John Petropoulos vs. Turkey Farmers of Ontario (TFO)

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

And in the matter of: An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by John Petropoulos (A & V Petropoulos), Smithville, Ontario, from a decision of Turkey Farmers of Ontario to deny his request for a revision or revocation of an over marketing penalty imposed on A & V Petropoulos for the 2008/09 Quota Period.

Decision of the Tribunal

This appeal was heard before the Tribunal on Wednesday, March 31, 2010 in the Tribunal Boardroom, Guelph, Ontario. A & V Petropoulos appealed to the Tribunal from a decision of Turkey Farmers of Ontario to deny its request for a revision or revocation of an over marketing penalty imposed on A & V Petropoulos for the 2008/09 Quota Period.

Background to the Appeal

John Petropoulos, Angela Petropoulos and A & V Petropoulos of Smithville, Ontario are turkey producers and hold quota issued by the Turkey Farmers of Ontario (TFO) under two legal entities, 708022 Ontario Limited and A & V Petropoulos.

During the quota year which ended April 30, 2009, the Appellants discovered that 708022 Ontario Limited had not obtained the required lease and approval from TFO to produce turkeys on the property owned by A & V Petropoulos.

Section 18 of the TFO's Quota Policy and Regulations state the following:

Leasing of Premises

Lease of Registered Premises and Marketing Quota

18 a. Where a producer wishes to lease registered premises to a lessee and to have his or her marketing quota allocated to the lessee, the producer and the lessee shall file with the commodity board at its office, at least 7 business days prior to the meeting of the commodity board at which the application is to be considered:

1. an application on a form prescribed by the commodity board;
2. a true copy of the lease signed by the parties, setting out the terms and conditions agreed to by the parties;
3. any collateral agreement signed by the parties
4. a letter outlining the reasons for the application.

b. Subject to the provisions of paragraph (c), upon the termination of the lease of the registered premises, the commodity board will allocate the marketing quota for the crop of turkeys allocated next following the termination of the lease, to the original producer (lessor);

c. A lease shall apply for a maximum period of 12 months. If the producer and the lessee of the registered premises require an extension of the lease they shall file a true-signed copy of a renewal of the lease or a new lease 30 days prior to the expiry date of the existing lease. More than one renewal may be permitted by the commodity board but in no case shall a renewal of a lease be for a period longer than 12 months.

As a result of 708022 Ontario Limited not having the lease in place, A & V Petropoulos, producers themselves, committed an over marketing of their quota by 57,034 kgs. The Board did not allow A & V Petropoulos to cover the over marketed kilograms with the unused kilograms from 708022 Ontario Limited. The Board's decision included forgiveness of the 57,034 kilogram reduction that would have been deducted from the marketing quota in the 2009/2010 quota period, and a fine of 22 cents per kg for the over production assessed against A & V Petropoulos. The total fine levied was $13,174.85.

Although the Appellants admit that it was their error in not providing the required lease, they are asking the Tribunal to revise the Board's decision by waiving the over production financial penalty and instead, impose a substantially reduced "late filing fee".

The Issue

Was the over marketing penalty imposed by Turkey Farmers of Ontario on A & V Petropoulos for the 2008/09 Quota Period fair and reasonable?

The Evidence

The Appellants

John Petropoulos appeared on behalf of Angela Petropoulos and A & V Petropoulos. The family has been involved in the business of producing turkeys since 1969. In 1985 his mother became the sole owner of the family business operating out of Barn #4 and formed 708022 Ontario Limited. In subsequent years neighbouring properties were purchased to expand the business. To maintain the severance and for business purposes title for the neighbouring properties were placed in the names of J. Petropoulos and A & V Petropoulos, respectively. Barn #5 is located on the premises of A & V Petropoulos and it is a more modern barn for raising turkeys. It is also used to grow any regrow credits or additional kilos that they have been able to lease or that can't be grown at Barn #4.

John Petropoulos testified that his family currently has two properties, Barn #4 and Barn #5, which can produce turkeys under the TFO's Quota Marketing System.

As a result of the purchase of additional quota in 2003, a letter was sent to Angela Petropoulos indicating that any leasing of the premises must be formally submitted to the Board for approval prior to any birds being placed in the barn. In 2004 a lease was executed and approved so that 708022 Ontario Limited could produce turkeys in the barn owned by A & V Petropoulos. In 2004, Angela Petropoulos signed the lease and John Petropoulos witnessed her signature.

In June of 2009, after discussions with P & H Foods Ltd (the processor), John Petropoulos discovered that A & V Petropoulos may be over marketed without a proper lease between 708022 Ontario Limited and A & V Petropoulos. On June 18, 2009 he contacted Greg Morrison of TFO with this information and was notified that 708022 Ontario Limited did not have a lease on file for the production of turkeys that were marketed in 2008/2009. He was also told that the most recent lease on file was for 2004.

John Petropoulos testified that he has gradually taken over more of the administrative/management duties of the turkey operations and as a result, the lease renewal was missed in the transfer of duties. Under cross examination John Petropoulos acknowledged that he was aware of the letter from 2003 identifying the need for a lease.

He stated that he admitted to Greg Morrison of TFO that the error was his fault and that he immediately worked with the TFO staff to remedy the problem. The Board subsequently imposed a monetary penalty of $13,174.85 which consisted of 22 cents per kg for the 57,034 kgs over marketed.

The Board forgave the 57,034 kg quota reduction that would have been deducted from his marketing quota for the 2009 / 2010 production year. He also asked that the Board reduce the monetary penalty by a substantial amount but his request was denied.

He testified that he did not ask the Board to retroactively extend the lease for a term of more than one year because he just became aware of the regulation that would allow that. He further testified that there was not an oversupply of turkey being marketed because there was no third party involved; it was the same operation moving quota back and forth.

He further stated that the Petropoulos family is currently in discussions with their business advisors and TFO to find a permanent solution that will avoid the need for leasing.

Turkey Farmers of Ontario

Gregory Morrison

Mr. Morrison testified that he has been a Senior Field Inspector and Regulatory Affairs Official with the TFO for 15 years. He is responsible for 192 producers and 300 farms.

He was made aware that 708022 Ontario Limited did not have the required lease for the 2008/2009 production year by the administrative staff. A review of documentation found discrepancies between shipping receipts, weigh tickets and reports. Upon further investigation the staff also discovered the Appellants did not have leases on file for the years 2005, 2006 and 2007.

Mr. Morrison stated that the TFO Quota Policies and Regulations require a producer to complete a signed application for a lease and that all leases must be approved by the Board. He also stated that leases are common practice in the industry and must be applied for on an annual basis, however, breeder production leases may be granted for longer terms.

He noted that he worked with the Appellants to rectify the matter and advised them to contact their accountant or lawyer to discuss the options. Mr. Morrison concluded his testimony by stating that any forgiveness of the over marketing which was the result of not having a lease in place, could only be made by the TFO Board of Directors.

Ingrid DeVisser

Ingrid DeVisser testified that she has been a turkey producer since 1991 and a member of the TFO's Board of Directors since 1998. She has been the Board Chair for the past three years.

Ms. DeVisser stated that the TFO communicates with its producers regularly through a newsletter where all important issues are discussed. There are annual district meetings as well as an annual general membership meeting where industry updates are provided and issues such as leasing requirements are discussed in detail.

Ms. DeVisser confirmed Mr. Morrison's testimony; it is the sole responsibility of a producer to ensure the required leases are in place prior to the beginning of each production season.

Ms. DeVisser explained that the TFO is governed by the Turkey Farmers of Canada (TFC), and that there is a responsibility to ensure that the TFO is not over producing according to its' quota allotment. She also explained that regrow credits are earned by the exporters and processors and that each year TFC redistributes the regrow credits back to the appropriate province and processor. The decision on how to use the regrow credits is decided by the individual processor. Producers can purchase regrow credits at any time, however this usually takes place at the beginning of the production year.

She noted that in reviewing the Appellants' case, the Board took into consideration that there was no actual over production on the Appellants' combined quota for the time period in question. The overage in fact on the property in question was covered and balanced out when the neighbouring property's quota was taken into consideration. The Board, therefore, did not impose the quota reduction penalty provision, which was available to it, for the following year. The Board, however, held firm on the monetary penalty as it was the Appellants' sole responsibility to ensure that there was a lease in place.

Findings and Analysis

The evidence is clear that the Appellants hold themselves responsible for the failure to have the required annual lease in place. The basis of their argument, however, is that since their mistake did not result in an actual over production of turkeys into the marketing system, then they should only be fined a small monetary penalty in the form of a late filing fee for the missing lease.

We find the Appellants' request for the imposition of a late filing fee is not applicable as they were aware of the need for an annual lease as early as 2004. Our reasons for this finding are as follows:

1. The producer admitted the error and responsibility for it.
2. The producer was aware of the need for a lease which was required by the Board's regulations and policies.
3. It is the producer's responsibility to complete and submit the required lease application and receive approval in advance of any birds being placed on his or her premises.

We also find no rationale for reducing the amount of the penalty as it respects the TFO's Quota Policies and Procedures when dealing with such breaches of the marketing rules. From the evidence before us there is no reason to believe that the Appellants were not dealt with in a fair and reasonable manner, especially in light of the fact that there were also no leases in place for 2005, 2006 and 2007.

Beneficial Ownership Issue

The Appellants raised the issue of "beneficial ownership" for the two properties in question and suggested that a lease of premises may not be required. The Tribunal agrees with the Board's counsel that the Appellants must first raise this issue with the Board as the issue of "beneficial ownership" was not raised previously with the Board, and the Board has not had an opportunity to decide on this issue.

Order of the Tribunal

After careful consideration of the evidence filed and the submissions made the Tribunal hereby denies the appeal of John Petropoulos (A & V Petropoulos).

Dated at Maidstone, Ontario this 29th day of April, 2010