Duval v Ontario Flue-Cured Tobacco Growers’ Marketing Board, 1999 ONAFRAAT 28

Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone 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:

Duval v Ontario Flue-Cured Tobacco Growers’ Marketing Board

Duval v OFCTGMB 1999 ONAFRAAT 28

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

November 15, 1999

DATE OF DECISION:

December 9, 1999

1999-28

NEUTRAL CITATION:

1999 ONAFRAAT 28

Duval v Ontario Flue-Cured Tobacco Growers’ Marketing Board

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 Duval, Clear Creek, Ontario from a decision of the Ontario Flue-Cured Tobacco Growers’ Marketing Board (the Board) dated September 9, 1999, wherein the Board denied a request for exemption from General Regulation 1999-2000, Section 18(1) to process Spring Rental past the deadline of May 21, 1999 and Section 18(3) to rent out excess of 30% of the 1999 marketing quota.

Before:

Denis O’Connor, Alternate-Chair; Nick Doelman, Vice-Chair; Jim Rickard, Chair; Karen Ratcliffe, Member.

Appearances:

Paul Duval, appellant.

Paul Hosack, counsel to the appellant.

Barry Bresner, counsel to the Respondent, the Ontario Flue-Cured Tobacco Growers’ Marketing Board.

George Gilvesy, Chair of the Board of Directors for the Respondent, the Ontario Flue-Cured Tobacco Growers’ Marketing Board.

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on Monday, November 15th, 1999. Paul Duval appealed to the Farm Products Appeal Tribunal (the Tribunal) from a decision of the Ontario Flue-Cured Tobacco Growers’ Marketing Board (the Board) dated September 9, 1999, wherein the Board denied a request for exemption from General Regulation 1999-2000 (the Regulation), Section 18(1) to process Spring Rental past the deadline of May 21, 1999 and Section 18(3) to rent out excess of 30% of the 1999 marketing quota. The issue to be decided is whether the decision of the Board to deny the request from Mr. Duval is reasonable.

The pertinent sections of the Regulation are as follows:

Rental of Marketing Quota

11.(1) All rentals of basic production quota are prohibited.

11.(2) All rentals of marketing quota are prohibited, except for:

(a) such spring and fall rentals as are permitted under Sections 18 and 19 hereof;

(b) such rentals between members of an immediate family as are permitted under Section 12 hereof;

(c) such rentals between a partnership and a partner thereof as are permitted under Section 13 hereof, provided that the partnership was an allottee of basic production quota and was in existence on or before March 17, 1998; and

(d) such rentals between a corporation and a shareholder thereof as are permitted under Section 13 hereof, provided that the corporation was an allottee of basic production quota and that the shareholder was a shareholder of that corporation on or before March 17, 1998.

11.(3) No person is eligible to rent in marketing quota pursuant to the exceptions granted by subsection (2) of this Section unless that person is a licensed producer who is an allottee of a basic production quota of not less than 10,000 pounds who produces tobacco on his own account pursuant to a marketing quota derived from that basic production quota allotted for 1999.

11.(4) An allottee of marketing quota who rents in marketing quota pursuant to the exemptions granted in any of sections 12, 13 or 18 hereof may not rent out marketing quota under any other of those sections and an allottee of marketing quota who rents out marketing quota pursuant to the exemptions granted in any of those sections may not rent in marketing quota under any other of those sections.

Spring Rental of Marketing Quota

18.(1) Subject to Section 11(3) hereof and to subsections (2) through (7) of this Section, an allottee of marketing quota who was eligible to rent in or rent out marketing quota in the Fall of 1998 pursuant to the provisions governing the Fall rental of marketing quota contained in Section 19 of the General Regulations 1998-1999 or who would have been eligible for such Fall rental but for the prior rental of the allottee's 1998 marketing quota pursuant to Section 12 or 13 of the General Regulations 1998-1999, may apply to the local board to cancel the marketing quota and to fix and allot the marketing quota to a lessee by filing with the local board an application in Form 93, completed and executed by the lessor and the lessee, at the Head Office of the local board, during the period from May 12, 1999 to 4:30 p.m. Friday, May 21, 1999.

18.(2) The local board may refuse to grant an application under this Section if the lessor or lessee is not in compliance with all requirements of these General Regulations.

18.(3) The local board shall not grant an application under this Section where the amount of marketing quota in respect of which the application is made exceeds thirty percent (30%) of the marketing quota fixed and allotted to either the lessor or the lessee as of 4:30 p.m. on Friday, May 7th, 1999.

18.(4) For purposes of this Section, an allottee of basic production quota who was eligible to rent marketing quota in the Fall of 1998, but whose application for marketing quota discloses an intention to not produce or market tobacco in 1999 and to not apply to transfer basic production quota in 1999, may apply to rent out marketing quota under this Section and, for that purpose, shall be allotted 30% of the marketing quota fixed under Section 14(3) of these General Regulations.

18.(5) An allottee of marketing quota whose application for marketing quota discloses an intention to grow a crop in 1999 or to market only carryover tobacco in 1998 may apply to rent in or rent out marketing quota under this Section, but not both. All other allottees of marketing quota may only apply to rent out marketing quota under this Section.

18.(6) A rental of marketing quota pursuant to this Section shall not affect the calculation of the minimum number of acres to be planted by each allottee of marketing quota pursuant to Section 15 of these General Regulations.

18.(7) A non-refundable administration fee of $100.00 for late filing shall be paid to the local board on the filing of any application for rental under this Section after 4:30 p.m. Friday, May 21, 1999. The local board, in its discretion, may refuse any such late filed application.

Fall Rental of Marketing Quota

19.(1) Subject to Section 11(3) hereof and to subsections (2) and (3) of this Section, an allottee of marketing quota who is marketing tobacco on his own account in the 1998-1999 crop year who wishes to rent out marketing quota on or after September 3, 1999, may apply to the local board to cancel the marketing quota and to fix and allot the marketing quota to a lessee by filing with the local board an application in Form 95, completed and executed by the lessor and the lessee at the Head Office of the local board on or before the final day of the marketing of the 1999 crop at the local board's exchanges.

19.(2) The local board may refuse to grant an application under this Section if the lessor or lessee are not in compliance with all the requirements of these General Regulations.

19.(3) The local board shall not grant an application under this Section where the amount of marketing quota in respect of which the application is made exceeds twenty percent (20%) of the marketing quota or the aggregate of the marketing quota held by either of the lessor or the lessee on September 3, 1999, as shown by the quota records of the local board.

19.(4) For the purposes of calculating the marketing quota held by an allottee on September 3, 1999, the local board may take into account any marketing quota derived from basic production quota which is in the process of being transferred to said allottee pursuant to an application for that purpose filed with the local board on or before September 3, 1999.

19.(5) An allottee who is only marketing carryover tobacco and whose carryover represents 70% or more of the marketing quota initially allotted to that allottee for the 1999-2000 crop year, shall be eligible to rent out up to 20% of that marketing quota on and after September 10, 1999.

19.(6) Notwithstanding subsection (3) of this Section an allottee of supplementary marketing quota under Section 7 hereof may rent out the pounds of supplementary marketing quota so allocated to another allottee of supplementary marketing quota by filing with the local board an application in Form 95 on or before the final day of marketing of the 1999 crop at the local board's exchanges, provided that the local board shall not grant an application under this Section where the total amount of marketing quota and supplementary marketing quota being rented in by the lessee exceeds twenty percent (20%) of the marketing quota or the aggregate of the marketing quota held by the lessee on September 3, 1999 as shown by the local board's records.

The Background

The chronology of events relevant to this application can be summarized as follows:

On March 12, 1999, the RCMP seized Mr. Duval’s tobacco during the course of an investigation into allegations that Mr. Duval may have unlawfully sold tobacco. Mr. Duval was unable to ship his last two scheduled shipments in the 1998-1999 market.

On April 30, 1999, the Board received Mr. Duval’s 1999 Application for Marketing Quota. On that form, Mr. Duval indicated that he would not be growing a crop in 1999 and that he was intending to sell his entire allotment of 30,000 pounds of Basic Production Quota (BPQ). Mr. Duval had entered an agreement to transfer his BPQ and applied to the Board on April 30 for the approval of that transfer under Section 10 of the General Regulations.

On June 8, 1999, the Board advised Mr. Duval that it had deferred making a decision on the transfer application because of the on-going RCMP investigation. The deferral is in effect until either the release of Mr. Duval’s tobacco by the RCMP or the disposition by the Court of any charges.

The RCMP investigation into the unlawful sale of tobacco has resulted in charges being laid against a number of producers, including Mr. Duval. Those charges are unresolved as of this date.

After a hearing by the Board on September 7, 1999, the Board decided to deny the request for exemptions from the Regulation.

Mr. Duval is now appealing this decision of the Board to the Tribunal.

The Issue

The issue before the Tribunal is: Should Mr. Duval be granted an extension of the time limit for applying for spring rental of marketing quota and an exemption from the Regulations that would allow him to rent out 100% of the Marketing Quota that would have been allotted to him in the spring of 1999 had he indicated an intention to grow tobacco in 1999?

The Evidence and the Findings

Mr. Hosack, counsel to Mr. Duval, made submissions on behalf of Mr. Duval. Mr. Hosack argued that:

• In 1998 Mr. Duval was a producer in good standing with the Board.
• On April 30, 1999 he made application to the Board for permission to sell his BPQ.
• On June 8, 1999 the Board made a decision to defer its decision on the BPQ transfer pending the outcome of the RCMP investigation into alleged illegal tobacco sales.
• The deadline for applying for spring rental is May 21, 1999. While Mr. Duval’s application to sell his BPQ was filed before this date, the decision of the Board is after that date and so the timing of the Board decision places Mr. Duval in a position of having to ask the Board for an exemption to the Regulation.
• The reason that Mr. Duval was selling his BPQ in 1999 was that the producer he share-cropped with, Mr. Lambert, had sold his quota. Mr. Duval’s 30,000 pounds of BPQ is too small to be an economic production unit.
• June 8 is too late to plant a crop. Preparations for crop production begin in the greenhouse in March and tilling and fumigating the soil in April and May.
• Mr. Duval is asking for the same right as any other producer has, the right to rent out 30% of his marketing quota under Section 18(4) of the Regulation.
• In addition, Mr. Duval is asking the Board to consider allowing him to rent out 100% of his marketing quota so he can make use of the equity that he has in his quota.
• The effect of the Board’s denial of his request to sell his quota is that Mr. Duval receives no economic benefit from the BPQ in 1999. This amounts to imposing a penalty on Mr. Duval for an unproven allegation.
• He is aware of at least two other tobacco producers who have also been charged in the same investigation as Mr. Duval and these two producers have grown a crop and are now marketing that crop with the Board taking no action against them.

Mr. Duval is asking the Tribunal to reverse the decision of the Board and allow him to mitigate his loss while the decision on the sale of the quota is in deferral.

Mr. Barry Bresener, counsel to the Board, argued that:

• The Board controls all aspects of tobacco production and marketing through application of quota. No one can sell tobacco except through the Board. No one can transport tobacco without a permit from the Board. All tobacco must be sold to a buyer licensed by the Board. The Board has interprovincial and export responsibilities as well.
• Quota is a privilege, a licence granted that allows a person to do that which otherwise would be illegal. It is not a right, but a privilege.
• In a situation involving criminal charges relating to tobacco production or sale, the Board will not allow a producer to sell BPQ until the charges have been heard, or the Board has had a hearing on the merits to see if the producer is in good standing.
• The reason the matter has evolved as it has is because the Board has assumed Mr. Duval to be innocent of all charges. The Board has made no findings of guilt and has neither heard nor seen any evidence relating to the criminal charges.
• The Board is not in a position to decide whether there has been a violation of the Board’s Regulations until it holds a hearing into the merits of the allegations and the Board is prepared to conduct that hearing at any time. However, Mr. Duval has asked the Board not to proceed with a hearing until the criminal charges have been dealt with.
• Marketing quota for a year is based on the amount of BPQ each producer holds and varies from year to year. In 1999 marketing quota is 44.34% of the BPQ.
• When a producer applies to the Board to transfer BPQ the marketing quota is fixed for that BPQ but is not allotted unless the application to transfer the BPQ is filed the previous year. The buyer expects to receive the marketing quota for the year along with the BPQ.
• When a producer wants to transfer BPQ, that producer must apply to the Board to cancel the BPQ allotted and then to allot that amount of BPQ to the transferee. This is how the Board controls BPQ transfers. This process takes some time as the Board is required to post notice of the pending transfer for a period of time prior to making a decision.
• The Board considered 65 requests for transfer of BPQ at its May 1999 meeting.
• The only exemption to the 30% limit on spring rental has been where a producer has planted crop and it is destroyed by natural disaster or where a producer has indicated a crop will be grown and is then incapacitated.
• If Mr. Duval had been allowed to transfer his BPQ in the spring, he would not have marketing quota to rent out and would not get income from the rental. The deferral decision only delays his selling of his BPQ if he is exonerated of the allegations against him. Therefore, there is no loss to mitigate.
• He did not apply to transfer his BPQ until the end of April and knew that he would not receive a decision until the end of May or early June. If there is a problem with the timing it is of Mr. Duval’s making.
• There are others charged in the same investigation as Mr. Duval whose cases are pending before the Courts. Some of them have elected to grow a crop as they are entitled to do. The Board presumes that they too are innocent, as is Mr. Duval. In all matters pertaining to the Board’s Regulations these producers are treated in the same manner as all other producers. Mr. Duval has asked for an exemption from the Regulations. That requires a decision by the Board and that distinguishes Mr. Duval’s case from the others.
• Section 18(2) of the Regulation says the Board can refuse even a timely application for spring rental even if the producer is in compliance. The Board is unable to determine if Mr. Duval is in compliance with the Regulations and he does not want the Board to have a hearing into the issue. The Board asks that the appeal be denied.

In response to questions, Mr. Gilvesy, Chair of the Board of Directors of the Board, told the Tribunal:

• There are four producers, including Mr. Duval, that the Board knows have been investigated for alleged illegal tobacco sale and charged accordingly.
• Two of the four have grown tobacco and have sold tobacco this year. The current year’s tobacco market is about 40% complete.
• Good standing in the industry is the most important of the factors the Board considered in denying the request for an extension of time for filing the application for spring rental.
• If the other producers who are charged, but not exonerated or convicted, were qualified as a producer the year previous and only wanted to rent 30% of their marketing quota they would likely be allowed to do that if they had applied before the deadline.
• There are a few instances where producers make application to extend the time for spring rental. These situations usually involve families arranging quota matters from one business structure to another and the Board is informed ahead of time.

Mr. Gilvesy told the Tribunal that selling tobacco outside of the Regulation is the most serious offence that a producer can commit. These sales put the industry at risk and devalue the quota held by the other producers. Therefore, allegations of this type of violation are treated very seriously by the Board. Mr. Gilvesy asked that the Tribunal deny the appeal.

The Tribunal examined the submissions made. The issue for the Tribunal is whether or not the Board acted in a reasonable and fair manner when it decided not to extend the time for applying for spring rental of quota and to not allow Mr. Duval to rent 100% of his 1999 marketing quota.

The Tribunal agrees with the Board that selling tobacco in contravention of the regulations is a major violation of the Board’s Regulations and must be treated seriously. However, the consequences of this violation should flow after the allegations are proven. The Tribunal understands the position of the Board and supports its decision to defer a decision on the application to sell BPQ until such time as it is satisfied that Mr. Duval is in compliance with the regulations. The Tribunal also understands the dilemma of the Board in trying to determine if Mr. Duval is in good standing. Mr. Duval is not appealing the Board’s decision to defer the transfer application.

However, the Tribunal feels fairness is the primary issue in this case. The Tribunal heard that there are two other producers who have been charged in this investigation and the Board has allowed them to continue to produce and market tobacco without sanction. These producers had to come to the Board for a decision on a license to produce, for shipping instructions and for a permit to transport tobacco. Each of these items required a decision of the Board and each was treated in an administrative manner. It appears that this appellant is being treated differently. He too has an allegation of wrong doing levied against him, but when he came to the Board requesting an extension of time for filing an application for spring rental, he was denied consideration based mainly on the allegations of wrong doing. Until such time as the allegations are proven the Board has to treat each of the producers in a consistent and fair manner.

It was not disputed that there are two other producers who are charged with offences and who are producing and selling tobacco while Mr. Duval, who applied to sell and then to rent his quota, is prevented from utilizing this asset. The late application is not sufficient reason to deny the request to rent out the quota.

The Tribunal finds that Mr. Duval falls in the category of producer contemplated in Section 18(4) of the Regulation. The Board decision has not allowed the transfer of his BPQ and he did not intend to produce tobacco in 1999. The Tribunal finds Mr. Duval should be allowed a spring rental of 30% of the marketing quota that would have been fixed and allotted to his BPQ.

The Tribunal agrees with the Board that the relief of allowing a producer to rent 100% of marketing quota should be reserved for extraordinary or catastrophic situations. The Tribunal finds no extraordinary circumstances in this case and therefore denies Mr. Duval’s request to be allowed a spring rental of 100% of marketing quota.

Decision and Reasons

After careful consideration of the submissions, the Tribunal decided:

1. To grant Mr. Duval’s request to be allowed a spring rental of 30% of the marketing quota that would have been fixed and allotted to his BPQ in 1999.

2. To deny Mr. Duval’s request to be allowed a spring rental of 100% of the marketing quota attached to his Basic Production Quota.

The reasons for these decisions are:

1. The Tribunal was not convinced that missing the deadline for applying is sufficient grounds to deny a request for spring rental in this case.

2. There were no mitigating circumstances that warrant granting an exemption from the maximum spring rental of 30% of the marketing quota.

Dated at Guelph, Ontario this 9th day of December, 1999