Haleyview Farms Ltd. vs. Dairy Farmers of Ontario (DFO)

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

And in the matter of:

An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Haleyview Farms Ltd. (Paul and Margot Haley) of Brantford, Ontario, from a decision of the Dairy Farmers of Ontario to deny its request for an exemption from the 15% Transfer Assessment on the sale of its quota.

Before:
Kirk Walstedt, Chair; Paula Lombardi, Vice-Chair; Tim Mousseau, Member

Appearances:
Paul Haley, appellant
Margot Haley, appellant
Donald Good, counsel to the appellant
George MacNaughton, representative for the respondent
Geoffrey Spurr, counsel to the respondent
David Murray, witness on behalf of the respondent

Decision of the Tribunal

The Tribunal heard this appeal on Thursday, January 7, 2010, in the Tribunal Boardroom, in Guelph, Ontario. Haleyview Farms Ltd. ("Haleyview Farms") appealed to the Tribunal from a decision of the Dairy Farmers of Ontario ("DFO") to deny its request for an exemption from the 15% Transfer Assessment on the sale of its quota.

Preliminary Matters

There were no preliminary matters brought before the Tribunal.

Background to the Appeal

Paul and Margot Haley ("Haleys") are the owners and operators of Haleyview Farms located in Brantford, Ontario. Prior to the sale of their herd and quota the Haleys were active dairy farmers under license 597490. In April 2009, Haleyview Farms became designated a century farm. Paul Haley grew up at Haleyview Farms with his eight sisters and one brother. Paul Haley's parents originally owned and operated Haleyview Farms until Paul and his wife Margot Haley purchased the farm from Paul's father in 1986. Since their purchase of Haleyview Farms, Paul and Margot Haley made numerous upgrades to the farming operations with the intention of operating the farm until they were at least 65 when one of their children could take over the farming operation. The most recent upgrade to the farming operation occurred in 2006 when the feed system was upgraded for increased production and better herd health.

On November 17, 2006, DFO implemented a policy that applied a 15% transfer assessment on all production quota sold on the Quota Exchange.

In December 2006, Paul Haley was suddenly diagnosed with stage 4 prostate cancer and was advised that the cancer had moved from the prostate into his bones. However, Paul Haley continued with the assistance of his family to operate the farm.

In August 2007, Paul Haley had an unfortunate farm accident. When stacking hay a large bale fell and pinned him to the tractor. This accident resulted in Paul Haley suffering numerous injuries to his right arm and damaging the radial right nerve. Paul Haley required a large pin and eleven screws in his right arm to heal the fractured humerus his accident resulted in Paul Haley's dominant right arm, specifically his wrist and hand being left with limited to no mobility.

On October 3, 2007 Paul Haley sold Haleyview Farms' dairy herd and in the subsequent months sold the remainder of his quota. The entire quota was sold between the months of August 2007 and December 2007 with the final sale occurring on the December 2007 Quota Exchange. Haleyview Farms sold 25 kg of quota on the August 2007 Quota Exchange, 6 kg of quota on the September 2007 Quota Exchange and the last of the quota being 52.42 kg on the December 2007 Quota Exchange. Haleyview Farms was subject to the 15% transfer assessment that amounted to 11.013 kg of quota translating to a value of $304,729.71.

On May 14, 2008 Mr. Haley sent an email to the DFO requesting an exemption from the 15% transfer assessment based on medical reasons. Attached to the May 14, 2008 email was a letter from Mr. Haley's physician confirming the severity of Mr. Haley's stage 4 prostate cancer and providing details of the right arm injury.

By way of a letter dated September 15, 2008, DFO advised Mr. Haley that an exemption was not warranted and his request for an exemption denied. DFO denied the exemption on the basis that: quota is not a tangible asset and is the property of DFO; the purpose of quota is to allow producers to generate fair milk income; and quota is not a retirement, disability or life insurance fund.

Mr. Haley contacted the DFO on October 6th and 7th, 2008 requesting that the DFO reconsider its decision to deny his request for an exemption from the application of the transfer assessment on quota sold on the August, September and December 2007 Quota Exchanges. The reconsideration request was heard by the DFO on October 28, 2008.

In a letter dated October 29, 2008, the DFO advised Mr. Haley that his reconsideration request was denied. The DFO stated that medical conditions "are not normally considered as reasons for granting exemptions from the transfer assessment policy." and that Mr. Haley's circumstances were not considered "sufficiently unique" to allow the exemption request.

On August 17, 2009 Haleyview Farms appealed the decision of the DFO to the Tribunal.

The Issue

Does Haleyview Farms qualify for an exemption from the 15 % transfer assessment based on the unexpected circumstances experienced by Paul Haley and his family in December 2006 and August 2007?

Evidence of Haleyview Farms

Mr. Paul Haley testified that he was the primary operator of Haleyview Farms with some help from his family and students. Prior to December 2006 it was the long-term goal of the Haley family that the farming operation would have operated until such time that one of the Haley children could take over the farm. Paul and Margot Haley have eight children, seven girls and one boy, ranging in ages from 25 to 13. The Haley children were interested in farming and as a result Paul and Margot Haley continued to expand and upgrade the farming operation.

In the fall of 2006, Paul Haley was not feeling well and started having trouble walking. At that time Paul Haley had assumed it was due to previous injuries. In December of 2006, Paul Haley was diagnosed with stage 4 prostate cancer and advised that the cancer had moved from the prostate and into various bones. This has resulted in chronic pain and Paul Haley having little or no energy to complete his farming duties. Family and friends assisted in the continued operation of the farm.

In August 2007 Paul Haley was involved in a farming accident causing him to lose mobility of his right arm.

Paul Haley testified that his children were all in high school or university and could not take over the farming responsibilities. The Haley family encourages education and thought it best for their children to complete their schooling and then return to the family farm.

Margot Haley testified that Paul Haley did everything relating to the farm and was the primary operator. When first married she assisted with the farming operation and occasionally milked cows, fed the calves, loaded hay and prepared crops. With eight children, her primary responsibility became that of bookkeeper and matriarch of the family. After Paul Haley was diagnosed with cancer, the family adjusted and tried to assist when he was unable to work.

A couple of weeks after receiving the cancer diagnosis, in January 2007, Paul and Margot Haley met with their lawyer and accountant to discuss options and develop a plan for Haleyview Farms. The Haleys updated their wills, executed powers of attorney and went over the financial situation to determine their options.

The arm injury in August 2007 caused Paul a considerable amount of pain and left him with little to no mobility in his right arm. The impact of the arm injury devastated the farming operation; Paul Haley had no involvement in the farm after the accident for several months. During this time, Paul Haley would give his daughter Mattie directions but was unable to leave the house at all or enter into the barn. The arm injury resulted in Paul Haley being unable to continue with the dairy operation, after six months of therapy his right arm was at 50 - 60 percent of its full potential with the doctors providing no hope of a full recovery for his right arm.

After Paul Haley's arm injury, between August and October 2007, the Haley family, friends, neighbours and the hired help assisted with the day-to-day farming operation. This meant that they had to run both the dairy operation and complete the field work for the upcoming harvest. Paul Haley's seventeen year old daughter, Mattie, took a leave from Grade 12, to take on the responsibilities of operating the farm, primarily consisting of the milking procedures and caring for the livestock. Paul and Margot Haley testified that this was too much responsibility for their daughter, neighbours and the hired help and on October 3, 2007 decided to sell the herd and quota. Paul and Margot Haley decided that this was the best decision for their family and felt they had no other choice.

Evidence was presented relating to the transfer assessment and the finances of Haleyview Farms. According to the testimony of Paul and Margot Haley the monies from the sale of the dairy herd and quota were used to pay off the farm debt.

Evidence of DFO

Mr. McNaughton is the director of production and regulatory compliance and has been employed with the DFO since August 1981, with the exception of a year absence in 1990. Mr. McNaughton is responsible for the administration of policies and other matters relating to farms and administrative issues.

Mr. McNaughton provided testimony about the operation of the Quota Exchange and provided a review of the 15 % transfer assessment that was implemented on November 17, 2006. The 15 % transfer assessment was in place between November 2006 and July 2009. During this period, the quota holdings of any dairy farmer selling quota would be subject to the 15 % transfer assessment, with the exception of the last 10 kgs. Mr. McNaughton confirmed that the transfer assessment did not apply to quota transfers between family members and/or same site quota transfers.

Mr. McNaughton testified that Section H of the DFO Policy Book, Appeal Procedures and Deadline Dates, item 2 Requests for Special Consideration was brought into place by the DFO at the end of the May 2008 board meeting (Exhibit 2, Tab 2). The policy implemented by DFO was to establish that medical conditions would not be accepted as the basis for any exemption request.

Mr. McNaughton pointed to articles published in the Milk Producer on September 2007 advising dairy farmers to obtain insurance and June 2008 advising that medical exemptions would not be accepted as an exemption to the transfer assessment. On June 12, 2008, the Dairy Farmers Update advised of DFO's new policy relating to medical conditions.

Mr. McNaughton reviewed Mr. Haley's request of May 14, 2008 for an exemption from the 15 % transfer assessment. Mr. McNaughton prepared the recommendation that the producer's request for an exemption from the transfer assessment be denied. Mr. McNaughton's recommendation incorrectly stated that the transfer assessment was valued at $660,240.70. This was corrected at the Tribunal hearing. No evidence was provided to the Tribunal indicating that DFO, when considering Mr. Haley's exemption request, was provided with the correct value of the transfer assessment being $304,729.71 and not the $660,240.70.

DFO acknowledged that it has granted and negotiated exemptions in the past to the 15 % transfer assessment (Exhibit 2 Tabs 15 to 65). DFO has granted the following five exemptions to the 15% transfer assessment.

Exemption 1 (Exhibit 2, Tabs 13 to 26.)
An exemption was granted for a widow whose husband passed away suddenly in March 2007. The widow advised DFO that she and her two daughters were unable to continue to run the farm. On June 29, 2007, DFO granted the exemption to the 15 % transfer assessment. Mr. McNaughton advised that Exemption 1 was granted because it was a death of a producer shortly after the policies were in effect. In this case the producer did not have insurance and was in a low equity position.

Exemption 2 (Exhibit 2, Tabs 26 to 36)
DFO granted an exemption from the 15 % transfer assessment for a widow, whose husband was diagnosed with cancer in January 2005 and passed away in November 2006. The widow advised DFO that she did not have the experience to manage the farm without her husband. In granting the exemption the DFO "believed that a combination of factors, such as the unfortunate situation ____ found herself in and the timing of the quota policy changes made the situation unique and warranted an exemption from the 15 per cent quota transfer assessment." Mr. McNaughton testified that this exemption was granted on September 27, 2007 because of prior planning to sell the farm operation.

Exemption 3
Another exemption was granted for a producer who had intended to sell his quota on the October 2006 Quota Exchange. Due to poor health and hospitalization the quota was sold on the December 2006 Quota Exchange. The producer's son had assisted in the operation of the farm but was suffering from the beginnings of degenerative disc disease and high blood pressure. The producer could not postpone the sale of their quota due to poor health, the winding down of the barn and news of regulations requiring updated equipment coming into force January 2007.

DFO's legal counsel, Mr. Spurr, raised an issue with the timing of the request for an appeal of DFO's decision since the matter was initiated one year after the policy change and no steps taken by the ex-producer. However, the DFO scheduled the reconsideration hearing for April 2008. On May 2, 2008 DFO granted the exemption to the 15 % transfer assessment. Mr. McNaughton advised that in this case, due to the father's operation, the sale of the quota did not occur.

Negotiated Settlement
The producer's request for an exemption from the 15 % transfer assessment was received on July 7, 2008 from the widow whose husband was killed in a motorcycle accident on April 7, 2008. In requesting the exemption, the widow advised DFO that she was unable to manage the farm and the suddenness of her husband's death made it unfeasible for her daughters, two at home and one in University, to consider taking over the farm. On February 2, 2009 DFO denied the request for an exemption. The decision of the DFO was appealed to the Tribunal. Prior to a hearing before the Tribunal the parties negotiated a settlement whereby the widow was reimbursed for a portion of the transfer assessment.

Exemption 5
Mr. McNaughton testified that another exemption was granted in December 2009. The information relating to this exemption was not contained in DFO's exhibit book. Mr. Murray provided additional information about the exemption in December 2009 and testified that medical issues were presented to DFO and an exemption to the 15 % transfer assessment was granted.

According to Mr. McNaughton the DFO considered whether to accept or review the decision of the Tribunal in the John and Susanna Cayer v. Dairy Farmers of Ontario ("Cayer 2") dated March 31, 2009. In Cayer 2 the Tribunal indicated that any one of the following three reasons warranted an exemption to the transfer assessment:

1. on the basis of compassion due to circumstances causing undue hardship; or
2. on the basis that an orderly exist from the industry was in progress prior to the implementation of the transfer assessment and that exit from the industry was imminent when the policy was implemented; or
3. due to errors and omissions during the DFO exemption request procedure.

In the Cayer 2 decision dated March 31, 2009, the Tribunal recommended that DFO implement a written policy for exemption requests in extraordinary circumstances including compassionate and medical circumstances. The DFO reviewed the exemption policy and the Cayer 2 decision and advised the Tribunal in its letter dated July 9, 2009 that it is difficult to establish a policy allowing medical conditions as an exemption to the application of the transfer assessment. DFO indicated that it had decided to implement a policy that medical conditions would not be a permitted ground for an exemption to the transfer assessment in the May 2008 policy.

Mr. Murray testified on behalf of the DFO and is a member of DFO's Board of Directors. He represents approximately 570 producers in Huron and Perth Counties and has been involved in the dairy industry for 25 years. Mr. Murray indicated that, in his opinion, quota is not viewed as an asset instead it is the cost of doing business. Mr. Murray indicated that DFO did not agree with the decision made by the Tribunal in Cayer 2 and DFO advised the Tribunal in its letter dated July 9, 2009 that it would not follow the Tribunal's recommendation that a policy be introduced relating to granting exemptions for extraordinary circumstances that "may include but may not be limited to compassionate and medical circumstances that have caused undue hardship."

Despite the implementation of the May 2008 policy and DFO's response to the recommendation of the Tribunal in July 2009, DFO has continued to grant exemptions to the transfer assessment where medical reasons have caused the producer to sell its quota unexpectedly.

The Findings

The Tribunal accepts the medical evidence provided by Mr. Haley and DFO did not raise any issue or questions relating to Mr. Haley's medical condition. It is clear that Paul and Margot Haley knew of the transfer assessment in November 2006 and within two to three weeks of Paul Haley's cancer diagnosis met with their accountant and lawyer to develop a plan for Haleyview Farms. The ongoing cancer treatments coupled with the accident resulting in the loss of the use of his right arm resulted in the primary operator of Haleyview Farms, Paul Haley, being unable to continue with the farming operation. This is evidenced by the sale of the dairy herd and quota immediately after the accident. The Haley family acknowledged that they were aware of the enactment of the 15 % transfer assessment in November 2006.

The special consideration paragraph relied on by the DFO indicating that medical conditions cannot be a basis for any exemption requests was enacted in May 2008. This enactment occurred around the same time Paul Haley had requested an exemption from the transfer assessment and several months after Haleyview Farms had sold all of its quota in December 2007.

The DFO went to great lengths to advise the Tribunal that a policy relating to medical exemptions had been implemented and that producers were advised of the policies in the Milk Producer magazine. The Tribunal notes that the information relating to medical exemptions, no longer being accepted by DFO, was published in the June 2008 magazine and update. This information was published one month after DFO received Paul Haley's request for a medical exemption.

The policy relating to medical conditions was implemented by DFO several months after Haleyview Farms sold its quota on the December 2007 Quota Exchange and after Paul Haley submitted his request for a medical exemption. The policy implemented in May 2008 by the DFO cannot be applied retroactively to Haleyview Farms.

The evidence presented by the DFO shows that the DFO has been inconsistent in its application of the policy relating to medical exemptions, which the Tribunal has found is not to be applied retroactively to Haleyview Farms. The evidence presented by DFO shows that between June 2007 and as recent as December 2009 exemptions were granted by DFO to the application of the transfer assessment for reasons including medical conditions causing undue hardship on the farming operation. All of the exemptions to the transfer assessment granted by the DFO are related to the loss of the primary operator of the farm due to unexpected death or unforeseen medical reasons.

The diagnosis of Paul Haley in December 2006 with Stage 4 cancer was unforeseen. The unexpected accident in August 2007 resulted in Haleyview Farms losing its primary operator. The unexpected accident coupled with the cancer diagnosis meant that Paul Haley was unable to continue as the primary operator of Haleyview Farms. The inability of Haleyview Farms to continue its farming operation without its primary operator was evident when all of its quota and herd were sold by December 2007. Based on precedent established by the DFO in implementing its policy of granting exemptions from the transfer assessment for unique circumstances, including medical conditions, Haleyview Farms is entitled to an exemption to the transfer assessment policy.

There was evidence presented by the DFO relating to the financial situation of Haleyview Farms. DFO went into detail in asking Paul Haley about the financial stability of Haleyview Farms and how the debt was paid off. The Tribunal does not find any relevance between the financial stability of the farming operation and DFO's determination of whether or not to grant an exemption request to the transfer assessment.

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

1. On the basis of compassion due to the accident in August 2007 resulting in the loss of the primary operator of Haleyview Farms causing undue hardship and leaving Haleyview Farms no choice but to sell its herd and quota; or
2. The circumstances of Haleyview Farms are similar and comparable to the exemptions granted by the DFO between June 2007 and December 2009, before and after the implementation of the medical condition policy in May 2008; or
3. Haleyview Farms requested an exemption to the transfer assessment prior to the implementation of the medical condition policy in May 2008 being communicated to producers. DFO cannot retroactively apply its policy to producers who requested an exemption prior to being advised of the policy and where the circumstances forcing the sale of the quota and herd occurred several months before the enactment of the May 2008 policy; or
4. On the basis of undue hardship experienced by Haleyview Farms immediately after the loss of its primary operator resulting in no alternative but for Haleyview Farms to sell its quota and herd.

Order of the Tribunal

The Tribunal hereby Orders that the appeal of Haleyview Farms for relief from the decision of the DFO to deny the request for an exemption from the November 17, 2006 Quota Policy on Transfer Assessments be granted.

This appeal is granted on the basis of compassion due to the unexpected circumstances experienced by Mr. Haley starting in December 2006 and cumulating in the events of August 2007 which resulted in undue hardship being experienced by Haleyview Farms.

The Tribunal further orders that the Haleys receive payment of $304,729.71 (no interest applied) from the DFO within 30 days from the date of this decision. This amount represents the value of the quota assessed to Haleyview Farms through the transfer

Dated at Maidstone, Ontario this 15th day of January, 2010.