Agriculture, Food and Rural Affairs

Appeal Tribunal

1Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales

1 Stone Road West

Guelph, (Ontario) N1G 4Y2

Tel: (519) 826-3433, Fax: (519) 826-4232

Email: AFRAAT@ontario.ca

Guelph (Ontario) N1G 4Y2

Tél.: (519) 826-3433, Téléc.: (519) 826-4232

Email: AFRAAT@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Vanderzanden v Chicken Farmers of Ontario

Vanderzanden v CFO 1998 ONAFRAAT 38

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

September 10, 1998

DATE OF DECISION:

September 16, 1998

1998-38

NEUTRAL CITATION:

1998 ONAFRAAT 38

Vanderzanden v Chicken Farmers of Ontario

IN THE MATTER OF THE FARM PRODUCTS MARKETING ACT AND SECTION 16 OF THE MINISTRY OF AGRICULTURE AND FOOD ACT.

AND IN THE MATTER OF:

An Appeal to the Farm Products Appeal Tribunal by Paul and Doreen Vanderzanden from the March 17, 1997 decision of the Ontario Chicken Producers’ Marketing Board (now the Chicken Farmers of Ontario) wherein the Board found that Mr. Vanderzanden had violated Regulation 402 made under the Farm Products Marketing Act and General Regulations No. 945-1992, No. 1106-1994 and No. 1165-1994 made by the Board under the Farm Products Marketing Act by the production and marketing of 7,010 kilograms of chicken that were not reported to the Board. As a consequence of its findings the Board assessed Mr. Vanderzanden license fees , CCMA levies and excess production levies and cancelled 1,402 units of basic production quota, effective Quota Period A-15.

Before:

Denis O’Connor, Vice-Chair; Anna Andres, Member; Nick Doelman, Member; Karen Ratcliffe, Member; Robert McKim, Member-Observer.

Appearances:

Paul Vanderzanden, appellant.

Doreen Vanderzanden, appellant.

Geoff Spurr, Counsel to the respondent, the Chicken Farmers of Ontario.

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on Thursday September 10th, 1998. Paul and Doreen Vanderzanden appealed to the Farm Products Appeal Tribunal (the Tribunal) from the March 17, 1997 decision of the Ontario Chicken Producers’ Marketing Board (now the Chicken Farmers of Ontario, the CFO) wherein the Board found that Paul and Doreen Vanderzanden had violated Regulation 402 made under the Farm Products Marketing Act and General Regulations No. 945-1992, No. 1106-1994 and No. 1165-1994 made by the Board under the Farm Products Marketing Act by the production and marketing of 7,010 kilograms of chicken that were not reported to the Board. As a consequence of its findings the Board assessed Paul and Doreen Vanderzanden license fees , CCMA levies and excess production levies and cancelled 1,402 units of basic production quota, effective Quota Period A-15.

The Background

J.M. Watts Poultry Ltd. (Watts) was a poultry processing plant located at Burford, Ontario. Ontario Chicken, is a business that was engaged in the provision of procurement, bookkeeping and banking services for Watts. John Vanderzanden, brother of the appellant Paul Vanderzanden, worked for Watts as a procurement officer in addition to selling feed and baby chicks.

In January of 1995, the Field Services Unit of the CFO, through the execution of several search warrants, obtained various types of evidence relating to the production, marketing and transportation of chicken from registered chicken farmers to Watts during 1994.

One of the search warrants was executed at the residence of Kim Slack ("Slack") who was engaged as an employee of Ontario Chicken, P.O. Box 1076, Hagersville, Ontario. Slack provided a variety of services to Watts including bookkeeping, banking, procurement, settlements to producers selling chicken to Watts and the filing of Form 68 with the CFO. A series of documents were obtained from Slack including invoices to Watts by Ontario Chicken for kilograms procured for Watts by Ontario Chicken. These invoices typically show the date, the growers name, the amount of kilograms involved, the procurement charge per kilogram and the total amount owing. The Ontario Chicken invoices were computer generated or hand-written. In some instances, the kilogram values correspond to the amount of production reported to the CFO. In some instances, the kilogram values correspond to an amount of production not reported to the CFO (i.e., the difference between the true net weight of a load and the weight reported to the Board). These documents were prepared on a weekly basis.

A search warrant was also executed at DAC Checker Produce Limited ("DAC"), the company which transported live chicken to Watts. A daily diary and notebook authored by Adrian Scherders, a principal of DAC, was obtained as a result of the search warrant.

The DAC diary is a black 1994 daily journal book which details the planned pick-ups of live chicken by DAC trucks, trailers and drivers throughout the 1994 year from various chicken producers to various processors, including Watts. There are entries for Watts in this book which show dates, times, producer names and locations, numbers and sizes of chicken, drivers' names, birds per crate and the vehicles to be used.

The DAC notebook is a green, 252 page notebook which details the actual activities of DAC trucks, trailers and drivers throughout the 1994 year respecting the movement of loads of chicken from producers to processors. There is a section for Watts in this book which shows dates, producer names and locations, drivers' names and their vehicles and net weights. In many instances, there are two net weights for a given load, a higher weight and a lower weight.

The "A" or higher weight represented the actual weight of the load. The "S" or lower weight was the weight shown or reported to the CFO. Multiple weigh tickets were obtained by DAC drivers shunting their vehicles back and forth on the scale platform of the weigh scale designated and used by Watts (the Homeland grain scale at Burford, Ontario) until the desired (i.e., lower weight) was obtained. Alternatively, some of the drivers were able to manipulate the keypad located in the scale house and by using the tare function, reduce the net weight of a load of chicken. Weigh tickets featuring the lower weight to be reported to the CFO could then be generated.

After the analysis by CFO staff of the seized documentation, Mr. Vanderkooy, Field Services Supervisor for the CFO, wrote to Mr. Paul Vanderzanden on July 20, 1995. Vanderkooy's letter set out the information reported to the CFO on marketing of chicken by Vanderzanden for Quota Periods P-08 to P-12. The information included the Form 6 number, the number of birds per load, the paid weight in kilograms, the total dollars paid and the date of settlement. Vanderkooy's letter asked the Vanderzandens to review the reported information with information in their files and to contact Vanderkooy to confirm the following:

a) the number of kilograms marketed for each load,

b) if the actual payment received for each load was for the amount indicated in the "Dollars Paid" column, and

c) if the cheque was issued on the date indicated (in the "Date of Settlement" column).

The letter went on to state that if no reply was forthcoming, Vanderkooy would assume that the producers were in agreement with the information submitted by Watts to CFO with respect to their marketing. Vanderzanden did not respond to the CFO.

QUOTA PERIOD P-10

During Quota Period P-10, Vanderzanden reported placing 10,710 chicks, 100% pullets. Three loads of chicken were marketed, two of them to Watts. The reported marketing for the load on May 8, 1994 indicating 1,976 chickens weighing 4,120 kilograms for an average weight 2.09 kilograms. The load on May 18, 1994 was reported as 4,928 chickens weighing 10,788 kilograms for an average weight 2.22 kilograms.

The DAC diary shows that on May 8, 1994, DAC planned to pick up 3,000 chickens on one load. The DAC notebook indicates two net weights for this load: a weight of 4,710 kilograms which matches with the weight reported to the CFO and a weight of 5,210 kilograms resulting in a difference of 500 kilograms. A John Vanderzanden Commission Statement for P-10 shows a weight of 5,210 kilograms for this load.

For the May 19, 1994 load, the DAC diary shows a planned pick up of 5,000 chickens at an average weight of 2.3 kilograms on one load. The DAC notebook indicates two net weights for this load: a weight of 10,940 kilograms which matches with the weight reported to the CFO and a weight of 11,820 kilograms resulting in a difference of 880 kilograms. Ontario Chicken invoiced Watts on August 18, 1994 for 870 kilograms of chicken shipped to Watts by Paul Vanderzanden on May 18, 1994.

In total, during Quota Period P-10, Vanderzanden failed to report 1,370 kilograms of chicken which were marketed to Watts.

QUOTA PERIOD P-09

During Quota Period P-09, Vanderzanden reported placing 9,180 chicks split 2/3 pullets and 1/3 cockerels. Vanderzanden reported marketing one load of chicken to Watts on March 16, 1994 consisting of 5,730 chickens weighing 11,610 kilograms reported to the CFO, with an average weight of 2.03 kilograms.

The DAC diary shows that DAC planned to pick up 3,100 chickens at an average weight of 2.7 kilograms and 2,300 chickens at an average weight of 2.3 kilograms on one load. The DAC notebook indicates two net weights for this load: a weight of 11,620 kilograms which matches with the weight reported to the CFO and a weight of 14,720 kilograms, resulting in a difference of 3,110 kilograms.

In total during Quota Period P-09, Vanderzanden failed to report 3,110 kilograms of chicken which were marketed to Watts.

QUOTA PERIOD P-08

During Quota Period P-08 Vanderzanden reported placing 8,160 chicks split 50% cockerels and 50% pullets. Vanderzanden reported marketing two loads of chicken as follows. One load on January 7, 1994 consisted of 4,968 chickens weighing 9,550 kilograms reported to the CFO at an average weight of 1.92 kilograms One load on January 6, 1994 consisted of 2,648 chickens weighing 4,810 kilograms reported to the CFO at an average weight of 1.82 kilograms

The DAC diary for January 7, 1994 shows that DAC planned to pick up 5,000 chickens at an average weight of 2.2 kilograms on one load. The DAC notebook indicates two net weights for this load: a weight of 9,550 kilograms which matches with the weight reported to the CFO and a weight of 11,800 kilograms, resulting in a difference of 2,250 kilograms An Ontario Chicken invoice dated April 29, 1994 indicated that Watts was billed a fee for 9,550 kilograms of chicken shipped to Watts by Paul Vanderzanden on January 6, 1994. A second Ontario Chicken invoice, dated April 24, 1994, indicates that Watts was billed a fee for 2,250 kilograms of chicken shipped to Watts by Paul Vanderzanden on January 6, 1994. When the kilograms showed on the two Ontario Chicken invoices are added together, the sum equals the higher weight of 11,800 kilograms shown in the DAC notebook. A John Vanderzanden commission document indicates a commission was paid for a shipment of 11,800 kilograms from Paul Vanderzanden which matches with the weight reported to the Board.

The DAC diary for January 6, 1994 shows that DAC planned to pick up 5,000 chickens at an average weight of 2.2 kilograms on one load. The word “cancelled” was written over top of this entry, however; the load was actually picked up on a flatbed truck owned by Watts referred to as “topkick” and referenced in the documentation by trailer number 99. Ontario Chicken invoiced Watts on April 24, 1994 for 4,810 kilograms of chicken shipped to Watts by Paul Vanderzanden on January 5, 1994. The weight matches with the weight reported to the Board. In addition, Ontario Chicken invoiced Watts on April 24, 1994 for 280 kilograms of chicken shipped to Watts by Paul Vanderzanden on January 5, 1994. The total of kilograms on the two Ontario Chicken invoices is 5,090 kilograms Finally, a John Vanderzanden commissions document indicates that a commission was paid to him for shipment of 5,090 kilograms by Paul Vanderzanden.

In total during Quota Period P-08, Vanderzanden failed to report 2,530 kilograms of chicken which were marketed to Watts.

During these three Quota Periods 7,010 kilograms were produced and marketed but not reported to the Board as follows:

Quota Period Amount (in kilograms)

P-08 2530

P-09 3110

P-10 1370

The records for quota periods P-11 onward show no signs of improper reporting of production or marketing by this producer during 1994.

The alleged unreported kilograms were added to the production records of the producer in the applicable quota periods with licence fees, CCMA levies and excess production levies being assessed and due and payable. As a penalty for the contravention, the Board then cancelled 1,402 units of the basic quota fixed and allotted to the producer.

The Issue

The issue before the Tribunal is: What is the appropriate penalty to impose in the circumstances of this case for violation of CFO regulations governing production and marketing of chicken in Ontario?

The Evidence and the Findings

Mr. Paul Vanderzanden told the Tribunal that he and his wife Doreen have farmed since 1986. Originally they only grew turkey. In 1989 they purchased 6,000 units of chicken quota, but raising turkey remained their major focus. They also raise exotic animals such as ostrich, deer and miniature donkeys. Paul Vanderzanden also serves on the board of Directors of the Ontario Turkey Producers’ Marketing Board and, during 1994, also assisted his father at a grain elevator business. Doreen Vanderzanden works full time off the farm.

Mr. Vanderzanden said they started shipping to Watts because his brother John worked there as a procurement agent. At the time, the plant had recently been purchased and wanted to expand its supply. Paul wanted to help his brother so he shipped some of his birds through John. John also sold feed for Floradale Feed Mill and chicks for Jarvis Chicks so Paul did business with these suppliers as well. He told the Tribunal that the kilograms of chicken calculated by the CFO probably came from his farm but he argued that:

1. He was not paid for the unreported kilograms.

2. He did not participate in manipulating the records that were sent to the CFO.

3. He did not direct anyone to manipulate records reported to the CFO.

He said he disagrees with the approach of the CFO regarding irregularities at Watts. In his opinion, the CFO assumed that he was an active and willing participant in the false reporting of weights and subsequently, the CFO imposed a harsh penalty.

Mr. Vanderzanden admitted that during Quota Periods P-8 to P-14, the period that the data obtained under search warrant indicated to the CFO irregularities at Watts, the weights of chicken marketed from his farm were improperly reported to the CFO for the first three periods only and the records were accurate after that.

Mr. Vanderzanden told the Tribunal that:

1. He became suspicious of the weights that were reported to him by Watts and the payments he received. He said he could not recall a specific instance but probably the first indication of a problem was when he mentally compared his flock feed bill to the amount just received for the chicken marketed.

2. He had no proof that someone was manipulating weights but was concerned.

3. In September 1994, he had a conversation with his brother David, also a chicken producer who shipped to Watts, and Les Hansford, a field officer for the CFO, at David’s farm. He said this was an unscheduled meeting with Mr. Hansford and the three of them discussed weighing of chicken. He recalled Mr. Hansford advising that they check-weigh loads of chicken at a local scale.

4. He talked to his brother John about his concerns with the weight of his chicken shipments and John assured Paul that he would look into it and suggested that Paul should get farm weights.

5. He began check weighing his shipments of chicken at a local scale and was convinced that he was paid on proper weights after taking that action.

6. Beginning in P-09 he shipped to two processors and by late 1994 had decided to switch away from Watts as his processor. The switch-over was completed in July 1995.

7. None of the evidence obtained by the CFO under search warrant contain his signature.

8. He was not paid for the improperly reported kilograms of chicken. An audit of Silverdale Poultry by Revenue Canada in 1994 found no irregularities.

9. He did not respond to the letter from Vanderkooy in January 1995 because he had already taken steps to address his concern about weighing of chicken produced on his farm.

10. He might have misunderstood the Vanderkooy letter. He interpreted the letter as saying, if he had dome something illegal he could confess to the CFO. He had done nothing wrong so did not reply.

11. If all of the chicken had been properly reported it would result in a monetary penalty of $514.11, which is certainly is not worth the anguish he has gone through for the past four years.

12. The check-weights he did were not official and therefore once he was satisfied that the weight from Watts was close to the farm weight he threw out the check-weight notes.

13. He should have done more to confirm that a problem existed and taken more direct action to address that problem.

14. He should have realized sooner that there was chicken that was grown on his farm that he was not being paid for and was not reported to the CFO, but he did not.

David Vanderzanden confirmed that there was an unscheduled meeting with Les Hansford, Paul, and himself in the fall of 1994. Among other things discussed they talked about check weighing loads of chicken. He told the Tribunal that he began to check-weigh shipments from his farm and on one occasion found a load that was 500 kilograms different when it arrived at Watts. David said he called Mr. Hansford to discuss this discrepancy and was told by Mr. Hansford that nothing could be done as the farm weight was not taken at a designated scale. He said Mr. Hansford advised him to follow the truck to the Watts’ designated scale but this scale is an hour and a half drive from the farm.

Mike Foti, a salesman for Newlife Mills, told the Tribunal that he has supplied feed for Mr. Vanderzanden’s flock for the past two years. During that time he has figured flock results twice and, in his opinion, Mr. Vanderzanden does not calculate a flock analysis. He said that his experience is that not all farmers complete a flock analysis and those that do tend to be producers with larger flocks.

Mr. Les Hansford told the Tribunal that he recalled the meeting with David and Paul Vanderzanden at David’s farm. It was an unplanned meeting and many things were discussed. He recalled a general discussion on weighing loads of chicken but could not recall either of the Vanderzandens telling him they had concerns about the weight of their chicken as reported to them by Watts. He told the Tribunal that he could not recall a discussion with David Vanderzanden concerning a 500 kilogram discrepancy in the weight of a load of chicken shipped to Watts. He did recall a phone call to the CFO offices from David Vanderzanden after January 1995 to discuss weights and that this call had been directed to Reg Paterson. Mr. Paterson is another field officer for the CFO.

In response to questions, Mr. Hansford agreed that the problem shipments from Vanderzanden occurred before the CFO began monitoring the Watts plant and scale in August 1994.

Kevin Thompson, Marketing coordinator for the CFO, told the Tribunal that he has responsibility for the overall monitoring and enforcement of CFO policy and regulations. He said in his experience producers are knowledgeable about what happens on their farm. In this case, in one quota period, Mr. Vanderzanden shipped 3,000 kilograms of unreported chicken. He said it would require about 6,000 kilograms of feed to produce this amount of chicken and it is inconceivable to him that any producer could not notice that amount of loss.

Mr. Thompson said that, in his experience, if a producer thought something was wrong with the weight of chicken provided by his processor, then the producer would take action immediately to involve the CFO and correct the situation. He said there should be no doubt that the producer was talking to the CFO about his production and his chicken. He said there should not just be a general discussion on weights and how to verify them as Mr. Hansford understood the Vanderzanden discussion in September 1994.

Mr. Thompson said that the CFO was mindful of the possibility that a processor could steal chicken from a producer but in his experience that does not occur to any extent. He said the producers have access to their records and crop analysis so it is difficult for a processor to short a producer a significant amount. He said 100 kilograms might go unnoticed but 3,000 kilograms should not. Mr. Thompson pointed out that under the CFO policy in effect in 1994 a processor could get whatever supply it asked for so there was no supply advantage for a processor not reporting all of its purchases to the CFO.

In response to questions, Mr. Thompson said there have been instances where the CFO determined that Watts had taken kilograms of chicken without the producers knowledge.

He also said that, during the course of the investigation at Watts, when the CFO learned that the scale mechanism could be manipulated using the tare function it did not make sense to cancel the Homeland Grain Scale license since the drivers could manipulate the mechanism at whatever scale was designated.

Mr. Mike Sheuring, chicken producer, Board Director for District 1 and Chair of the CFO, told the Tribunal that the CFO was convinced that the processor did not steal the unreported chicken from Mr. Vanderzanden. He said in the opinion of the Directors, Mr. Vanderzanden either knew or ought to have known what was going on. It appeared to the Directors that Mr. Vanderzanden operates a show case farm and therefore it is not conceivable that he would be neglectful of his chicken production. Mr. Sheuring said that illegal production of a regulated product was the worst thing a farmer can do to his peers, that is why the penalty for Mr. Vanderzanden is harsh and has to be harsh. He said the CFO used a formula of canceling 1,000 quota units for every 5,000 kilograms of unreported chicken and that is the basis of the CFO decision in this case.

In his summation Mr. Spurr stated that Mr. Vanderzanden agrees that unreported production took place on his farm and the issue for the Tribunal was the penalty to impose. He suggested, in light of the decisions of the Tribunal in the Levac, Meat-A-Chick and Lechowicz cases, the Tribunal should consider a penalty of a crop quota reduction in the range of three to five times the number of kilograms involved in the unreported production.

In his summation Mr. Vanderzanden said that he ought to have realized that not all of his production had been reported to the CFO but he did not. He said he should be penalized for not paying attention. He said he was not paid for the kilograms of chicken improperly reported, he was not involved in manipulating weights and did not direct anyone else to manipulate weights on his behalf. He said he became suspicious and took steps to stop the weight irregularities and the evidence shows that it did end, prior to the investigation initiated by the CFO in August 1994.

The Tribunal examined the evidence and took note of the fact that the parties agree that an infraction of the CFO regulations occurred and the issue for the Tribunal is the amount of the penalty. It appeared to the Tribunal that the amount of the penalty hinges on the degree to which Mr. Vanderzanden is found to have participated in the efforts to deceive the CFO and file improper records. The Tribunal accepts the evidence of Mr. Vanderzanden that once he became suspicious of the weights reported to him he talked to his brother John about the problem and began to check-weigh loads. After taking this action the improper reporting stopped. The Tribunal accepts the evidence of the CFO that producers ought to know what is happening on their farms and, if they have any concerns about the actions of their processor, they should report their concerns clearly to the CFO. In the opinion of the Tribunal, Mr. Vanderzanden did not clearly indicate his concern about the weight of chicken he was paid for when he had discussions with the CFO staff. Had he been clear in his communications with the CFO this hearing may not have occurred.

The Tribunal accepts the evidence of Mr. Vanderzanden that he did not receive payment for the kilograms of chicken that were produced on his farm and not reported to the CFO.

Taking into consideration the fact that Mr. Vanderzanden took action to check the weight of chicken leaving his farm and that this action stopped the unreported production prior to the CFO staff initiating its investigation into the actions of Watts, the Tribunal is of the opinion that the penalty for Mr. Vanderzanden should be at the lower end of the recently imposed penalties for infraction of the CFO regulations.

Decision and Reasons

After careful consideration of the evidence presented and the submissions made, the Tribunal decided to substitute its decision for that of the CFO.

The Tribunal directs that:

1. The unreported kilograms be added to the production records of Paul and Doreen Vanderzanden in the applicable quota period. License fees, CCMA levies and excess production levies be calculated and assessed against Paul and Doreen Vanderzanden. The CFO is to issue an invoice for these amounts to Paul and Doreen Vanderzanden no sooner than 30 days after the date of this decision. If the invoice is not paid in full within 14 days of issuance the CFO is to add 5% late payment penalty to the invoice and take the normal steps to collect the invoiced amount.

2. Once the production records are amended the normal adjustments for over and under production is to be calculated and applied.

3. The CFO is to impose a crop quota penalty of three times the unreported kilograms for a total crop quota reduction of twenty one thousand and thirty kilograms (3 x 7010 = 21,030 kilograms) in a future quota period or quota periods.

The reason for this decision is that the Tribunal was convinced by the evidence that Mr. Vanderzanden ought to have known that not all of the chicken that was grown on his farm was being reported to the CFO. Once he became suspicious of the actions of his processor, he took mitigating actions to stop the irregularities in weighing and reporting his live chicken marketing, before the CFO launched its’ investigation in August of 1994.