Gubbels Farms Ltd v. Ontario Flue-Cured Tobacco Growers' Marketing Board

In the matter of 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 Gubbels Farms Ltd., of Delaware, Ontario, from a decision of The Ontario Flue-Cured Tobacco Growers' Marketing Board dated April 22, 2010, denying the use of Gubbels Farms Ltd. farm licence numbers #7677 and #7691 for the new tobacco licensing system; and denying a refund for licence fees paid to the Board for 2009 and 2010.

Before:
Kirk Walstedt, Chair; Cor Kapteyn, Vice-Chair; Jane Sadler Richards, Member

Appearances:
Jim Caskey- Counsel for the Appellant, Gubbels Farms Ltd.
Curtis Cleever- Assistant to counsel for Appellant
Barry H. Bresner- Counsel for the Respondent, The Ontario Flue-Cured Tobacco Growers' Marketing Board

Decision of the Tribunal

Background

The hearing was held by the Agriculture, Food and Rural Affairs Appeal Tribunal on Tuesday, November 23, 2010 at 9:00 a.m. in the Tribunal Boardroom, in Guelph Ontario.

Gubbels Farms Ltd. has grown tobacco under the marketing-system-of-the-day in Ontario since 1962. In 2008, Gubbels Farms Ltd. was licensed to produce approximately 418,000 lbs of basic production quota ("BPQ"). Gubbels Farms Ltd. did not participate in the Tobacco Transition Program ("TTP") and intended to continue producing tobacco for market. In 2009, the Ontario Flue-Cured Tobacco Growers' Marketing Board ("Board") removed the existing quota-based system for the control of production and marketing of tobacco and moved to a licensed-based system. The effect of this change was that the 418,000 lbs of BPQ associated with Gubbels Farms Ltd. ceased to exist. Also, before a licence to produce tobacco could be issued under the new system to Gubbels Farms Ltd., they had to be an eligible applicant and meet criteria set out in the General Regulations 2009 - 2010. Although Gubbels Farms Ltd. did not agree with the implementation of the licensed-based system, they complied with the new requirements and were issued licenses to produce tobacco in 2009 and 2010.
Gubbels Farms Ltd. appealed to the Board on April 1, 2010, asking for an exemption from the licensing requirements under the General Regulations 2009 - 2010 and for a refund of license fees paid to the Board for 2009 and 2010. The Board denied the request on April 22, 2010.

Gubbels Farms Ltd. appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal ("Tribunal") for relief from the April 22, 2010, decision of the Board with the following request:

Gubbels Farms requests that their permanent BPQ be reinstated and that, as a result, they be licensed to grow tobacco under the previous system. Furthermore, Gubbels Farms requests that the Board refund to Gubbels Farms all monies that it paid to the Board for the redundant licences (#65) for the 2009 and 2010 growing seasons.

Issues

1. Did the Board have the authority to remove BPQ?
2. Did the Board implement a licensing system that does not limit the quantity of tobacco that may be produced by the licensee as required under the terms of the TTP Agreement?
3. Is it possible to grant the relief requested by the Appellant?

Overview

The arguments in this appeal were presented by counsels for the Appellant and the Respondent. The counsels presented arguments based on the issues listed above, supported by legislation, regulation and case law.

1. Did the Board have the authority to remove BPQ?

Authority of the Board

The Appellant stated their opinion that the Board did not have the authority to remove the BPQ simply by passing a resolution to create a Regulation to do so and by coming to an agreement with the federal government. The Appellant argued that legislation was required to remove the BPQ. No legislation was referenced by the Appellant to support this assertion. The Respondent argued that the Board had the authority to make decisions regarding the production and marketing of tobacco and reviewed the statutory framework including the following documents:
Farm Products Marketing Act R.S.O. 1990, c. F.9

• Farm Products Marketing Act, Regulation 435 Tobacco Marketing
• Ontario Flue-Cured Tobacco Growers' Marketing Board General Regulations 2008 - 2009
• Ontario Flue-Cured Tobacco Growers' Marketing Board Regulation No. 122-2009
• Ontario Flue-Cured Tobacco Growers' Marketing Board General Regulations 2009 - 2010
• Farm Products Marketing Act Ontario Regulation 208/09 Tobacco - Powers of Local Board
• Farm Products Marketing Act Regulation 436 Tobacco Plan
• Farm Products Marketing Act Ontario Regulation 306/09 Tobacco Plan
• Ministry of Agriculture, Food and Rural Affairs Act R.S.O. 1990, c. M.16

The Appellant further asserted that the Board had no right to enter into the TTP since there was no legislation in place to take away the BPQ and an agreement between the federal government and the Board to take away the BPQ was not enough to do this. No legislation was referenced by the Appellant to support this assertion. The Respondent did not address this assertion by the Appellant. However, the Respondent indicated that since the size of the tobacco crop was in decline, it was clear that the industry needed fewer growers producing tobacco. The Board entered into negotiations with government for a 'buy out' program. The province did not participate, but a deal was made with the federal government which resulted in the TTP Agreement. In keeping with their responsibilities under the TTP Agreement, the Board proceeded to move from a quota-based system to a licensed-based system by passing a resolution to do so on January 13, 2009. As a result of this resolution, Regulation 122 - 2009 came in to effect on March 31, 2009.

BPQ, property and expropriation

The Appellant also stated that if the Board could take away BPQ from a grower, then they were obliged to offer something comparable in return i.e., something that is meaningful and in accordance with the authority in which it is given. The Appellant argued that only growers who left the industry received compensation for their BPQ and those that remained did not receive any compensation, had their BPQ taken away, and had their production limited by the amount contracted. The Appellant stated that removal of the BPQ was expropriation since BPQ was property.

The Respondent argued in reply that the Board compensated growers for their agreement to exit the industry and the fact is that tobacco growers are identified by their allotment of BPQ. The Board is not paying for quota and the BPQ is not property. The Respondent stated that Gubbels Farms Ltd. gained a benefit by staying in the industry even though BPQ was eliminated. Since they did not participate in the TTP, they were entitled to apply for a license to produce and sell tobacco. This situation had allowed Gubbels Farms Ltd. to produce 200,000 lbs of tobacco in 2009 when, under the previous system, they would have been allowed to produce approximately 34,000 lbs (after application of marketing quota (MQ) adjustments). In addition to this, the license fee had dropped to 1 cent per lb from 4.5 cents per lb. One of the Board's main requirements is that the buyer of the tobacco must be identified and licensed by the Board so that, under the Excise Act (2001), the government may collect its taxes.

The Appellant cited case law in support of their argument that BPQ is property and that the removal of the BPQ represented expropriation.

The Appellant indicated that in Verschuur v. Verschuur (1992), 98 D.L.R. (4th) 265 (B.C. C.A.), the court ruled that BPQ was property under the Family Relations Act (1979). They argued the appeal court said that one must look at the purpose and scheme of the Act and be guided by that when determining the status of quota. The Appellant made the point that no one rule fits all when determining the status of quota. The Respondent followed up by indicating the court was careful to apply its remarks only to the Family Relations Act in B.C..
The Appellant indicated that in Ackerman v. Nova Scotia (Attorney-General) (1998), 47 D.L.R. (4th) 681 (N.S. S.C.), the court said quota was property since it was traded freely on an open market. However, the Respondent indicated that, in the end ((1998), 55 D.L.R. (4th) 46 (N.S. C.A.)), the Court of Appeal did not rule on whether quota was considered property.

Regarding the case of Re National Trust Co. and Bouckhuyt et al (1987), 61 O.R. (2d) 640, where BPQ was held to not be property, the Appellant argued that this case is too narrow since it relates to the Personal Property Security Act and does not apply to this appeal before the Tribunal. The Appellant noted, however, the Court of Appeal ruled that BPQ was not property under the Act but declined to make a more general ruling. The Respondent argued that the case of Re National Trust Co. and Bouckhuyt et al. clearly indicates BPQ is not property.

Legitimacy of the Board's regulation

In addition to the above arguments related to case law, the Appellant was of the opinion that, since the Board members who participated in passing Regulation 122-2009 to remove the quota-base system effective March 31, 2009, had participated in the TTP, they were no longer eligible to be members of the Board. The Appellant suggested this circumstance brought into question the legitimacy of the Board's regulation. The Respondent indicated the resolution was passed on January 13, 2009 at which time all members of the Board met the requirements for membership. No evidence, however, was provided by either party in relation to these opinions.

2. Did the Board implement a licensing system that does not limit the quantity of tobacco that may be produced by the licensee as required under the terms of the TTP Agreement?

The Appellant argued that when the Board entered into the TTP Agreement they did not follow the requirements of the TTP Agreement because they limited the quantity of tobacco that a grower could produce.

The Appellant reviewed the TTP Agreement during the course of their argument. The TTP Agreement (signed February, 2009, by the Minister of Agriculture and Agri-Food and the Chair of the Board) includes terms and conditions and outlines the expected results of the TTP. The program was designed to facilitate the transition of BPQ holders out of the tobacco industry. The Board's responsibilities under the TTP Agreement are listed in section 3.2; subsection 3.2.1 is particularly relevant to this appeal:

The Board's Responsibilities The Board shall be responsible for the administration and delivery of the TTP and shall be responsible for:

3.2.1 removing the current quota system for the production and marketing of Tobacco and implementing a permanent licensing system through the enactment of necessary regulations by March 31, 2009 relating to the growing of Tobacco and its marketing by the grower which complements the existing controls on tobacco in the federal Excise Act, 2001 and existing, or other, Government of Ontario regulations affecting the production and marketing of tobacco;

The TTP Agreement also indicates the Expected Results; subsection 2.2.1 is particularly relevant to this appeal:

Expected Results The expected results of this Agreement are:

2.2.1 the removal of the quota system for the control of production and marketing of Tobacco and the implementation of a licensing system through the enactment of necessary regulations by March 31, 2009 that does not limit the quantity of Tobacco that may be produced by a licensee or its marketing for lawful purposes and will complement existing controls on tobacco in the federal Excise Act, 2001 and existing, or other Government of Ontario regulations affecting tobacco; and a commitment by the Board not to subsequently reintroduce a quota system for the production and marketing of Tobacco;

Finally, the TTP Agreement indicates events which would constitute a default; sub- section 10.1.1 is particularly relevant to this appeal:

10.1 Default The Minister may declare a default under the Agreement if any of the following events occur:

10.1.1 the Board does not remove the current quota system for the production and marketing of Tobacco and implement a licensing system that does not limit the quantity of Tobacco that may be produced by a licensee or its marketing for lawful purposes and which complements existing controls on tobacco in the federal Excise Act, 2001 and existing, or other, Government of Ontario regulations affecting tobacco through the enactment of necessary regulations by March 31, 2009;

To receive a license, a grower had to be an eligible applicant and meet criteria set out in General Regulation 2009-2010:

Interpretation
Section 1. In these Regulations,
(c) (i) "eligible applicant" means an applicant for a licence to produce who (i) intends to enter into a contract for purchase; and (ii) is not an ineligible applicant.

(ii) "ineligible applicant" means

1. any person who surrendered his/her allotment of basic production quota under the 2005 Tobacco Adjustment Assistance Program (TAAP) or 2009 Tobacco Transition Program (TTP); or
2. has a record for smuggling/tax evasion, illegal tobacco sales or related offences (i.e. for contravention of the Excise Act 2001 or any federal and provincial legislation or regulations made thereunder that deal with the control of the production and marketing and taxation of tobacco or tobacco products); or
3. is licensed as a domestic manufacturer or an export leaf dealer or is affiliated or associated with a domestic manufacturer or leaf dealer. The terms "affiliated" and "associated" have the meaning ascribed to them in the Canada Business Corporations Act, R.S.C. 1985, c.c-44 as amended.

Requirements for a Licence to Produce
Section 6. (1) A licence holder will be required to:

1. Inform the Board, before planting, of the details (location, area, estimated total crop) of his/her intended production, and notify the board promptly of any subsequent changes;
2. Provide the Board with evidence that he/she has a contract for purchase with a licensed buyer(s) for the entire estimated crop on Form 5.
3. Notify the Board and Agricorp, in advance, where his/her intent is to destroy any tobacco. Any destruction must be performed under the supervision of a Board Inspector.
4. Provide the Board by a date to be prescribed by the local board with complete information of all his/her harvested tobacco leaf and its ultimate disposition by the licensee, either to storage, through sale, or through destruction, including the identity of the buyer of any tobacco sold and the amount sold to that buyer, and the method and time and date of delivery, and the location of any stored or other unsold tobacco;
5. Make records and production/storage premises available to an inspector on demand and consent to the Board disclosing any information he/she provides to governments and their agencies for the purpose of the enforcement of laws applicable to tobacco.

The Appellant argued that requiring the grower to have a contract with a licensed buyer in place before the grower could be licensed to produce tobacco amounted to a limit on production. The Appellant said the imposition of this obligation on Gubbels Farms Ltd. was ultra vires (a Latin term meaning 'beyond powers') the Board or, in other words, the Board acted outside of its authority per the TTP Agreement. The Appellant stated that under the TTP Agreement, the Board cannot dictate to whom the tobacco must be sold. They argued that the TTP Agreement provided for an 'unlimited license' and they did not agree that it authorized the Board to limit Gubbels Farms Ltd. to sell just 200,000 lbs of tobacco. The Appellant argued that the license received by Gubbels Farms Ltd. had limitations in that Gubbels Farms Ltd. was required to have a contract to get the license - therefore it is not an 'unlimited license'. Since Gubbels Farms Ltd. did not receive an unlimited license as expected, as part of their request for relief, they asked for a refund of the monies paid for the license.

The Respondent argued that if Gubbels Farms Ltd. wants a license to produce an unlimited amount of tobacco then they already have this under the current licensed-based system. The Board does not tell Gubbels Farms Ltd. how much tobacco to produce and with whom to contract when selling their tobacco.

3. Is it possible to grant the relief requested by the Appellant?

The Respondent reviewed the relief requested by the Appellant. The Appellant requested the reinstatement of Gubbels Farms Ltd. permanent BPQ. The Respondent indicated that this request is based on the false premise the BPQ is permanent - which it never was - and that the Board has the power to reinstate it - which it does not - the Commission and legislature have taken that power away from the Board. The Appellant further requested that when their BPQ is reinstated, that Gubbels Farms Ltd. be licensed to grow under the previous two license numbers. However, the Respondent indicated that since the previous quota-based system no longer exists, these license numbers cannot be reinstated. The Respondent stated that the tobacco industry is still a regulated industry and therefore growers must comply with the current system; they cannot operate under a system that does not exist. With regard to the refund of the license fees for 2009 and 2010, the Respondent argued that the regulations have always required a license fee and since the current system is in effect, the current fees (e.g., 1 cent per lb in 2009) must be applied. In summary, the Respondent indicated that this is a situation where the Appellant is claiming a vested right in the marketing system that existed before June 2009.

Findings

1. Did the Board have the authority to remove the BPQ?

Authority of the Board
The Tribunal finds that the legislative and regulatory framework relative to the Board's absolute authority over quota, which included the BPQ, was in effect when the Board made its decision to drop the quota-based system and move to the license-based system. In short, the Board had the authority to remove the BPQ. A brief outline of the legislative and regulatory framework follows.

The Farm Products Marketing Act, R.S.O. 1990, c. F.9 (past version in force between July 25, 2007 to December 14, 2009) authorized the Farm Products Marketing Commission to regulate and license any regulated product, which includes tobacco. Under the Farm Products Marketing Act (FPMA) in force at the relevant time in 2009, the Commission may delegate its authority to local boards of regulated products. The Commission may delegate to the local board the authority to require that a regulated product be produced and marketed on a quota basis. Section 20 of the FPMA dealt specifically with tobacco and indicated that the Commission may delegate and terminate to the local board such powers as it considers necessary.

The Commission delegated its power to the local board, called the Flue-Cured Tobacco Growers' Marketing Board, in Regulation 435 (past version in force between March 15, 2005 to May 31, 2009). These powers included, amongst others, the authority to make regulations and to control the production and marketing of tobacco, including license and quota provisions.

The Board regulated the production and marketing of tobacco through its general regulations, which were updated on an annual basis. The Board decided to amend General Regulations 2009-2010 when it passed a resolution on January 13, 2009 to create Regulation No. 122-2009, which removed the quota-based system for the control of production and marketing of tobacco effective March 31, 2009.

The Commission revised the powers of the Board under Ontario Regulation 208/09 to include only license provisions. The quota provisions were dropped from the regulation effective June 1, 2009. Furthermore, section 20 of the Farm Products Marketing Act, R.S.O. 1990, c. F.9, which dealt specifically with tobacco, was repealed effective December 15, 2009.

The outcome of these changes to the legislation and regulation is that the quota-based system for the production and marketing of tobacco in Ontario no longer exists. The Board implemented a licensed-base system in its place under General Regulation 2009-2010 as amended.

The notion that the Board has absolute powers over the tobacco industry was recently re-iterated by Mr. Justice T. A. Heeney of the Ontario Superior Court of Justice in Marlor Farms Inc. v. The Ontario Flue-Cured Tobacco Growers' Marketing Board, 2010 ONSC 1573. Similar to the parties in this appeal, Mr. Justice Heeney referred to Re National Trust Co. and Bouckhuyt et al. to confirm the position that the control exercised by the Board over BPQ is absolute and complete.

BPQ, property and expropriation
The parties argued whether BPQ was or was not property, and whether the elimination of quota was an expropriation. However, the relief requested by the Appellant did not include a request for compensation based on expropriation of BPQ and the Appellant did not explain the significance of their expropriation argument or of a potential finding that quota is property. Instead, the Appellant focused their arguments on questioning the authority of the Board to eliminate the quota system and their request to have their BPQ reinstated. Therefore, the Tribunal did not consider whether BPQ was property or not. The Tribunal instead focused on the authority of the Board to make the decisions it made and the requests for relief from those decisions sought by the Appellant.

Legitimacy of the Board's regulation
A question was raised by the Appellant whether the Board was legally constituted when it passed Regulation No. 122 - 2009. Although both parties voiced their opinions on the matter, neither party presented evidence related to the legality of the composition of the Board. The Tribunal, therefore, does not give the question consideration but does note that the question is moot since the Farm Products Marketing Act Ontario Regulation 208/09, which removed the Board's authority to require the production and marketing of tobacco using a quota-based system, was brought into force on June 1, 2009 by the Commission.

2. Did the Board implement a licensing system that does not limit the quantity of tobacco that may be produced by the licensee as required under the terms of the TTP Agreement?

The Board is required to control the production and marketing of tobacco. It is incumbent on the Board to ensure that all tobacco that is produced is either marketed in accordance with the law or destroyed. The Board does this through its General Regulations, which are revised on an annual basis. Under the General Regulations 2009-2010 as amended, the Board moved from a quota-based system to a license-based system for controlling the production and marketing of tobacco. Licenses, by their very nature, stipulate that the licensee must meet certain requirements to be eligible for a license. The Tribunal finds that the requirement of a licensee to show who will buy their tobacco and how much has been purchased is a reasonable response by the Board in its effort to meet its responsibility under the Farm Products Marketing Act and relevant regulations. The Tribunal also notes that the explicit power enabling the Board to issue licences and to collect the fees for same, are clearly set out in Ontario Regulation 208/09. The Tribunal therefore finds that a grower, willing to abide by these clearly set out rules, may produce as much tobacco as they require to fill whatever contracts they may secure.

In the case of Gubbels Farms Ltd. under the previous quota-base system, their production was limited to approximately 34,000 lbs of tobacco with a license fee of 4.5 cents per lb. Under the new licensed-based system their production increased to 200,000 lbs in 2009 with a license fee of 1.0 cents per lb, and this amount of production was only limited by their own ability to secure a contract with a licensed buyer. In addition to this, the current license-based system continues to include, as outlined in sections 7 and 8 of the General Regulations 2009-2010 as amended, an opportunity to sell carryover/surplus tobacco to a licensed buyer pursuant to a contract for purchase.

3. Is it possible to grant the relief requested by the Appellant?

The Tribunal finds that the relief sought by the Appellant to have their BPQ reinstated is impossible to grant under this appeal. Pursuant to the Ministry of Agriculture, Food and Rural Affairs Act, this Tribunal may direct the Board to take any action that it is authorized to take under the Farm Products Marketing Act, and for this purpose may substitute its opinion for that of the Board. This appeal, however, requests the reinstatement of the BPQ previously associated with Gubbels Farms Ltd. The Board's authority to issue tobacco quota was removed by the Farm Products Marketing Commission under the Farm Products Marketing Act Ontario Regulation 208/09 Tobacco - Powers of Local Board effective June 1, 2009. Furthermore, since the previous quota-based system no longer exists, there is no present or future opportunity for the Appellant to be licensed to grow and market tobacco under that previous system. Therefore, the licenses issued to the Appellant for the 2009 and 2010 growing seasons were not redundant. The fees associated with said licenses complete the licensing requirements of the Board and are authorized by Ontario Regulation 208/09.

Decision

After considering the facts and legal argument presented, the Tribunal denies this appeal for the following reasons:

1. The relief sought by the Appellant regarding the re-instatement of their BPQ is impossible to grant under this appeal. The Tribunal cannot reinstate the BPQ previously associated with Gubbels Farms Ltd. as the Board's authority and therefore the Tribunal's authority to issue or reinstate tobacco BPQ was removed by the Farm Products Marketing Commission under the Farm Products Marketing Act Ontario Regulation 208/09 Tobacco - Powers of Local Board effective June 1, 2009. Furthermore, since the previous quota-based system no longer exists, there is no present or future opportunity for the Appellant to be licensed to grow and market tobacco under that previous system. Since the only fee structures in effect for 2009 and 2010 were those that were levied on Gubbels Farms Ltd., the Tribunal sees no reason to order their refund.
2. The legislation and regulations presented in this appeal demonstrate that the Board had the authority to change from a quota-based marketing system to a licensed-based system, which included the levy of annual license fees.
3. The Board is required to control the production and marketing of tobacco to meet its responsibility under the Farm Products Marketing Act and relevant regulations. The Tribunal finds that a tobacco grower, willing to abide by the rules, may produce as much tobacco as they require to fill whatever contracts they may secure.

Order of the Tribunal

It is the Order of the Tribunal that the appeal is hereby denied.

Dated at Guelph, Ontario this 4th day of February, 2011