producers of the DFO's impending action to
impose a 15% transfer assessment on quota. This was the process followed
by DFO despite the testimony of its General Manager, Peter Gould, that
no specific study or expert report had been undertaken by the DFO that
the 15% quota transfer assessment had to be implemented without notice
or without the opportunity to producers to exit the industry. He also
testified that in November 2006, there was no urgency from the point of
view of something having necessitated the policy. Why then the rush to
move forward in such a rapid manner? Based on the evidence before us,
the Tribunal finds no reason whatsoever why producers could not have been
informed in advance of the policy change, especially in light of the fact
that it carried such a huge financial loss for many, if not all of the
producers, should they at some future time, wish to sell their quota and
exit the industry. We, therefore, find nothing fair or reasonable in the
actions of the DFO with respect to this issue.
Following the implementation of the 15% transfer assessment, the appellants
formally requested to be exempt from the transfer assessment, but were
denied.
In summary, throughout this entire matter, the evidence has indicated
a lack of timely communication and adequate information provided to quota
holders by the DFO around their decision to change the Quota Policy in
November 2006. The evidence has further shown that this has resulted in
a process that was neither fair nor reasonable for the affected quota-holders.
Thus, we find that the DFO failed to discharge its obligations of procedural
fairness in effecting the November 2006 Quota Policy change with respect
to implementation of a quota transfer assessment.
For the reasons explained above, therefore, the findings of the Tribunal
are:
- The DFO did have the legal authority to in November 2006 to
levy a transfer assessment.
- The DFO determined that there was an issue with respect to the
rising cost of quota; DFO determined the cost of quota to have
been an issue of concern since 2002 (MacNaughton).
- In 2006, DFO officials met with their Quebec counterparts to
discuss the issue of the high cost of quota.
- In October 2006, notices were forwarded to all producers to
inform them that changes were being contemplated to quota policy,
part of which was the implementation of a phased-in quota transfer
assessment from January 2007 to August 2009.
- Despite the fact that the issue of transfer assessments was
continuing to be discussed as outlined in the November 1, 2006
memo to all Producers, there was no indication that its implementation
would be immediate and with no phase-in period to allow producers
time to effectively manage their financial affairs.
- Other than a joint meeting with the Quebec Board (Federation
des producteurs de lait du Quebec) in the Spring of 2006 and a
1988 study commissioned by the DFO, there were no detailed or
expert impact analyses conducted to determine the effect such
a policy change would have on producers' business strategies.
- There was a 16 day period to canvass producers for input into
a new policy based on the DFO memo dated November 1, 2006 to all
Producers and that this amount of time was not adequate.
- Despite the fact that there were a number of producer meetings
held to discuss quota policy options, there was no reference at
the meetings to the immediate implementation of a 15% transfer
assessment nor the cancellation of the December 2006 Quota Exchange;
which did not permit producers to buy or sell quota during that
period.
- Many of the board members were relatively new to the Board
and inexperienced in making such difficult decisions.
- Based on DFO testimony, there was no sense of urgency and no
need for drastic changes to the quota policy and that only fine
tuning was needed.
- The DFO Chair indicated that the decision to implement quota
policy changes was based on "gut feeling".
- As a result of the DFO's implementation of the November 21,
2006 quota policy changes, the appellants lost trust in DFO's
management of the industry and, accordingly, felt they were compelled
to exit the dairy industry.
- As determined by the Supreme Court of Canada in Cardinal v.
Kent Institution [1985] 2 S.C.R. 643, there is a duty to uphold
the general common law principle of procedural fairness which
lies on every public authority making administrative decisions
which is not of a legislative nature and which affects the rights,
privileges or interests of an individual. We find that the DFO
did not adhere to this principle as its actions deprived the appellants
of their right to a fair and open process with respect to the
management of their business affairs and subsequently, their future
livelihood.
Order
After careful consideration of the evidence filed and the submissions
made, the Tribunal orders:
-
The exemptions sought by the appellants are hereby granted.
-
Within thirty (30) days of the date of this Decision, the
DFO shall refund:
-
$153,180.00, without interest, to William and Betty
Denby and the estate of John Denby;
-
$139,268.00, without interest, to Dale McFeeters; and,
-
$511,305.52, without interest, to Keith Jarvis and
Ron Jarvis.
Dated at Maidstone, this 9th day of December, 2008.
For more information:
Toll Free: 1-888-466-2372 ext. 63433
Local: 519-826-3433
E-mail: appeals.tribunal.omafra@ontario.ca
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