Steven Vanderzanden v. Turkey 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 Steven Vanderzanden, of St. Anns, Ontario, from a decision of the Turkey Farmers of Ontario dated July 23, 2008, to impose a condition on the transfer of quota, requiring him to "acquire his own premises suitable for the production of turkeys".

Before:
Cor Kapteyn, Vice Chair; Rob Scouller, Member

Appearances:
Steven Vanderzanden, the appellant
Paul Vanderzanden, representative for the appellant
Geoffrey Spurr, counsel to the respondent, Turkey Farmers of Ontario
Ingrid DeVisser, witness for the respondent

This appeal was heard in Guelph, Ontario, on November 14, 2008.

Decision of the Tribunal

Preliminary Matters

At the onset of the hearing, Mr. Paul Vanderzanden raised a matter to the Tribunal regarding the potential for the submission of new documents by the Turkey Farmers of Ontario (TFO), which he himself only received before the start of the hearing. After discussion between the parties and the Tribunal panel, the respondent determined they would not be entering into evidence any documents not previously provided to the Tribunal and to the appellant.

The Background

Mr. Steven Vanderzanden recently decided to enter into the turkey industry, by way of an operation near St. Anns, Ontario. In November 2007, he undertook to purchase 41,000 kg of quota, in his own name, from the company referred to as 652024 Ontario Inc., through its President, his uncle, John Vanderzanden, which would be available to him during the 2008/2009 production year.

The TFO is then authorized to approve the transfer of such quota, in accordance with its policy.

The specific policy area in question is item 23(2)(c)(i), which states "[the] transferee, shall acquire beneficial ownership of the premises that the commodity board deems suitable for the production of turkeys and files with the commodity board at its office a true copy of the deed or transfer of title to such premises.".

The applicant Steven Vanderzanden then purchased from his uncle John Vanderzanden one out of ten shares in the numbered company of 652024 Ontario Inc. John Vanderzanden retains ownership of the remaining 9 shares.

Once this transaction was complete, John Vanderzanden notified the TFO. TFO then, by way of letter dated May 30, 2008, to Steven Vanderzanden, denied the transfer of quota on the basis that it "was not able to determine that Steven was the beneficial owner of 652024 Ontario Inc."

Upon a request for reconsideration of this decision, made by Steven Vanderzanden, the TFO issued a letter on July 3rd, approving the transfer of quota, with three conditions. The one condition at issue here is that Steven agree to "acquire his own premises suitable for the production of turkeys within a period of five (5) years from the date of approval of the quota transfer". Although the other conditions stem from this one condition, it is not necessary to enumerate further here.

Upon receipt of this letter, Steven wrote to the board requesting that they approve the transfer as originally requested. The Board met to review the decision again on July 22nd and hear from the applicant. In a letter dated July 23, 2008, the TFO again denied the transfer as it was originally presented. The board then reiterated its earlier conditions for transfer with the deletion of one condition. However the original area of contention remained in effect.

The Issues

1. The interpretation of this article of the policy and specifically "beneficial ownership" as it applies to the parties is an issue in this case.
2. Should Steven Vanderzanden, in order to have the quota transferred to himself, be required "to acquire his own premises suitable for the production of turkeys within a period of five (5) years from the date of approval of the transfer"?

The Evidence

After Mr. Paul Vanderzanden's initial submission, he was sworn in by the clerk of the Tribunal. The Tribunal originally thought that Mr. Vanderzanden was providing an opening statement rather than direct testimony. In order to avoid a reiteration of the same material, the respondent and the Tribunal noted their acceptance of his initial submission into evidence, and proceeded with his cross-examination.

Issue of "Beneficial Ownership"

On behalf of his son, Steven Vanderzanden, Paul Vanderzanden told the Tribunal that his son did receive a reading of the definition by the TFO chair on July 22, as to what constitutes "beneficial ownership", however, when he inquired as to what proportion of ownership of the numbered company would constitute "beneficial ownership", no information was provided.

The applicant then provided three definitions form three different sources of "beneficial ownership" to the Tribunal.

The Respondent, in testimony, acknowledged that the TFO did not supply a written definition to Mr. Vanderzanden, and stated that TFO does not have an interpretation of "beneficial ownership".

In testimony, the applicant agreed that Steven Vanderzanden owns 10% of the corporation. Mr. Paul Vanderzanden, in his testimony, stated that Mr. John Vanderzanden did not want to sell the property at this time.

Issue of the Policy

Mr. Paul Vanderzanden told the Tribunal that his brother John owns the majority of the numbered company, of which Steven owns 10 percent. He added that Steven does not control the numbered company as his brother John is a 90 percent shareholder. As a minority shareholder in the company, Steven would therefore not be able to decide whether it will buy or sell any property. He stated that Steven proceeded with the purchase of 10 percent of the numbered company with the understanding that this would constitute "beneficial ownership" as required by the TFO's policy. He further noted, however, that Steven is not a registered owner of the property on which the numbered company operates the turkey farm.

By way of an e-mail message dated May 21, 2008, Mr. John Vanderzanden stated that Steven has become a beneficial owner of the company (652024), and maintains ownership of shares for the sole purpose of utilizing the production facility.

Mr. Spurr called Ms. Ingrid DeVisser, Chair of the Turkey Farmers of Ontario in support of the respondent's arguments.

Ms. DeVisser told the Tribunal about her background in the turkey industry and of her positions on the provincial and federal turkey marketing organizations. She added that the person or company to which quota is allotted needs to be the same as the person or company that owns the property. She noted that, in her case, a numbered company owns the property and holds the quota.

The appellant did not challenge past practice in the application of the policy.

Ms. DeVisser stated that, upon Steven Vanderzanden's requests, the TFO Board sought legal counsel about the definition of "beneficial ownership" to verify their position, and they did not find that Steven Vanderzanden met their criteria. If the TFO had originally decided that Steven Vanderzanden had beneficial ownership of the company, she further added, it would still have been their opinion that the quota needed to be in the same name as the entity that has ownership of the real estate on which the farm operates.

Ms. DeVisser noted that the TFO Board approved the transfer of quota with certain conditions as a means of enabling Steven Vanderzanden to enter the industry while also maintaining the integrity of its longstanding policy. They felt that the conditions imposed led to a reasonable compromise for him to make the transition into the industry. Her understanding, she added, of why this is the TFO's policy, is to prevent speculation in the value of quota in the turkey industry, to protect the integrity of the family farm, as well as for the TFO to be aware of where production is taking place across the province. She noted that the TFO Board found Steven Vanderzanden to have a genuine desire to enter the industry; however, the Board still felt it was necessary to determine a time within which compliance with the TFO's policy would need to be achieved on his behalf.

Ms. DeVisser confirmed that the TFO has taken the position that Steven Vanderzanden is the owner of one share of a numbered company, but is not the beneficial owner of the property on which the farm operates. She stated that the TFO's definition of "beneficial ownership" was provided to Steven at the second meeting he attended. She noted, however, that the TFO's definition was not provided to Steven Vanderzanden in writing. To her knowledge, the TFO has not yet dealt with a similar request for an exemption from this policy.

Mr. Spurr stated that, although Paul Vanderzanden noted in his testimony that Steven may one day purchase his farm, no finite date has been determined for such a transaction. He added that the dispute is not about Steven Vanderzanden's ownership of the numbered company, but about the application of the TFO's policy as it relates to the ownership of land on which the holder of quota operates a farm. Mr. Spurr requested the Tribunal to uphold the TFO's decision to allow the transfer of quota to proceed, with the noted conditions for this transfer.

Mr. Paul Vanderzanden stated that his son genuinely wants to enter the turkey industry. He requested that the TFO's condition that Steven must acquire his own premises within five years of the transfer of quota, be removed.

Mr. Spurr stated that it is a long standing policy of the TFO to require a quota holder to own their own premises for the production of turkey, as it relates to someone having a premise to which quota can be affixed, further expressed in terms of fixing and allotting of quota. It is the position of the TFO that the numbered company is the beneficial owner of the real estate on which the farm operates and that Steven Vanderzanden is not the beneficial owner of the company. Mr. Spurr added that, based on the TFO's policy, even if Steven Vanderzanden were the beneficial owner of the company, the quota would need to be held by the numbered company. He further added that the TFO Board felt that a five-year term within which to acquire his own premises was reasonable, and requested that the request for removal of the five-year term be denied.

The Findings

The Tribunal finds that:

1. After careful consideration of the issue of "beneficial ownership", Mr. Steven Vanderzanden is a minority owner in corporation 652024 Ontario Inc.


2. After reviewing the various definitions of beneficial ownership provided by the applicant, the Tribunal finds that these were in themselves useful to a very limited degree as to their varied content and lack of overlap. To choose one over another would not be helpful.


3. The quota transfer request is from the numbered company, 652024 Ontario Inc, to Steven Vanderzanden, the individual. As outlined in the transfer agreement between the parties.


4. No evidence was supplied by either party as to who is recognized as the owner of the property itself. On the basis of the transfer agreement, the quota was transferred from the numbered company to Steven Vanderzanden. John Vanderzanden is the individual to whom the numbered company is registered, and, based on TFO policy, the property must be in the same name as the allotted quota.


5. The land may be owned by the company, but the person with the ability to buy or sell property on its behalf is its majority shareholder Mr. John Vanderzanden.


6. Mr. Steven Vanderzanden does not own the property, nor does he control its sale, which the Tribunal believes is the intent of the policy, and it is not the objective of the Tribunal to change the meaning or intent of the policy.


7. That the TFO has scrupulously applied the policy on the premise that the quota has to be in the same name as the owner of the land and that, as to its historical application, there was no dispute. This policy has been the standard for the industry in Ontario.


8. The reason given for this policy is that a deviation from it may lead to speculation in the value of quota, which could be to the detriment of the TFO and its 185 members. No other requests of this type have been received by the TFO.


9. No challenge was made by the appellant, to the items noted in points 7 and 8, above.


10. The marketing board system is partially established to protect the producers and the industry as a whole, which has been the process of the TFO. To change the process for the transfer of quota would create a difficult precedent for the industry, and require a change in policy by the TFO.


11. Although we can empathize with the appellant, the policies exist to protect all.


12. Applicants have the right to expect that they will be treated equally, and members should expect that those who come after them will get no different treatment. Although the Tribunal accepts that such may be the reality in certain cases.


13. The appellant has "beneficial ownership" of the numbered company, however, having beneficial ownership of the company does not allow him to control or sell the property, the power of which is the intent of the policy.


14. The intent of the policy is to avoid situations where the controlling owner could sell the property while the quota has no premise or property to which it is assigned.
    

The Tribunal finds that that the appellant has not satisfied the intent and ongoing application of the policy, and that there is no reason to grant either the request to remove the TFO's condition on the transfer of quota, or an exemption to the policy for this one appellant, in this circumstance.

Order of the Tribunal

After careful consideration of the evidence filed and the submissions made the Tribunal orders as follows:

1. The request by Steven Vanderzanden for the removal of the TFO's conditions on the transfer of quota as outlined in their letter of July 23rd, 2008, is denied.

Dated at Phelpston, Ontario, this 10th day of December, 2008.