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:

Benke v Chicken Farmers of Ontario

Benke v CFO 2001 ONAFRAAT 27

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

May 3, 2001

DATE OF DECISION:

May 24, 2001

2001-27

NEUTRAL CITATION:

2001 ONAFRAAT 27

Benke v Chicken Farmers of Ontario

IN THE MATTER OF THE FARM PRODUCTS MARKETING ACT AND 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 Armin Benke, 474655 Ontario Limited, from a December 21, 1999 decision of the Chicken Farmers of Ontario (CFO) to cancel 1,782 units of basic quota for the production and marketing of chicken.

Before:

Denis O’Connor, Vice Chair; Ralph Huckle, Member; Mary Field, Member; Tom Hall, Member

Appearances:

Mr. Fausto Bonifero, counsel to the appellant.

Mr. Geoffrey Spurr, counsel to the respondent, CFO.

Mr. Chris Vanderkooy, Services and Inspection Supervisor, CFO on behalf of the respondent.

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on Thursday, May 3, 2001. Mr. Armin Benke appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal from a decision of the Chicken Farmers of Ontario, dated December 21, 1999, to cancel 1,782 units of basic quota for the production and marketing of chicken held by 474655 Ontario Ltd.. The CFO found that the company had contravened the boards regulations by producing and marketing a total of 1,782 kg of chicken in quota periods A-21, A-22, A-24 and A-25, without reporting this to the marketing board. The CFO cancelled one unit of basic quota for each kg of quota that was produced and marketed, but not reported to the CFO.

The Background

Section 16 (2) of the Ministry of Agriculture, Food and Rural Affairs Act is as follows:

16(2) Subject to subsections (4) and (5), if a person is aggrieved by an order, direction,

policy, decision or regulation made under the Farm Products Marketing Act by a local board or under the Milk Act by a marketing board, that person may appeal to the Tribunal by filing with the Tribunal and sending to the local board or marketing board written notice of the appeal.

The decision under appeal was made by the CFO in accordance with Regulation 402, under the Farm Products Marketing Act, General Regulation No. 1343-1996 of the local board made under the Farm Products Marketing Act, and Regulations of the local board made under the Commodity Boards and Marketing Agencies Act.

The applicable section of Regulation No. 402 is as follows:

Section 6 (1): All chicken shall be marketed through the local board.

The relevant sections of General Regulation No. 1343-1996 is as follows:

Section 4 - Production of Chicken

(1) All chicken shall be produced on a quota basis.

(3) No person to whom a quota has been fixed and allotted for producing chicken

shall produce any chicken in excess of such quota.

Section 5 - Marketing of Chicken

(1) All chicken shall be marketed on a quota basis.

(3) No person to whom a quota has been fixed and allotted by the board for the marketing of chicken shall market any chicken in excess of such quota.

Section 8 - Receiving Chicken

1. At the time of sale of chicken the producer shall complete three copies of the producer receipt for each load of chicken received by the processor in Form 6 and deliver such copies to the processor or the processor’s agent. The producer shall ensure that the Form 6 is complete and accurate in all respects and is a Form 6 issued in respect of the registered premises on which the chicken were produced. The processor or the processor’s agent shall sign the three copies of the producer receipt and return two copies to the producer and retain the yellow copy. The yellow copy must accompany the vehicle in transit to the processing plant.

Licence Fees

14 (1) Every producer shall pay to the board licence fees at the rate of $1.05 per 100

kilograms, live weight, of chicken sold.

(2) Any person who receives chicken shall deduct from the monies payable for the chicken any licence fees payable to the board by the person from whom he receives the chicken and shall forward such licence fees to the local board at its office not later than 7 days from the last day of the week the chicken was received.

(3) Every producer shall pay to the board at its office all licence fees payable by him under subsection (1) that were not deducted and paid to the board in the manner prescribed by subsection (2) in respect of chicken sold in any month not later than the 15th day of the next following month.

CFO Regulations AK-1998, AL-1998, AM-1998 and AN-1998 made under the Commodity Boards and Marketing Agencies Act outline the levies payable by producers marketing in excess of 105% of their quota allotment in quota periods A-21, A-22, A-23 and A-25 and the mechanisms by which these levies shall be paid. The applicable levies are:

Period

Date

105%-110% in excess

110% in excess

A-21

AU 02 98 – SE 26 98

30 cents/kg

60 cents/kg

A-22

SE 27-98 – NO 21 98

30 cents/kg

60 cents/kg

A-24

JA 17 99 – MR 13 99

30 cents/kg

60 cents/kg

A-25

MR 14 99 – MY 08 99

44 cents/kg

88 cents/kg

At the commencement of the hearing into this matter, Mr. Bonifero advised the Tribunal that his client did not take issue with the CFO findings of fact in this matter. Mr. Bonifero said he intended to make submissions regarding the penalty assessed by the CFO.

The Issue

The issue before the Tribunal is:

Is the penalty imposed by the CFO appropriate in the circumstances?

The Evidence

Mr. Bonifero told the Tribunal that his client had not reported the production and marketing of 1,782 kg of chicken, and that rather than reducing his allowable production in a future quota period, the CFO had cancelled the basic quota of 474655 Ontario Ltd.on a one-to-one basis, ie. one unit for each kg of unreported chicken.

Mr. Bonifero explained that one unit of basic quota was worth approximately $35 in January 1999. He estimated the value of the basic quota units cancelled by the CFO at slightly over $60,000. In contrast, he pointed out that the total value of the unreported chicken was approximately $2,000 and the value of licence fees and levies due on this production was $131.89.

He pointed out that the CFO had been told by Mr. Paul Edwards, proprietor of Lowbank Farms Ltd. (Lowbank Farms), the processor of the chicken, that Mr. Edwards had stated that Mr. Benke did not initiate a scheme to hide the unreported chicken.

He also pointed out that in other cases, the CFO has cancelled chicken producers’ future marketing potential by 8-12 times the amount of the unreported chicken, rather than reduce their base quota allocation. He submitted that chicken producers’ profit, after chick and feed was approximately 50 cents/kg and that a penalty of 12 times the unreported production of his client would result in a penalty value of approximately $10,500. He explained the reason for the appeal is that the penalty imposed is too severe.

Mr. Bonifero referred to five other instances where the CFO penalized producers for shipping unreported chicken to Lowbank Farms. He explained that, like his client, all five were repeat offenders and that three of them had previously shipped unreported chicken to Watts Poultry, as had his client. He told the Tribunal that in each of these other instances, the penalty imposed by the CFO was a reduction in future production ability. Mr. Bonifero said that his client was the only one to lose basic quota. He submitted that the only other difference between his client and the other five producers was that his client had opted to require that the CFO prove he had produced and marketed unreported chicken, whereas the others had signed an agreed statement of facts. He also pointed out that four of these five other producers had failed to report significantly higher amounts of chicken than Mr. Benke.

Mr. Bonifero told the Tribunal that the written reasons for the CFO decision included the need for a strong deterrent in this case and a statement that they were particularly offended that the offence occurred at the same time Mr. Benke was negotiating a settlement on his first offence of this nature. Mr. Bonifero explained that Mr. Benke’s penalty was the most severe of five other producers, even though three of them where also being allowed to use cancelled quota to work off their penalties.

Mr. Bonifero concluded that his client had been assessed a higher penalty simply because Mr. Benke did not acknowledge that he had done wrong, and exercised his right to have CFO prove its accusations. He submitted that this was unfair and that the Tribunal should reverse the CFO decision and order the CFO to reduce his client’s ability to market chicken in future quota periods, by 10-12 times the amount of unreported chicken. He also asked the Tribunal to take into account that his client had not had the use of the 1,768 units of cancelled basic quota since quota period A-32, and that it was now quota period A-38.

In response to a question, Mr. Bonifero indicated his client held approximately 36,000 quota units.

Mr. Chris Vanderkooy testified on behalf of the marketing board. He explained that he supervised nine-to-ten employees who provided services and inspection to approximately 1,150 chicken producers in nine districts across the province. He said that ferreting out unreported production was not a large part of his job but that it was important. He indicated that, in the context of supply management, unreported production and marketing was the worst possible infraction of a quota holder. He said it was an abuse of the privilege granted to chicken producers, disruptive to the harmony of the marketing system, and unfair to other chicken producers.

Mr. Vanderkooy explained that he and one of his staff obtained a search warrant and inspected records found at Lowbank Farms in Hagersville, Ontario. He said that they identified ten producers with unreported marketing infractions and that CFO staff visited each of these producers. He explained that his process was to explain what was found and get the producer’s side of the story. He said that often producers admit guilt at this point and ask his staff for options. He explained that CFO staff will produce an agreed statement of facts, in consultation with the producer, and that the matter will then proceed to a hearing before the CFO board. He said that if there was no agreed statement of facts signed by the producer, he would complete his investigation and then the matter would proceed to a hearing before the CFO board.

Mr. Vanderkooy said that he did provide evidence to a hearing at the board, but was not present during board deliberations on these matters and that he had never suggested a penalty to the CFO board as the result of an agreed statement of facts. Mr. Vanderkooy said, in his opinion, the signing of an agreed statement of facts is indicative of cooperation on the part of the producer. He said he had noticed a distinction in penalties between those producers with an agreed statement of facts and those without, but that he had also noticed differences in penalties within the group of producers who had signed agreed statements of facts.

Mr. Vanderkooy said that of the ten producers found shipping unreported chicken to Lowbank Farms, two chose not to sign an agreed statement of facts. He explained that the results of two CFO decisions on these matters had not yet been published, at the time of this proceeding.

He explained that of the ten producers, eight had proceeded by way of an agreed statement of facts and two had not.

Mr. Vanderkooy told the Tribunal that the first time the CFO had charged Mr. Benke with producing and marketing unreported chicken he had appealed his penalty to the Tribunal but had later withdrawn his appeal as the result of settling with the CFO. He testified there were 35-40 producers treated the same way at that time. He said that all those producers had shipped to Watts Poultry and that Mr. Benke had shipped 203,960 kg, of unreported chicken, the largest amount. He also pointed out that Mr. Benke had shipped to Watts Poultry in 1993, 1994 and 1995, whereas many of the other producers had not. Mr. Vanderkooy explained that the board had cancelled 3, 000 units of basic quota because of the Watt’s infraction. This cancellation was deferred in order to assist Mr. Benke in completing the approximately 1 million kg penalty which was also applied.

With regard to the recent infraction, Mr. Vanderkooy said that he had concluded that while Mr. Benke had not initiated a scheme to sell unreported chicken to Lowbank Farms, he was aware of the over-shipments and received payment for the unreported chicken. He also pointed out that the unreported production occurred in more than one quota period.

Mr. Vanderkooy stated that the other producer who had shipped unreported chicken to Lowbank Farms, and who had not signed an agreed statement of facts, had also been penalized with a reduction in his basic quota holdings of 610 units. He said that producer had also shipped unreported chicken to Watts Poultry over the course of three years.

In response to questions, Mr. Vanderkooy clarified that:

• The other producer who received a basic quota reduction penalty also lost quota on a one-to-one basis. That producer had also shipped a large amount of chicken to Watts Poultry, approximately 150,000 kg which was not reported.

• Producers 1008717 Ontario Inc. (Paul J. Forbes), Donald Forbes and 1046883 Ontario Inc. (Paul Mater) had shipped unreported production to Watts Poultry in 1994 and 1995. These three producers had been negotiating a settlement of their penalty for those infractions, at the same time they were shipping unreported chicken to Lowbank Farms.

• He did not recall if any producer had confessed to initiating the scheme to ship unreported chicken to Lowbanks Farm.

• Of the ten producers found to have shipped unreported chicken to Lowbank Farms, only the two who did not sign an agreed statement of facts, received penalties that included the reduction of basic quota.

• He expected that Mr. Benke would finish paying off his previous production penalty in about one year from now. Mr. Benke was leaving his barns empty in mutually agreeable, quota periods to pay back this production penalty.

• Mr. Benke had also received a monetary penalty as a result of his first infraction.

• The basic quota reduction penalty resulting from the CFO decision under this appeal had already been applied by the CFO.

• He had observed that CFO penalties seemed to be fairly consistently applied to producers with infractions of this nature, but that there was a trend to higher penalties. He explained that ten years ago the rule of thumb seemed to be to assess a penalty of three times the volume unreported, but that it had increased to a multiplier of five, then eight, then ten to twelve.

• He explained that the board had cancelled the basic quota of one of the producers who had shipped unreported chicken to Watts Poultry on a one-to-one basis, but that the Tribunal had reduced that penalty.

• Normally the full board of the CFO sits on disciplinary hearings.

• Producers elected the board directors.

• It appeared to him that the CFO gave some weight to the fact that Mr. Benke shipped unreported chicken at the same time that he was negotiating a settlement on his first infraction, as a letter from the CFO indicated it was particularly offended by this situation.

• Producers Donald Forbes, Paul J. Forbes and Paul Mater were in the same situation; he could not comment as to whether the CFO was offended in those cases, but he could not see why they would not be. Those three producers signed an agreed statement of fact, whereas Mr. Benke did not.

Mr. Bonifero told the Tribunal that it was clear that, of the ten producers who shipped unreported chicken to Lowbank Farms, the only two who received a reduction in basic quota were those that did not proceed by way of an agreed statement of facts. He pointed out that three producers in a similar situation to his client, but who had shipped larger amounts of unreported chicken, had been given lesser penalties, involving temporary reductions in the right to produce and market chicken. He said that his client’s penalty was six times as high as if he had been treated like these three producers, and that it resulted in the loss of a capital asset. He submitted that this is contrary to natural justice.

Mr. Bonifero made it clear that he did not dispute that the CFO had the powers to assess a penalty against his client. But he submitted that the CFO must exercise its powers consistently and he submits that they did not do so with respect to his client. He said that based on his review of CFO decisions, it was clear that the marketing board uses progressive penalties, and that sooner or later a producer would have to deal with a basic quota cancellation. However, he said that his client had received that message and that it was not necessary to reduce his basic quota as a result of his second infraction.

In his summation, Mr. Spurr told the Tribunal that the CFO did not just consider the number of infractions that a producer had incurred in determining the penalty. He pointed out that the producers William and Patricia Alderson had received a reduction of their future allowable production in the amount of 12 times the volume of their unreported chicken, yet they had shipped less unreported chicken than Mr. Benke to both Lowbank Farms and Watts Poultry.

He said that the Aldersons had taken a less adversarial approach than Mr. Benke and that the CFO looked at that as a difference of attitude. He submitted that there is nothing wrong with Mr. Benke having required the board to prove the allegations of unreported chicken marketing, but he said that when CFO became satisfied it had been proven, it can then consider his adversarial attitude and determine if it is a mitigating factor.

Mr. Spurr asked the Tribunal to consider that Mr. Benke’s penalty is a penalty imposed by producers on a producer. He said he was not denying it is a severe penalty, but he submitted that it was supposed to be severe. He suggested that Mr. Benke should have gotten the message after his first infraction and that he did not get the message and continued with an adversarial approach when the allegations with regard to the unreported shipments to Lowbank Farms were made. He submitted that the penalty is appropriate given the regulatory regime required in the chicken industry. He said that under a quota system producers have an obligation to take the burden as well as the benefit. He submitted that quota violations jeopardize the marketing system and are threat to the privilege of self-regulation, and that violations are therefore seen as a serious offence by the marketing board.

Mr. Spurr also pointed out the need for general deterrence. He told the Tribunal that every producer receives a copy of the results of CFO hearings, and suggested that other producers need to know the consequences of shipping unreported chickens. He said that when a repeat offender of Mr. Benke’s magnitude is caught, the marketing board needs to send a message to him and to other producers.

Mr. Spurr pointed out that the appellant had waited several months before appealing the CFO decision and he suggested that the Tribunal consider the timing of the appeal as to whether it was a bonafide appeal.

Mr. Spurr reminded the Tribunal of five previous quota penalty cases it had heard. Specifically, he noted that:

• In Lechowicz (JA 09 98) the Tribunal found that cancellation of this producer’s basic quota was too severe in that situation, but that canceling half was appropriate. He noted that the producer had admitted the offence.

• In Levac (AU 11 97), the Tribunal also reduced the CFO penalty by half, but this was the producer’s first offence, the unreported shipment was a one time occurrence of a relatively small amount of chicken, and Mr. Levac cooperated fully with the CFO once the infraction was brought to his attention.

• In Meat a Chick (MR 30 98), the producer required the CFO to prove the unreported production, the Tribunal found no mitigating circumstances in the case and the CFO penalty was upheld.

• In Chromczak (FE 10 98), the Tribunal reduced the penalty assessed by the Ontario Flue-Cured Tobacco Growers’ Marketing Board but noted that a breach of quota regulations was a serious offence. This case was also an appeal of a penalty assessed in response to a first offense. The Tribunal indicated it wanted to allow the producer to continue as a tobacco producer.

• In Sytsma (AU 28 00), the parties had filed an agreed statement of fact with the Tribunal, and the CFO considered that this expedited the case.

Mr. Spurr submitted that the penalty assessed against Mr. Benke’s company was appropriate in the circumstances, that it was appropriate for the CFO to look at whether an agreed statement of facts was reached as it is indicative of the producer’s attitude and that there were no mitigating circumstances in this case. He concluded that it was not enough for the appellant to say that he got the message now, and that he should have done so at the initial CFO hearing if he was truly of that view and was reformed.

In response to new points raised in Mr. Spurr’s summation, Mr. Bonifero told the Tribunal that he did not intend to compare his client to the Aldersons, rather he asked the Tribunal to focus on Paul J. Forbes, Donald Forbes and Paul Mater. He submitted that Mr. Benke should not be treated differently than these three producers. He suggested that the Lechowitz hearing was a test case, and that while that producer lost half his quota the CFO had decided to give other producers lesser penalties.

Mr. Bonifero reminded the Tribunal that Mr. Benke had shipped a relatively small amount of unreported chicken to Lowbank Farms and submitted that the magnitude of his earlier infraction should not be taken into account in setting the penalty for his second infraction.

Mr. Bonifero reiterated that the only producers who received quota reductions were those who did not agree with the CFO about the facts of their case, and he suggested that the Tribunal would send a negative message to producers if it upheld this practice. He said that while the industry was self-regulating, the CFO had been heavy handed with Mr. Benke and he asked the Tribunal to consider fairness in making its ruling.

The Findings

The Tribunal notes that the supply management marketing system used in the chicken industry confers benefits to chicken producers, but that these benefits are dependent on the system having adequate controls to ensure the appropriate amount of chicken is produced. The Tribunal accepts the argument that quota infractions are a serious threat to the integrity of the marketing system.

Based on sworn testimony, the Tribunal finds that the penalty of a cancellation of basic quota was not unique to Mr. Benke in that one of the other producers who shipped unreported chicken to Lowbank Farms received a similar penalty. The Tribunal finds that the CFO was consistent in determining the penalties of producers who required it to conduct a full investigation of the alleged infractions. The penalty was more severe than that given to producers who acknowledged that they had violated the regulations, when confronted by the CFO staff. The Tribunal finds that the penalty set by the CFO in this case was appropriate.

The Tribunal understands that producers’ have a right to require that allegations of wrongdoing by marketing board staff be proven. However, the Tribunal finds the cancellation of basic quota in the ratio of one quota unit for each kg of unreported chicken is an appropriate penalty in this circumstance. The Tribunal finds that there were no mitigating circumstances which would lead it to reduce the penalty to Mr. Benke. The Tribunal believes that the penalty should act as a deterrent to this producer or any producer who would contemplate this activity prohibited by board regulations.

The Tribunal did not find that the time elapsed before the filing of this appeal or the number of kgs of unreported chicken in the Watt’s case to be significant factors in arriving at the decision in this case.

Decision and Reasons

After careful consideration of the evidence presented and submissions made, the Tribunal decided to deny the appeal and uphold the decision of the Chicken Farmers of Ontario.

The reason for this decision is that the Tribunal was convinced that the penalty imposed on Armin Benke, 474655 Ontario Limited was reasonable and appropriate, given that this was the second offence by this producer and that there is a need of a strong deterrent for this producer and other producers’ that they be aware that such activity is detrimental to the integrity of the marketing system.