Riverview Poultry v. Chicken Farmers of Ontario

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 Riverview Poultry Limited, of Smithville, Ontario, from a decision of the Chicken Farmers of Ontario (CFO) to impose a monetary fine for the violation of supply utilization by P&H Foods, in quota periods A66 (June 26, 2005 to August 20, 2005), A67 (August 21, 2005 to October 15, 2005), and A68 (October 16, 2005 to December 10, 2005).

Before:

Gene Trotman, Vice-Chair; Cor Kapteyn, Vice-Chair; and, Corry Martens, Member.

Appearances:
Louie Vassilakos for Riverview Poultry Limited
Kevin Thompson, witness for the Appellant
Frank Fortuna, witness for the Appellant
Adrian Rehorst, witness for the Appellant

Geoffrey Spurr, Counsel to the Respondent, Chicken Farmers of Ontario (CFO)
Jan Roussell, witness for the Respondent

This appeal was heard in Guelph, Ontario on April 8, 2008.

Facts

1. Riverview Poultry limited, a chicken processing company in operation for approximately 14 years, entered into a Transfer Agreement dated November 16, 2005, with an entity called P&H Foods, whereby this latter agreed to sell and transfer to the former, at a price estimated by the appellant to be over one million dollars, "its slaughtered kilos (approx. 300,000kgs) allocated to it by the CFO." The agreement was recorded on a single page and it stipulated, among other things, that
   
   1. it was scheduled to begin in Quota Period A72, i.e. June 28, 2006,
   2. "If the actual permanent transfer of slaughter kilos is more/less than 300,000 kg. then the appropriate adjustments will be made…"
   3. it was conditional on Riverview Poultry limited being allowed by the CFO to add the transferred kilos to its permanent base, otherwise the agreement would be null and void.

      Riverview Poultry Limited, however, processed (slaughtered) P&H birds in Quota Periods A70, A71 and A72 and it did not enquire of P&H foods whether the transfer of the assets involved were encumbered because it feared such an enquiry would jeopardise the transfer deal.

2. By letter dated January 18, 2006, both Riverview Poultry Limited and P&H Foods wrote to the CFO and communicated the facts that

   1. On November 16, 2005 P&H Foods and Riverview Poultry Limited entered an agreement whereby Riverview would purchase P&H Foods' calculated base (approximately 300,000 kilograms) allocated by the Chicken Farmers of Ontario (CFO) commencing with the new processor allocation agreement scheduled to begin in A72, and
   2. subsequent to their agreement, "the CFO notified the industry that the first opportunity for processors to transfer kilos without premises would be A73 and not A72…In the meantime, however, P&H and Riverview entered into a further agreement whereby Riverview would exclusively purchase the entire P&H Foods chicken production for A70, A71 and A72.

Both Parties requested, by the aforesaid letter of January 18, 2006, that the CFO allow them "to enact their agreements in the most efficient manner available". Riverview Poultry Limited did not at this time or any time thereafter enquire from the CFO whether the assets to be transferred attracted liabilities.

3. The CFO responded by letter dated January 30, 2006, and pointed out that "The request ..is a serious contravention of both the policies and regulations that are currently in place…However, given that there is an agreement in place, both for Riverview to purchase the calculated base of P&H for A73 and …the eviscerated supply from P&H Foods for A70 through A72, and that permission was sought in advance, the Board has approved your request."


4. On June 4, 2007, CFO wrote to Riverview Poultry Limited and informed it as follows: "the purpose of this letter is to inform you that your company (P&H Foods) has incurred a supply utilization penalty in the amount of $9,548.16 with a reduction to your calculated base in the amount of 3,338 kilograms pursuant to Regulation No. 1887-2003…" Riverview Poultry Limited made absolutely no effort to clarify the penalty situation with P&H Foods, or requested that P&H Foods take responsibility therefor, because it feared that such actions would jeopardise the transfer deal. Riverview Poultry Limited, however, processed (slaughtered) P&H's birds in A70, A71 and A72.


5. Riverview Poultry Limited, by letter dated June 6, 2007, disputed the liability and denied the ownership of P&H Foods. The CFO countered in a letter to Riverview Poultry Limited dated November 9. 2007 and stated, in part, that "…in late January 2006, the Board approved a transfer of the calculated base allocated to P&H Foods to Riverview Poultry Limited effective Quota Period A73. This transfer of calculated base occurred pursuant to Supplementary Quota POLICY No. 171-2005 which became effective in Quota Period A72. Section 606 of Quota Policy No. 171-2005 provides as follows:

   'Where a person or processor acquires the entire calculated base of a processor, such person or persons shall be liable for any unreported marketings of chicken, slaughter utilization penalties, signup penalties or other breaches or violations of any policies, orders, directions or regulations of the Board of the acquired processor.'

6. The November 9, 2007 letter went on to explain to Riverview Poultry Limited that "With the acquisition of the calculated base allocated to P&H Foods, Riverview Poultry Limited also acquired responsibility for any slaughter utilization penalties incurred by P&H Foods." That letter also informed Riverview Poultry Limited that the Board had arranged to hear the matter on November 28th and November 30th, and promised that a Notice of Hearing in that regard would be sent in due course.


7. By document dated November 19, 2007 the CFO fulfilled the aforesaid promise and issued a Notice of Hearing to Riverview Poultry Limited. The notice stated that "the purpose of the Hearing is to hear evidence and consider whether Riverview Poultry failed to process 100% of its supply during the period from Quota Period A52 through to and including Quota Period A71…The spread sheet calculates a financial penalty in the amount of $9, 548.16 and a supply adjustment reduction (base) in the amount of 3,338 kilograms. The quota period A52 to A71 extended from May 4, 2003 to May 28, 2006.


8. The aforesaid notice also indicated the subordinate legislation upon which the CFO relied in applying the penalty and the supply reduction base. In that respect, it cited CFO Regulation No. 1887-2003 which stipulated, in part, as follows:
   
   1. 3.01 A processor shall process 100% of its supply.
   2. 3.02 …a processor that has an average utilization percentage of less or more than 100% in a crop quota period shall be liable to a penalty of $0.44 calculated on each kilogram by which the amount of its marketed kilograms either exceeds or is less than the amount of chicken actually marketed by producers who are contracted to the processor…
   3. 3.06 The processor that has been assessed a penalty will pay the amount to the Board within 30 days of receipt of written notification from the Board in that regard.

The notice also re-stated Supplemental Quota Policy No. 171-2005 quoted at the end of paragraph 5 above.

9. The CFO Board held the scheduled hearing on November 28, 2007 and concluded that "Riverview Poultry (P&H foods) failed to process 100% of its supply during the period from Quota Period A52 through to and including Quota period A71, and decided to impose the monetary penalty of $9,548.16 and waive the base reduction of 3,338 kilograms. The Board requested payment of the $9,548.16 by no later than December 31, 2007. Riverview Poultry Limited was informed accordingly by letter from the CFO dated November 29, 2007.


10. By letter dated November 30, 2007 Riverview Poultry Limited requested a reconsideration of the matter by the CFO Board alleging that "circumstances beyond Riverview's control resulted in a situation that makes the imposition of this monetary penalty unfair." Pursuant to this request the CFO Board held a hearing on January 18, 2008 and upheld its previous decision.


11. On January 22, 2008 Riverview Poultry Limited wrote to the Agriculture, Food and Rural Affairs Appeal Tribunal asking it to hear the appeal of Riverview Poultry Limited "regarding the decision of the CFO to impose the supply utilization penalties."


12. At the Tribunal's hearing, Mr. Louie Vassilakos, Vice President of Riverview Poultry Limited was not only a witness for Riverview Poultry Limited but also its advocate. He contended that the CFO did not
    
    1. notify Riverview of any pending penalties when it approved Riverview's purchase of supply base from P&H,
    2. notify or impose the penalties in a timely and effective manner,
    3. inform Riverview of pending penalties for the 14 months that monetary payments to P&H were made, and
    4. afford P&H or Riverview Poultry Limited the opportunity to resolve the penalty issue in a timely manner.
13. With regard to contention 12 (a) Mr. Vassilakos testified that he did not have a lawyer to advise him with regard to any aspect of the Transfer Agreement, and made no search or inquiries to determine whether the acquisition of the assets involved were in any way encumbered. He felt that the CFO should have notified Riverview Poultry Limited with respect to the penalties when it approved the Transfer Agreement. The CFO witness, Jan Rousell, submitted that Riverview Poultry Limited never requested the information in question from the CFO; and if it had, the CFO would have had to obtain the permission of P&H foods for its release, as the provision of such information otherwise would have been a breach of the confidentiality policy of the CFO.


14. Regarding contention 12 (b) the evidence is that the CFO approved the Transfer Agreement by letter dated January 30, 2006 and it was not until June 4, 2007, a gap of approximately 16 months, that the CFO informed Riverview that a penalty was imposed. Jan Rousell on behalf of the CFO submitted that the calculations of the penalties was a daunting task covering a three year period to be applied on a one time basis, and hence the reason for the delay. Throughout the 16 months, Riverview Poultry Limited made no effort to broach the subject of the penalties involved with P&H Foods


15. Pertaining to contention 12 (c) the same rationale was provided as expressed in paragraph 14 above.


16. So far as contention 12 (d) is concerned the CFO retorted that it was the responsibility of Riverview Poultry Limited to exercise due diligence when conducting business especially one in which the appellant was part thereof for over 14 years.

The Issue

Was the imposition of the penalty by the CFO in accordance with its governing laws and policies, or are the contentions of the appellant valid and thus necessitating the overturning of the decision of the CFO?

Findings

The Tribunal finds that the Transfer Agreement between Riverview Poultry Limited and P&H Foods dated November 16, 2005 was made subject to the CFO allowing Riverview Poultry Limited to add transferred kilos to its permanent base. A request was made in this regard by the parties to the agreement and on January 30, 2007 the CFO responded to Riverview Poultry Limited and P&H Foods approving the request. That approval meant that the entire calculated base of P&H Foods was transferred to Riverview as of November 16, 2005. Without this approval from the CFO the Transfer Agreement would have been "null and void."

In accordance with CFO Regulation No. 1887-2003 P&H Foods was responsible for processing 100% of its supply. Riverview Poultry Limited having acquired the entire calculated base of P&H Foods triggered the application of Supplementary Quota Policy No. 171-2005 making it, Riverview Poultry Limited, "liable for any unreported …slaughter utilization penalties…"

It is noteworthy that before the Transfer Agreement was entered into, neither party inquired of the CFO with respect to possible penalties attendant to the transfer of the asset involved. The buyer, Riverview Poultry Limited, failed to exercise due diligence with respect to its acquisition of the transfer of a significant asset. As a buyer, Riverview Poultry Limited should have exercised more caution and attempted to ascertain the liability that accompanied the asset it acquired. The responsibility for not doing so cannot be passed on, in this circumstance, to the CFO.

The Tribunal finds that the penalty imposed on Riverview Poultry Limited by the CFO was in accordance with its governing laws and policies and, as a consequence the CFO's decision in this matter should remain upheld.

Order

Based on the foregoing findings, the Tribunal orders Riverview Poultry Limited to pay the supply utilization penalty of $9, 548.16 to the CFO within thirty (30) days from the date of this decision.

Dated at Ottawa this 29th day of April, 2008.