Vintners Quality Alliance Ontario Wine Authority v. Puddicombe Estate Wines Ltd., 2008 CanLII 52584

ALCOHOL AND GAMING COMMISSION OF ONTARIO

IN THE MATTER OF The: VINTNERS QUALITY ALLIANCE ACT, 1999 (VQA ACT)

BETWEEN:

Vintners Quality Alliance Ontario Wine Authority

-and-

Puddicombe Estate Wines Ltd. O/A Puddicombe Estate Wines, Member

DECISION

Panel: David C. Gavsie, Chair, AGCO Dianne Axmith, Board Member

Decision Date: September 4, 2008 Hearing Location: Hamilton, Ontario

Alcohol and Gaming Commission of Ontario 90 Sheppard Avenue East, Suite 300 Toronto ON M2N 0A4 Phone: (416) 326-0366 Fax: (416) 326-5566 Toll Free In Ontario: 1-800-522-2876 Website: www.agco.on.ca

Appearances Vintners Quality Alliance Ontario: Risa Kirshblum, Representative Puddicombe Estate Wines Ltd., Member: Murray Puddicombe, on behalf of the Member

Allegations

1A hearing of the Board of the Alcohol and Gaming Commission of Ontario was held on July 31, 2008 in the City of Hamilton to consider an appeal of the Membership Revocation of Puddicombe Estate Wines Ltd. operating as Puddicombe Estate Wines, 1468 Highway #8, Winona, Ontario, L8E 5K9, organization number 35632 (the "Member") dated June 18, 2008 pursuant to the Vintners Quality Alliance Act, 1999 ("VQA Act").

Decision

2After considering all the evidence and submissions the Board finds the Member violated section 10 of the VQA Act and upholds the membership revocation of Puddicombe Estate Wines Ltd. in the Vintners Quality Alliance Ontario. Reasons follow.

Preliminary Matters

3Ms. Risa Kirshblum represented the Vintners Quality Alliance Ontario and Mr. Murray Puddicombe, owner of Puddicombe Estate Wines Ltd. represented the Member and waived its right to legal counsel at the hearing.

4In the matter before the Board, Ms. Kirshblum explained that two Provincial Offences Act ("POA") convictions under the VQA Act were recorded on February 29, 2008 against 1389914 Ontario Inc. operating as Puddicombe Estate Wines after a plea agreement was reached. The convictions under section 10 of the VQA Act were:

1. Using the letters "VQA" or the VQA logo on a label or container of wine that was not approved, specifically the 2004 Riesling Reserve, contrary to Ontario Regulation 406/00 subsection 4(4);

and;

2. Using terms, descriptions and designations established by the wine authority without its approval, contrary to subsection 6(1) of the VQA Act.

5Subsequent to these convictions, an audit of the retail store of the Member on June 13, 2008 again revealed three mislabelled 2004 Riesling Reserve bottles on display for sale bearing the VQA designation.

6The evidence regarding the Member's use of the VQA designation on its 2004 Riesling Reserve wine was examined by VQA Ontario and it was determined that based on the continuing sale of mislabelled product and in accordance with article 7.7 of VQA Ontario bylaws, membership in the Vintners Quality Alliance of Ontario must be revoked.

7As a result of the revocation, effective June 20, 2008, and in accordance with article 7.10 of the VQA bylaws, a member to whom a notice of revocation of membership has been issued may require that a tribunal hold a hearing on the matter. The Board of the Alcohol and Gaming Commission of Ontario is designated as the tribunal for the purposes of a hearing under subsections 6(4) and 9(3) of the VQA Act. The Member requested a hearing be held.

8Mr. Puddicombe stated that the convictions were made and he pleaded guilty to two charges only to finalize the matter. He indicated the circumstances of the allegations are tainted and that there should be some leeway for extenuating circumstances.

Evidence of the VQA of Ontario

9Ms. Risa Kirshblum, counsel for VQA Ontario presented evidence to support the revocation of VQA membership through the testimony of Ms. Laurie Macdonald, Executive Director for VQA Ontario and Exhibits #1 through #4.

10In sworn testimony, Ms. Macdonald described the corporate structure and purpose of VQA Ontario, and her role in the administration and enforcement of compliance with the regulations and bylaws to ensure the integrity of labelling for wines produced in Ontario.

11The VQA Act subsection 6(1) states that a manufacturer shall not use the terms, descriptions and designations established by the "wine authority" without its approval. VQA Ontario is the "wine authority". Section 10 states that anyone who contravenes or fails to comply with any provision of the Act, the regulations or the rules, is guilty of an offence and on conviction is liable to a fine of not more than $100,000.00.

12In accordance with article 7.7(e) of the bylaws, VQA membership ceases to exist if a member has been convicted of an offence under section 10 of the VQA Act and remains in contravention.

13From Ms. Macdonald's testimony and a review of the documents in Exhibit #1, the following sequence of events was presented:

• In April, 2007, several wines were submitted by Puddicombe Estate Wines Ltd. for VQA approval. Included in these was the 2004 Riesling Reserve. Approval was not granted.
• Sometime during the month of June, 2007 a series of telephone calls took place with Ms. Barbara Dodds and Ms. Laurie Macdonald of VQA Ontario and Ms. Lindsay Puddicombe regarding the approval status of this product.
• On June 29, 2007 an auditor observed bottles of the 2004 Riesling with the designation VQA on display for sale. This wine was not approved as labelled and the auditor requested the product be removed from the shelves. This was done in the auditor's presence.
• On July 4, 2007, an auditor returned to Puddicombe Estate Wines to ensure compliance and again observed some mislabelled wine on display and repeated the request for its removal.
• On July 9, 2007, mislabelled Riesling 2004 was again observed on display for sale.
• On July 9, 2007 Ms. Macdonald received a letter from Lindsay Puddicombe describing the circumstances under which she believed verbal approval had been conveyed via a telephone conversation with Barbara Dodds of VQA Ontario. (Exhibit #1, tab 9)
• On July 9, 2007 Ms. Macdonald sent a fax (Exhibit #1, tab 10) to Lindsay Puddicombe to recap the sequence of events up to that date and to reiterate that the 2004 Riesling was not approved.
• On July 13, 2007 Ms. Macdonald wrote to Lindsay Puddicombe outlining the alleged violations in labelling and giving notice that further action might be taken under the VQA Act. (Exhibit #1, tab 11)
• On July 23, 2007 Ms. Macdonald met with Lindsay Puddicombe at which time the non-approval of a VQA designation for the 2004 Riesling was again discussed. (Exhibit #1, tab 14)
• On July 26, 2007 an auditor visited Puddicombe Estate Wines and asked about an empty shelf marked Riesling 2004. Specifically, the auditor said he wished to buy some Riesling 2004. The clerk went to another room and returned with a bottle of 2004 Riesling Reserve which was marked VQA on the capsule and front label. (Exhibit #1, tab 15)
• On August 1, 2007, Ms. Macdonald wrote to Lindsay Puddicombe informing her that because of the history of mislabelling, the 2004 Riesling would not be approved and setting out conditions for its future sale. The letter also included information relating to an appeal of this decision. (Exhibit #1, tab 16)
• Six POA charges were subsequently filed and in February, 2008, Puddicombe Estate Wines Ltd. was found guilty on two. Fines of $2500.00 were levied for each guilty offence. (Exhibit #1, tab 18)
• On June 13, 2008 Ms. Macdonald visited Puddicombe Estate Wines and observed three bottles of 2004 Riesling Reserve with a VQA logo displayed on the capsule. She purchased one bottle (Exhibit #4) and returned to the office to confirm that this was the same wine for which a conviction had been entered in February 2008.

14Ms. Macdonald stated that the revocation of VQA Ontario membership for Puddicombe Estate Wines was not discretionary. She believes there was no other course of action to be taken in view of the convictions and continuing contravention of the bylaws.

15It was Ms. Macdonald's testimony that notwithstanding any initial confusion that may have existed as a result of a telephone conversation with VQA Ontario employee Barbara Dodds, sufficient written documentation of non-approval was provided to Puddicombe Estate Wines that should have ensured compliance with the labelling orders.

16On cross examination by Murray Puddicombe, President of Puddicombe Estate Wines, Ms. Macdonald reviewed the full and part time staff levels at VQA Ontario and reiterated that one of its primary responsibilities was to ensure the integrity of labelling on all Ontario wines.

17Ms. Macdonald does not know if all vintners are in compliance with the regulations and bylaws at all times but it is their responsibility to understand the requirements of the VQA Act, Regulations, Rules and bylaws as undertaken in the VQA Ontario Membership Application form. (Exhibit #3)

18Ms. Macdonald stated it is customary for approvals to take approximately three weeks but in the case of the Puddicombe submissions, such approval was withheld because fees were delinquent. She does not know exactly when the fees were finally received. It was her testimony that approval was held up only for this reason. The wine passed all other test criteria.

19Ms. Macdonald stated that as early as July 4, 2007 she verbally informed Lindsay Puddicombe that the 2004 Riesling was not approved.

Puddicombe Estate Wines' Evidence

20On behalf of Puddicombe Estate Wines, Ms. Holly Gonsalves, store manager, testified that in early June, 2007 they were running out of their 2003 Riesling. Ms. Lindsay Puddicombe called VQA Ontario and was informed by Barbara Dodds that the 2004 Riesling had been approved but due to computer problems, the paperwork was delayed.

21Because of this conversation, the 2004 Riesling Reserve was labelled with the VQA designation. After learning that the approval could only come in written form and that the wine had never been approved, the labels were revised by using "white-out" and changing the capsules. These instructions were written and posted for all staff and a meeting was held to discuss the required change.

22At that time of year they are very busy and sometimes instructions can be overlooked. The product often sells out and someone is sent to label more and bring fresh stock for the shelves. That must have been the case prior to the subsequent inspections.

23On June 12, 2007 Ms. Gonsalves was in the office when she was informed that a VQA Ontario inspector was present. She went to greet the inspector and ask if everything was ok. He smiled and said "fine". She inspected the shelves after he left and did not observe any mislabelled wine.

24Ms. Gonsalves explained that at that time, Ms. Puddicombe was in Bulgaria and any mislabelling could have resulted from student employees who were not fully aware of the labelling change. After a conversation with Ms. Macdonald on June 13, 2007, Ms. Gonsalves investigated and found two bottles of mislabelled wine on the shelf. She removed them and changed the labels.

25On cross examination, Ms. Gonsalves confirmed that Lindsay Puddicombe informed her of the 2004 Riesling Reserve approval based on a telephone conversation with Barbara Dodds and agreed that by July 4, 2007 Lindsay Puddicombe was aware that the wine did not have such approval. She cannot dispute the fact that after that date, mislabelled wine was on display.

26On a question from the Board, Ms. Gonsalves stated that she and Lindsay Puddicombe are the individuals responsible for ensuring label accuracy. Since the notice of membership revocation, they have a new system in place that is more efficient.

27Ms. Lindsay Puddicombe, stated that in early June 2007 she spoke to Barbara Dodds about the 2004 Riesling Reserve that had been sent for approval in April. It was her testimony that Ms. Dodds said the product had been approved and she relied on this verbal approval because they were running out of 2003 Riesling. In mid-June the shelves were stocked with VQA labelled 2004 Riesling Reserve.

28As a result of the June 29, 2007 audit, she was informed by the inspector that this product was not VQA approved. She then called Barbara Dodds to enquire about what had transpired since their earlier conversation. Ms. Dodds denied that she had given her that information and raised the issue of delinquent fees as the reason for non-approval.

29Ms. Puddicombe began an investigation into the delinquent fees and another cheque was sent. She believed that once the money was received, the written approval would be forthcoming. No formal written notice was received until the August 1, 2007 letter from Ms. Macdonald advising that the 2004 Riesling was not approved.

30The product was immediately removed from the shelves as ordered in June and it was staff errors that caused subsequent problems. The July 24 incident occurred because the VQA Ontario inspector begged the clerk for a bottle of 2004 Riesling when he saw the empty shelves. Eager to make the customer happy when he expressed his desire to have a bottle, the clerk went in back and labelled one incorrectly despite the fact that instructions for correct labelling were posted as of July 7, 2007.

31Ms. Puddicombe detailed new labelling procedures now in place at the winery and described the new equipment that will provide greater flexibility and control in order to eliminate future errors. In the past, label production has been contracted out and it was cost prohibitive to reprint. That is why they relied on "white out" to make changes.

32In cross examination, Ms. Puddicombe related her first conversation with Ms. Dodds in early June. According to her, the VQA Ontario staffer said "I could get in trouble for telling you but the wine is approved". Verbal approval has been given on occasion in the past and then the paperwork comes later, but not this time.

33Ms. Puddicombe reiterated that verbal approvals have been received in the past and Ms. Dodds definitely said the paperwork had been held up because of computer problems during their first conversation. On the strength of that conversation, she had VQA labels applied to the 2004 Riesling Reserve. Their Riesling had received VQA approval in 2001, 2002, and 2003.

34Ms. Puddicombe agreed that she was aware of the non-approval status of the 2004 Riesling as early as July 4, 2007 and cannot dispute the fact that mislabelled wines were available for sale after that date. She also agreed that she knew that written notice must be received but proceeded with the labelling anyway.

35On re-direct, Ms. Puddicombe agreed that it is customary throughout the industry to label product based on verbal information prior to receiving written documentation.

VQA Ontario's Submissions

36On behalf of the VQA Ontario, Ms. Kirshblum submits that this is a simple matter. Based on article 7.7 of the bylaws, Ms. Macdonald had no choice but to revoke Puddicombe's membership. An alternative remedy for non-compliance is not available.

37The winery was convicted of two offences and it matters not whether these convictions were via a plea agreement. The result is still the same. Ms. Kirshblum reminded the Board that there was undisputed evidence of non-compliance related to the same product after those convictions.

38It is her submission that even if the mistakes were caused by employee error, proper care begins and ends with the VQA Ontario member.

39During the hearing it was suggested that other wineries label on verbal approval but no evidence of that was presented and even if that were so, it does not make the practice acceptable.

40The argument that the winery tried to comply with instructions but did not succeed is not valid. This is not kindergarten.

41The changes the Member has made in equipment and procedures have come only since their membership was revoked but should have been made long before that.

42The argument that Puddicombe did not understand is belied by the evidence. Sufficient warnings were given as early as July 4, 2007 and yet on three occasions after that, mislabelled wine was displayed. And after the convictions of February 2008, they did it again.

43The undertaking by VQA Ontario members to understand the requirements of the VQA Act, Regulations, Rules and bylaws is quite clear and so is the penalty of membership revocation according to article 7.7(e) of the bylaws.

44Based on the evidence presented and the bylaws, Ms. Kirshbluhm urges the Board to uphold the membership revocation.

Puddicombe Estate Wines' Submissions

45On behalf of the Member, Mr. Puddicombe submits the facts have never been in dispute. It is the manner in which information about the approval status was provided that caused the resulting problems.

46The Member is a small winery and there is significant crossover in responsibilities among employees. They rely on store sales for most of their revenue. Lindsay Puddicombe called VQA Ontario and believed the 2004 Riesling had been approved and the hold-up of the paperwork was due to computer problems and then late fees.

47The fact is, if the fees had been received on time, the Member would not be here today because the wine would have been approved. Appropriate payment was sent prior to any written instructions from VQA Ontario and still no paperwork was forthcoming.

48Mr. Puddicombe submits that the manner in which Inspector Cory Smith obtained a bottle of the 2004 Riesling was inappropriate. The shelves were empty of product as instructed. The inspector who visited on June 12 did not indicate he found any problem. He smiled and said everything was fine.

49Despite the fact that Puddicombe is a small winery, they have invested in new labelling equipment so they can make adjustments and more easily comply with orders in the future. This may be late but it demonstrates their efforts to remedy past problems.

50He understands VQA Ontario must enforce the bylaws but 12 months without membership imposes significant hardship on such a small operation. Puddicombe has recently started growing grapes in the Collingwood area and without his VQA Ontario membership, it will be difficult to sell this new product to restaurants.

51He asked the Board to consider the circumstances of his predicament. There was wrongdoing but it was not intentional.

52In reply, Ms. Kirshblum reminded the Board that evidence relating to Corey Smith's purchase of the 2004 Riesling was hearsay. If Puddicombe believed the circumstances of his wine purchase were inappropriate they should have fought the charges.

53The reality is that Puddicombe was lax in their attempt to comply with orders. A smile from the inspector on June 12 did not mean everything was okay and there was still a problem the very next day.

54Mr. Puddicombe has acknowledged wrongdoing and it is her submission that based on the Act, the Regulations and bylaws, the Board does not have the power to commute or reduce the penalty.

Reasons

55The Board has carefully reviewed the testimony and all the Exhibits provided in this matter. Particular attention has been given to the Governing Documents of the Vintners Quality Alliance Ontario.

56On the face of it, the evidence quite clearly shows that Puddicombe Estate Wines was not in compliance with labelling requirements that are enforced by VQA Ontario personnel. In fact, Mr. Puddicombe admits that there is no disputing the evidence upon which the decision to revoke his membership was made. His argument is that the circumstances of how this non-compliance occurred should be considered.

57The Board heard testimony that the normal approval time for VQA designation testing is approximately 3 weeks. No explanation was provided by the VQA about why results for the samples submitted in April 2007 had not been conveyed as of the beginning of June, 2007.

58No testimony was provided by VQA Ontario employee Barbara Dodds to dispute Ms. Puddicombe's claim of her giving a "verbal approval" for the 2004 Riesling Reserve. Testimony from Ms. Gonsalves and Ms. Puddicombe was credible and given the unusual amount of time that had passed between submission of the samples and the alleged phone conversation, it is reasonable for this Board to believe that such information was provided and Ms. Puddicombe acted on it. That action, however, was inappropriate and Ms. Puddicombe acknowledged during her testimony that she knew written approval must be received prior to product sale with a VQA designation.

59According to testimony, the wine was judged to be acceptable for VQA designation but the only obstacle to written approval was receipt of fees. In reviewing the governing documents of VQA Ontario, we are unable to find any reference to withholding approval because of non-payment of fees. Article 7.4 of the bylaws (Exhibit #2, tab 4) deals with delinquent fees as they relate to VQA Ontario membership but is very specific about notice and the member's responsibility to pay delinquent membership fees within twenty (20) days.

60Ms. Macdonald's testimony was that she did not know when the Member's fees were actually received but that non-payment was the only reason approval was initially withheld. The fees giving rise to the withholding of approval by VQA Ontario were levied for testing for VQA approval of a specific wine – the 2004 Riesling Reserve. In any event, that issue is moot because the POA convictions are the basis for the proposed revocation of membership, not the non-payment of fees or other charges.

61The Board heard testimony regarding the Member's attempts to comply with labelling orders after the June 29, 2007 inspection. The Board appreciates the costs involved in re-labelling and recognizes that attempts were made, but it seems clear that insufficient controls were in place to eliminate ongoing problems after the initial removal of stock from the shelves. That is the obvious conclusion after so many repeated incidents.

62The incident of June 13, 2008 has been explained in Ms. Puddicombe's testimony and a letter to Ms. Macdonald dated June 19 (Exhibit #1, tab 23) as a mistake by a new and untrained employee hired in her absence and working on Ms. Gonsalves' day off. This could have been avoided if there was a simple rule in place that no labelling can be done by any new employee until such training takes place. A new staffer can make a mistake but the ultimate responsibility for accuracy lies with the VQA Ontario member.

63The Board appreciates Mr. Puddicombe's explanation of financial hardship as the reason he did not fight the POA charges and agreed to a guilty plea and the payment of fines. Given the serious consequences of any labelling non-compliance in the future as stated in the bylaws, this should have been incentive to be doubly diligent to ensure no additional errors were made. Mr. Puddicombe's signature on Exhibit #3 declares that he understands the requirements of the VQA Act, Regulations, Rules and bylaws.

64While the Board may agree that the labelling errors were not deliberate and simply the result of human error, a careful review of the bylaws confirms that membership revocation was the only recourse for VQA Ontario after the February 2008 convictions and the June 13, 2008 incident. Furthermore, the Act, Regulations and bylaws make it clear that this Board does not have the authority or power to commute or reduce the revocation time prescribed if it is found that VQA Ontario acted in accordance with their bylaws and responsibilities.

65The term "VQA" is the consumer's guarantee that the bottle labelling is truthful as to the wine's contents and that the wine complies with winemaking standards and regulations.

66VQA Ontario is charged with the responsibility of ensuring that wines to be sold under the VQA label are compliant with such standards and regulations.

67To maintain the integrity of the VQA label in regard to public protection, section 6(1) of the VQA Act states that a manufacturer shall not use the terms, descriptions and designations established by the wine authority without its approval.

68The VQA Act provides VQA Ontario with a number of enforcement mechanisms that allows it to ensure compliance with its standards.

69Subsection 6(1) of Ontario Regulation 405/00 under the VQA Act gives VQA Ontario the authority to refuse to grant an approval in respect of a wine, which in all other respect meets the VQA standards if there is evidence that the wine was misrepresented at any time.

70Subsection 7(3) of the VQA Act prohibits a wine from being sold or offered for sale as a VQA wine if an approval for the wine has not been issued, or an approval has been suspended or revoked under section 7 of the VQA Act.

71In regard to whether the Membership revocation should be upheld in this case, the Board must make a determination on only three specific issues:

1. Was the 2004 Riesling offered for sale in a mislabelled condition?
2. Was the Member found guilty of POA infractions relating to the mislabelling?
3. Did VQA Ontario act appropriately in revoking the membership status of the Member after June 13, 2008?

72The mislabelling was well documented and the Member admitted guilt in this matter and fines were levied and paid. In fact, during this hearing, the Member again acknowledged that mislabelled wine was offered for sale due to employee errors before and after the POA convictions.

73Article 7.7(e) of the VQA Ontario bylaws clearly states that membership must be revoked "if the winery member has been convicted of an offence under section 10 of the Vintners Quality Alliance Act, 1999 and remains in contravention." Evidence clearly showed that the Member violated section 10 of the VQA Act after February 2008 and therefore, revocation of membership was appropriate.

Conclusion

75. For the reasons given, the Board finds the Licensee violated section 10 of the VQA Act. Therefore, the Board UPHOLDS the membership revocation of Puddicombe Estate Wines Ltd. operating as Puddicombe Estate Wines, 1468 Highway #8, Winona, Ontario, L8E 5K9, as of June 20, 2008.

DATED AT TORONTO THIS 4th DAY OF SEPTEMBER, 2008.