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:

Van Moorsel Farms Ltd. v Chicken Farmers of Ontario

Van Moorsel Farms Ltd. v CFO 2001 ONAFRAAT 29

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

January 24, January 29, and April 24 2001

DATE OF DECISION:

June 8, 2001

2001-29

NEUTRAL CITATION:

2001 ONAFRAAT 29

Van Moorsel Farms Ltd. 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 (the Tribunal) by Van Moorsel Farms Ltd., Perth County, from the June 28, 2000 decision of the Chicken Farmers of Ontario (CFO) wherein the CFO decided 1) not to fix and allot 6,500 units of basic quota to Van Moorsel Farms Ltd. and 2) not to revoke a transfer of 10,008 units of basic quota from Van Moorsel Farms Ltd. to Margaret Munro, Township of Durham.

Before:

Jim Rickard, Chair Doug Flook, Member

Andy Koopal, Member Arden Schneckenburger, Member

Appearances:

Mr. Izaak de Rijcke, counsel to the appellant, Van Moorsel Farms Ltd.

Mr. Geoffrey Spurr, counsel to the respondent, CFO

Mr. Colin Still, counsel to Margaret Munro

Mr. Arnold Van Moorsel

Ms. Margaret Munro

Mr. Kevin Thompson

Mr. Frank Fortuna

Ms. Elaine Umphrey

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on Wednesday, January 24, 2001, Monday, January 29, 2001 and Tuesday, April 24, 2001. Van Moorsel Farms Ltd. appealed a decision of the CFO whereby it did not reverse the transfer of 10,008 units of basic quota from Van Moorsel Farms Ltd. to Maragret Munro, and whereby it did not allocate an additional 6,500 units of basic quota to Van Moorsel Farms Ltd..

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.

Subsections 4 and 5 outline conditions under which the Tribunal may refuse to hear an appeal and a provision that the marketing board may first hear the matter under appeal.

Sections 10 and 11 of Regulation 402 under the Farm Products Marketing Act state:

10. (1) The Commission authorizes the local board,

(a) to require that chickens be marketed on a quota basis;

(b) to prohibit any person to whom a quota has not been fixed and allotted for the marketing of chickens or whose quota has been cancelled from marketing any chickens;

(c) to prohibit any person to whom a quota has been fixed and allotted for the marketing of chickens from marketing any chickens in excess of such quota; and

(d) to prohibit any person to whom a quota has been fixed and allotted for the marketing of chickens produced on lands or premises in respect of which such quota has fixed and allotted from marketing any chickens other than chickens produced on such lands or premises.

(2) The Commission authorizes the local board,

(a) to fix and allot to persons quotas for the marketing of chickens on such basis as the local board considers proper;

(b) to refuse to fix and allot to any person a quota for the marketing of chickens for any reason that the local board considers proper; and

(c) to cancel or reduce, or refuse to increase, a quota fixed and allotted to any person for the marketing of chickens for any reason that the local board considers proper. R.R.O. 1990, Reg. 402, s. 10.

11. (1) The Commission authorizes the local board,

(a) to require that chickens be produced on a quota basis;

(b) to prohibit any person to whom a quota has not been fixed and allotted for the producing of chickens or whose quota has been cancelled from producing any chickens;

(c) to prohibit any person to whom a quota has been fixed and allotted for the production of chickens from producing any chickens in excess of such quota; and

(d) to prohibit any person to whom a quota has been fixed and allotted for the producing of chickens on lands or premises in respect of which such quota was fixed and allotted from producing any chickens other than chickens produced on such lands and premises.

(2) The Commission authorizes the local board,

(a) to fix and allot to persons quotas for the producing of chickens on such basis as the local board considers proper;

(b) to refuse to fix and allot to any person a quota for the producing of chickens for any reason that the local board considers proper;

(c) to cancel or reduce, or refuse to increase, a quota fixed and allotted to any person for producing chickens for any reason that the local board considers proper, and without limiting the generality of the foregoing, to cancel or reduce any such quota as a penalty where the local board believes on reasonable grounds that the person to whom the quota was fixed and allotted has contravened the Act or the regulations; and

(d) to permit any person to whom a quota has been fixed and allotted for the producing of chickens to produce any chickens in excess of such quota on such terms and conditions as the local board considers proper. R.R.O. 1990, Reg. 402, s. 11.

The CFO controls the production and marketing of live chicken in Ontario using a quota system. The marketing board allows for the transfer of ‘basic quota’ between chicken producers and between chicken producers and new entrants to the industry. The CFO also periodically issues ‘additional crop quota’ to producers on a temporary basis, and it occasionally alters the amount of basic quota allotted to chicken producers.

The basis of the appeal was a dispute regarding the ownership of 10,008 units of basic quota at a time when the CFO provided a one-time allotment of 6,500 units of basic quota to eligible quota holders. Counsel to the appellant said that his client had entered a contract to transfer 10,008 units of quota to the purchaser and had received 10% of the agreed upon payment at that time. However, he said that the ownership of the quota stayed with the appellant until the agreed upon sum was paid in full, and that therefore, the CFO should have allocated 6,500 units of quota to his client. Counsel to the CFO said that the appellant applied to transfer its entire quota holdings to a different producer, that the transfer had been approved in principle and that it had later been finally approved. He took the position that, having sold the right to produce and market chicken, the appellant was not entitled to be allocated an additional 6,500 units of basic quota. Counsel to the purchaser supported the position taken by the CFO.

The Issues

The issues before the Tribunal are:

1. Should the CFO be directed to reverse its decision to allow the transfer of 10,008 units of basic quota from Van Moorsel Farms Ltd. to Ms. Margaret Munro?

2. Should the CFO be directed to allocate 6,500 units of basic quota to Van Moorsel Farms Ltd., pursuant to its policy decision, announced August 26, 1999, to increase the basic quota allotment to eligible producers.

The Evidence and the Findings

Mr. Arnold Van Moorsel

Mr. Van Moorsel stated that he was a director of Van Moorsel Farms Ltd. and had been producing chicken through the company for five years. He explained that he had never sold quota before his transaction with Ms. Munro but that he understood that quota was normally sold through sales representatives of feed companies. He explained that he told Mr. Paul Roe, his feed salesman, that he was interested in selling quota and that within a day or two Mr. Urs Kressibucher was in touch with him and they settled on the price of $38/unit plus a transfer fee. He said he did not speak to Ms. Munro directly either before or after the sale.

Mr. Van Moorsel told the Tribunal that he was unaware of any pending CFO policy changes at the time of the quota transfer. He said that he had questioned Mr. Roe as to whether there were any upcoming policy changes and was assured there was not.

Mr. Van Moorsel indicated that he had signed a notice of an intent to transfer quota, CFO Form 114, that he assumed he signed it May 10, 1999 and that he assumed that the form was filled in when he signed it. He said he also signed CFO Form 115 and CFO Form 117 and that he probably signed those forms on May 10, 1999 as well.

Mr. Van Moorsel testified that he later received a document from the CFO titled Important Notice to Chicken Farmers , dated May 28, 1999 and that it led him to believe that a quota conversion policy change was imminent. He said that he was a registered producer at the time, he had not yet transferred his quota and did not know if his proposed transfer had been approved by the marketing board. He explained that he called his local CFO committeeman Greg Luyton, and was told that he “missed the boat” with regard to the quota conversion policy as he had sold his quota too soon.

Mr. Van Moorsel submitted that his quota sale was concluded on September 18, 1999 and that the effective date of the transfer was October 24, 1999. He explained he was still producing chicken in the summer of 1999 and had not at that time been paid the balance of funds for the quota transfer by Ms. Munro. He explained that he was not surprised when he received a notice regarding the new quota conversion policy in August 1999, but that he remained concerned with the CFO position that he was not entitled to any additional quota allotment. He submitted that he was the registered producer at the time the policy change was announced and that he should have received an allocation of 6,500 units of basic quota.

Mr. Van Moorsel testified that it was generally known by chicken farmers in his area that there had been discussion about an extra quota allotment for many years, but he said he did not believe that any producer in his immediate circle knew the allocation was imminent

In response to questions, Mr. Van Moorsel indicated:

• He intended to cease all production of chicken when he sold his quota in 1999.

• He was able to grow 25000 – 27000 kg of chicken with 10,008 units of quota, as there were additional crop quotas issued over and above his basic quota.

• He knew he would not receive any additional crop quotas, once the company’s basic quota was sold.

• The terms of the quota sale were fair and that he was indifferent as to whether he sold to a new producer or an existing producer.

• He spoke with the CFO quota supervisor after he spoke to his committeeman in May 1998 and subsequently received correspondence that his quota transfer had been approved in principle. He was later notified that the transfer had received final approval on August 12, 1999.

• He directed Mr. de Rijcke to write to the CFO after receiving the notice of the CFO quota conversion policy, dated August 26, 2000, as he wanted to prove he was still a registered producer at the time. He acknowledged that the conversion policy was not mentioned in that letter.

• He knew the CFO viewed the allocation of 6,500 units of basic quota to eligible producers as a quota conversion, not a new quota allocation. He was not surprised that Ms. Munro was currently producing approximately the same total amount of chicken that he had been producing prior to the quota transfer.

• He received notice from the CFO of periodic district meetings, but he had not attended any such meetings in the year preceding his decision to sell his quota. The possibility of a quota conversion had been discussed at earlier district meetings he had attended.

• He had been monitoring the price of quota for some time but had not considered selling until approximately one week before he contacted Mr. Roe.

• He believed it was standard procedure to indicate that “no calls please” be included on the notice of intent to transfer quota when the buyer already had a purchaser.

• He agreed that he had sold the quota at the time he signed this notice, but stated that he understood Mr. Kressibucher was the buyer.

• Mr. Roe had filled in the CFO transfer forms and a sales contract on his behalf.

• He asked Mr. Roe about upcoming policy changes as he thought that Mr. Roe would be aware of policy changes due to his extensive interaction with chicken producers.

• He received the CFO newsletter when he was a producer.

• The last chickens he shipped were sold on October 23, 1999; they would have been placed seven weeks before, in early September 1999.

• He knew the quota transfer required CFO’s approval.

• He assumed that Mr. Roe sent the CFO forms to the marketing board. He did not know if his private contract had been filed with the CFO.

• He clarified that he had shipped 20,000 to 26,000 kg of chicken per eight-week period.

Dr. Glenn Fox

Dr. Fox indicated he had a PhD in agricultural and applied economics. The Tribunal accepted him as an expert witness. Dr. Fox testified that he had reviewed documentation related to the Van Moorsel Farms Ltd. quota transfer and the briefs of all three parties to the appeal.

Dr. Fox told the Tribunal that he had concluded that it was reasonable for farmers to assume they obtained property rights in quota and that he had identified three shortcomings in the CFO’s management of the quota system. These were:

• Communication – the wording regarding which producers were eligible to receive quota was ambiguous in the CFO notice dated August 26, 1999, and the date at which the quota transfer is to be effective is not clear on the CFO forms.

• Anticipation of future problems – because the CFO does not require that a copy of a sales agreement between buyers and sellers be filed with it, the CFO fails to foresee future problems which may arise from clauses in these contracts.

• Transparency – The CFO statement that “It may fix and allot, refuse to fix and allot, increase, reduce, or cancel quota for any reason it determines proper” in a letter dated September 30, 1999 introduces uncertainty which results in inefficiency.

In response to questions, Dr. Fox acknowledged that he had not reviewed the Farm Products Marketing Act or regulations made under that Act prior to reaching his conclusion. He said upon reviewing Regulation 402 under the Act he could see it was the source of the language used by the CFO in its letter of September 30, 1999. However, he submitted that the tone of the CFO, and its position that contracts regarding financial transactions related to the transfer of quota were not relevant to it, were contrary to the implied goal of the government that the CFO should enhance producers’ financial well being. He explained that he appreciated there was a legal aspect to the case but that he was commenting from the economic perspective.

Dr. Fox also indicated that:

• He believed the wording in the CFO correspondence regarding the approval in principle of the quota transfer was ambiguous, as it was not clear as to when the quota transfer would be effective.

• He had identified the same problem in the notice of final approval of the quota transfer and had concluded that it would be reasonable for a producer to believe that a private sales contract would be respected.

• A regulation dated August 4, 1999 canceling the basic quota of the appellant was clear.

• It was fair for a producer to believe that he had property rights in quota and to assume he has not relinquished those property rights until he is paid for his quota.

• Had the CFO policy been applied after the closing date of the Van Moorsel Farms Ltd. financial transaction with Ms. Munro, the problem under appeal would have been avoided.

• He did not interview Mr. Van Moorsel and did not know what he believed upon receiving documents from CFO. He thought that Mr. Van Moorsel intended to retain rights in the quota to be transferred until the final payment date.

Dr. Fox also testified that the CFO enjoyed unusual and extraordinary powers in Canadian society, and that with those powers came a responsibility to use good management practices and to protect producers. He said that he felt it would be prudent for CFO to review sales contracts related to quota transfers, in case they contained items that needed to be taken into account by the marketing board.

Mr. Paul Roe

Mr. Roe testified that he had worked for Maple Lodge Farms for 10 years travelling from farm to farm selling feed. He said most of his customers were chicken producers. Mr. Roe explained that Van Moorsel Farms Ltd. was his client for approximately two and one half years before he was asked to facilitate a quota transfer in May 1999. He said that he had witnessed Mr. Van Moorsel’s signature on a document titled Agreement of Purchase & Sale. He explained this agreement was a form generated by a few Maple Lodge salespeople in the late 1990s and that the document was developed because some chicken producers did not record quota sales.

Mr. Roe testified that he had facilitated the sale of at least 25 sets of quota in 1999. Mr. Roe said that he did not receive a fee for this service, but that it was beneficial for Maple Lodge Farms to know the buyers of quota, so that the company could contact the new entrant to promote its feed and chick business.

With regard to the Van Moorsel Farms Ltd. transfer, Mr. Roe said that he first spoke to Mr. Van Moorsel about the matter approximately one week before the quota was sold. He explained that quota was trading for $36.75 - $37.00 per unit at the time, but that Mr. Van Moorsel asked for $38.00 per unit. Mr. Roe said his colleague Mr. Paul Hordyke found a buyer at that price. Mr. Roe testified that he filled in most of the information on the agreement of purchase and sale, and on CFO Forms 114, 115 and 117. He said that there was no information identifying the buyer when Mr. Van Moorsel signed the sales agreement. He explained that he gave the sales agreement to Mr. Kressibucher, who he understood was buying the quota for his wife. He said that Mr. Hordyke witnessed Ms. Munro’s signature on the document. He testified that he understood that the transfer assessment payable to CFO was to be paid by the purchaser.

Mr. Roe told the Tribunal he gave the CFO forms to Mr. Hordyke who was to take them to the buyer. He explained that he dropped off copies of the completed agreement and cheques to Mr. Van Moorsel a few days later. Mr. Roe clarified that handwritten wording at the bottom of this document was added with the consent of both parties. He said that an employee of Maple Lodge had submitted the completed CFO forms to the marketing board.

Mr. Roe verified that Mr. Van Moorsel asked him about upcoming industry changes and said that he had indicated there was a rumor of impending changes with regard to the additional crop quotas. He said he did not attend CFO district meetings. He explained that he learned of the CFO announcement regarding the impending quota conversion policy after he had returned the sales agreement to Mr. Van Moorsel. He indicated that his impression was that Mr. Van Moorsel was in an unfortunate position as he had missed the quota conversion by 3 or 4 weeks.

Mr. Roe also indicated:

• He understood that Mr. Van Moorsel committed to sell his entire quota prior to the policy change.

• Mr. Van Moorsel was aware that the quota would be available for him to use for two more periods, as that was how long it took to complete the transfer.

• He understood it was CFO policy that quota sales are effective two crop periods later.

• It was Mr. Van Moorsel who raised the issue of the rumored policy change when they discussed selling his quota. They did not discuss the implications of proceeding with the sale in light of the rumors.

• Mr. Van Moorsel had not asked him to file the agreement of purchase and sale with the CFO and that it was not the policy of Maple Lodge to do so.

• He did not believe the CFO was concerned with the price of quota.

• The comment “no calls please” means that, even though the quota is listed for sale, it has already been sold. This prevented the aggravation of phone calls to the seller.

• He did not think that Mr. Van Moorsel received a copy of the CFO forms but he said that he would have provided him with a copy had been asked.

Ms. Margaret Munro

Ms. Munro testified that she had been a chicken farmer since 1989 and that she also worked off farm as a commercial artist. She told the Tribunal that she had accepted a transfer of quota from Van Moorsel Farms Ltd. in 1999. Ms. Munro confirmed that she signed CFO Forms 116 and 118 but that her husband, Mr. Urs Kressibucher had filled in the forms on her behalf. She explained that she had been in partnership with Mr. Kressibucher in a chicken production business on their home farm, but that she purchased a property and the quota from Van Moorsel Farms Ltd. in order to farm on her own. She said that she did not know the exact date that her name was transferred off the deed of the home farm. She testified that she was in the process of dissolving her partnership with her husband and purchasing her own farm at the time of the quota purchase. Ms. Munro explained that this was a joint decision between she and her husband and that they were in no rush to purchase quota.

Ms. Munro explained that originally she intended to purchase a property in Brock Township, Durham Region from her mother-in-law and build a new chicken barn, but that there was no water on that property. She said that ultimately she bought a property in Georgina Township. This property had an existing chicken barn. She verified that her husband had filled in the form required to transfer quota from one property to the other, and that she had signed it. She said that she believed that the information on the forms was correct.

Ms. Munro testified that she had been aware of rumors that the CFO was considering quota policy changes as a question about additional crop quotas had been raised from the floor at the 1999 annual meeting of the CFO, which she attended. She said that the CFO had indicated the policy would be reviewed within one year. Ms. Munro testified that neither she nor her husband were board members or committeemen of the CFO at the time of the quota transaction.

Ms. Munro told the Tribunal that she purchased 10,008 units of quota from Van Moorsel Farms Ltd. and that she later received an additional allocation of 6,500 units from CFO. She said that she sold her chicken to Maple Lodge Farms. She indicated that she had limited involvement in the farm operation, but that she worked one day each week in the barn and was occasionally on stand by to start the generator if necessary. She said she did not negotiate feed purchases or keep the books on the farm.

With regard to the quota purchase, Ms. Munro said that her husband had told their feed salesman Paul Hordyke in April 1999 that they were interested in purchasing quota. She said that her husband had filled in the paperwork involved in her purchase of quota from Van Moorsel Farms Ltd.. Ms. Munro testified that she believed the effective date of the quota transfer was May 10, 1999. She said she did not know that the CFO would issue her an extra 6,500 units of quota at the time of the quota transfer, but that she was aware of rumors that the board would be converting additional crop quota to basic quota within a year. Ms. Munro verified that her husband had signed cheques from their joint account to cover the quota purchase and the CFO transfer fee and that all the cheques were deposited.

Ms. Munro verified that she had spoken to Mr. Fortuna of the CFO about the quota transfer in the summer of 1999. She said that he had called to verify that she had signed the CFO transfer forms and that he told her that Mr. Van Moorsel had contacted him about the transfer. She explained that Paul Hordyke of Maple Lodge had submitted paperwork to the CFO on her behalf, and that he had received no compensation for this service.

In response to questions, Ms. Munro indicated:

• She did not know she would receive an additional allocation of basic quota from CFO after she purchased quota from Van Moorsel Farms Ltd..

• She became a producer in her own name to take advantage of an existing board policy that one additional crop quota be allocated per producer.

• Her additional crop quota was ultimately converted to 6,500 units of basic quota.

• She received a CFO notice regarding a quota transfer freeze in late May 1999, but expected her deal would still be completed and that she would be the recipient of any additional quota that the CFO chose to allocate to producers.

• She learned that Mr. Van Moorsel was taking the position that she should not receive the new basic production quota of 6,500 units in September 1999.

• She believed the private sales agreement was a firm deal at the time she signed it, but she supposed that she could have bounced a cheque to nullify the deal.

• The dissolution of her partnership with Mr. Kressibucher was occurring at about he same time as her purchase of quota from Van Moorsel Farms Ltd..

• Her barn had the capacity to grow 17,000 quota units of chicken.

Mr. Kevin Thompson

Mr. Thompson stated that he was the Operations Manager of CFO, and that his role was to oversee the administration of board policies and regulations. He said he had been with the CFO since 1989.

Mr. Thompson explained that the CFO producer licence is referred to as basic quota units, that the licences are issued in various sizes, and that there was 1.755 kg of chicken associated with one basic quota unit. He said that the CFO dealt with growth in the industry by issuing additional crop quotas and that these had traditionally been allocated to producers on a per capita basis. He clarified that additional crop quotas could be negative, if the market were to contract. He explained that the chicken market was seasonal and that the use of additional crop quotas, which varied in amount each production period, allowed the CFO to accommodate seasonal demand shifts.

Mr. Thompson clarified that in order to receive an additional crop quota, a producer was required to have sufficient barn space to place the chickens. He said that as there was only one additional crop allocated per producer, it was common for families to have separate chicken farms in the name of each spouse.

Mr. Thompson recalled hearing a question from the floor at the 1999 annual meeting regarding the conversion of additional crop quotas to basic quota. He said the Chairman of CFO had indicated the policy would be reviewed within the next few months. Mr. Thompson said there had been widespread speculation before the annual meeting that the policy would be changed.

Mr. Thompson testified that the CFO started to consider the quota conversion issue in late April or early May 1999 and that it ultimately opted to put a freeze on quota transactions to prevent speculation while a new policy was developed.

Mr. Thompson explained that the CFO chose to allocate 6,500 units of basic quota to each producer in order to closely reflect the additional crop quotas which were allocated to producers at the time. He clarified that a producer had to own at least 6,500 units of basic quota in order to receive the new allocation. He said that the marketing board chose May 29, 1999 as the date on which they would calculate producer eligibility and that any producer who had filed an application to be a new producer by that date was eligible for the new allocation of 6,500 units.

Similarly, any producer who had applied to sell quota before that date was not eligible for the new allocation. Mr. Thompson emphasized that the CFO felt that the critical step in the quota transfer process was when producers signaled their intent. He explained that it normally took several months to effect a transfer of quota.

Mr. Thompson said the new quota allocation was issued to producers on January 8, 2000, but that the decision to allocate the quota was made in August 1999. He said the delay was due to a CFO decision that it would give producers as much opportunity to qualify for this basic quota as possible, as some producers would have to build additions to barns to qualify for the quota. He said the CFO also needed time to modify its computer programs.

Mr. Thompson testified that the CFO had reduced and cancelled basic quota as a penalty for violation of board regulations on occasion, although it more commonly reduced allowable production for specific periods to penalize producers.

Mr. Thompson indicated that over 30 chicken producers whose quota transfers were approved in 1999 had initiated their transfers before May 29, 1999. Mr. Thompson explained that there was a time lag between CFO approval in principle of quota transfers and its final approval because time was required to allow producers to put their affairs in order.

Mr. Thompson said that he had compared the total allocation to Van Moorsel Farms Ltd. and Ms. Munro and had determined that the two producers were growing effectively the same amount of chicken, except for extra chicken produced by Ms. Munro as a result of market growth.

In response to questions, Mr. Thompson indicated:

• The CFO put a quota transfer freeze in place to allow time for consultation on a quota conversion policy. Quota transfer applications received before May 29, 1999 were processed. That was the key date in determining whether or not producers were eligible for new basic quota under the new conversion policy.

• The decision regarding the details of the new conversion policy was made in August 1999 and announced on August 26, 1999.

• While policy statements reflect CFO policy, the board routinely considers requests for exemptions from policies due to special circumstances.

• The CFO had issued over 33 million units of basic quota.

• The CFO annual meeting at which the treatment of additional crop quotas was addressed was held in the third week of March 1999.

• There were 16 producers who applied for quota transfers between the end of March 1999 and the end of May 1999. Of those, only Van Moorsel Farms Ltd. appealed to the CFO for relief from the policy, although one or two other producers questioned staff about it.

• There was nothing unique about the Van Moorsel Farms Ltd. quota transfer application.

• Partners are not considered to be separate producers by the CFO.

• The CFO records would have shown that Ms. Munro had an interest in quota she held with Mr. Kressibucher on their home farm.

• The CFO was satisfied that the Munro application was valid, even though the form may have contained factual errors. CFO accepts statements made on applications for quota transfer in good faith, but it requires proof of ownership of suitable premises before final approval of quota transactions is granted.

• Ms. Munro filed an intent to become a registered producer on May 10, 1999 and Van Moorsel Farms Ltd. filed its intent to cease production on the same date.

• The CFO introduced a minimum quota holding policy in 1993 or 1994. That policy states that producers must hold a minimum of 15,000 basic quota units.

• Ms. Munro was not required to meet the minimum quota holding standard as she purchased the entire quota holdings of Van Moorsel Farms Ltd. and the ‘grandfathering’ of that small quota allocation was continued. This was board policy, not an exception for Ms. Munro.

• If Van Moorsel Farms Ltd. were to be allocated 6,500 units of quota, it would have to be ‘grandfathered’ to be exempt from the minimum quota holding policy.

• He did not believe the CFO had a published policy regarding confidentiality but its directors signed an oath of office when elected.

• He knew Ms. Munro was married to Mr. Kressibucher and he had known Mr. Kressibucher for several years but did not know if Mr. Kressibucher had ever worked for Maple Lodge Farms.

• He had little personal involvement in processing quota transfers.

• As far as he knew, Van Moorsel Farms Ltd’s facilities were still capable of being used to grow chicken.

• The quota transfer was effective in CFO period A-29, which began on October 24, 1999.

• The CFO policy was that producers must identify the property where chicken is to be produced when they apply to receive a quota transfer; and they must submit a copy of the property deed prior to final approval of the transfer. The quota is allocated to the person or persons named on the deed. Producers have up to one year after the quota transfer is approved to build suitable production facilities on the property.

• A producer stating the wrong concession number on the application form would have no effect on the approval process of the CFO. The key document considered is the property deed.

• It is common for people to apply for quota transfers on the basis of anticipated ownership of farms. Transferring quota from one property to another was permitted.

• The application date is the most important date.

• To effect a transfer of quota with premises, a total of four CFO forms are required to be submitted; five forms are required if the quota is to be allocated to a different property. Transferees and transferors do not normally receive copies of each others’ forms.

• The CFO expects the information provided to it on its forms to be the producer’s best knowledge at the time. This information is important to the marketing board.

• There is no restriction on how long basic quota must be held, before transferring it to a different property.

• The price of basic quota rose slightly after the board implemented its conversion policy.

• Ms. Ms. Munro’s documents were in order before the final approval was given for the transfer.

• CFO committeemen may have more information than other producers as they meet more frequently with board directors.

• Normally there are four district meetings per year. All producers are welcome to attend.

• It is fair to say that Form 118 is a statement of intent. Because it is an approval in principle process, sometimes producers do not own the property when they apply for a quota transfer.

• In the Ms. Munro situation, it was important that that the Form 118 be supported by a corresponding application to dissolve her partnership with Mr. Kressibucher in order for her to be eligible for extra quota. He did not know if that application had been received.

• Quota transfers may be given final approval at a regular board meeting or at an electronic meeting.

• The CFO does not have 6,500 quota units in a quota bank. Production of all other producers would have to be reduced in order for it to allocate 6,500 units of new quota to Mr. Van Moorsel.

Mr. Frank Fortuna:

Mr. Fortuna indicated he had been the CFO Quota Transfer Administrator since 1984 and that he brings applications for quota transfers to the attention of the marketing board. He gave the Tribunal a brief description of the information that the CFO required producers and transferees of quota to provide on its various forms. Mr. Fortuna explained that the high cost of transferring real estate is the reason a two step process is used to transfer quota. He said that the CFO gives approval in principle to quota transfers so that producers would know they would be able to obtain quota before committing to a property purchase. He said that the CFO also needed time to create a computer file for a new producer.

Mr. Fortuna explained that producers are required to list quota for sale in a CFO bulletin before it is transferred, but that producers almost invariably find a buyer for their quota before it is posted for sale. He verified that feed salesmen brokered quota deals. He said that in the majority of cases, quota transfer forms are sent in separately by the transferor and the transferee but that in a significant number of cases, they are submitted together by an agent.

Mr. Fortuna said he did not recall if the forms were submitted separately or together for the Van Moorsel Farms Ltd. – Munro transfer. He said that five forms were needed in order to transfer the quota between the parties and one additional form was needed to confirm Ms. Munro’s ownership of her new property. He identified copies of forms in a document submitted into evidence were those received by the CFO. He explained that the date stamp on the documents was placed there by staff at the CFO reception desk.

Mr. Fortuna estimated that the CFO approved 20-25 quota transfer applications per month.

He explained his process is to group applications to transfer quota together, then post them on the CFO bulletin. He said he also checked the transferor’s file to see if there was any written authorization to notify anyone, typically a creditor, of the proposed quota transfer. He explained that the CFO position is that quota is the property of the board and cannot be encumbered. However, he explained that the board has understandings with the Farm Credit Corporation and major banks such that for producers who have submitted the appropriate form, the CFO will not transfer quota without giving written notice to the financial institution of the appliication to transfer quota. He said that the CFO makes it clear that it will not accept any purported interest in the quota and will not recognize any encumbrances on the quota.

Mr. Fortuna stated that he spoke to Mr. Kressibucher in April 1999 about the possibility of dissolving the Kressibucher-Munro partnership so that Ms. Munro could purchase her own farm and quota. He said he received the application to dissolve the partnership at approximately the same time or 2-3 weeks before he received the documents related to the Van Moorsel Farms Ltd.-Munro quota transfer. He said he had no concern with the information provided on CFO Form 117, in light of his discussion with Mr. Kressibucher. He explained that the partnership severance was approved by the CFO some time before the quota transfer was approved in principle. He explained that he had advised Mr. Kressibucher on how to fill out the forms.

Mr. Fortuna said he did not recall speaking with Mr. Van Moorsel immediately after he was notified that the quota transfer was approved in principle. He said Mr. Van Moorsel phoned him on June 2, 1999 to discuss the May 26, 1999 notice regarding the quota transfer freeze. Mr. Fortuna testified that he told Mr. Van Moorsel that there would be no more quota transfer applications accepted as the board was developing a policy to convert additional crop quota to basic quota. He said he told Mr. Van Moorsel he believed it was the board’s intention to increase basic quota and that the significance of the date May 29, 1999 was that he would not be eligible to receive additional quota. He explained that he did not know a specific number of units at that time and could not say with certainty that the board would actually increase quota.

Mr. Fortuna told the Tribunal that in the past the CFO had twice converted additional crop quota to basic quota using one methodology, and once used a different methodology. He said there had not been quota transfer freezes before the first two conversion policies were implemented, but pointed out that the CFO had required quota to be transferred with premises at the time.

Mr. Fortuna indicated that he first spoke to Ms. Munro about the quota transfer in September 1999 after he received a facsimile transmission from Mr. de Rijcke in which he asked that the quota transfer be reversed. He said she had not received this correspondence at that time. Mr. Fortuna stated that the quota transfer received final approval on August 4, 1999. He said that there was no particular reason that the transfer was approved on that date, but that it may have been the first date available after the final paperwork was received.

In response to questions, Mr. Fortuna indicated:

• He had appeared before the Tribunal in the past.

• No one can register a security interest in quota. Small financial institutions such as credit unions could enter into an understanding with the CFO, with regard to notification of applications to transfer quota. The CFO had tried to deal with credit unions through their association but it did not have the authority to speak for its members.

• The CFO recognizes that quota is a substantial investment.

• He maintains one file for each quota transfer application. During the transfer application stage the documents from both producers are together. The file is split into two folders following final approval of the transfer.

• Each new producer has an identifying number assigned when the CFO staff first receive information on proposed quota transfers. Ms. Munro was assigned producer number P9M221 on May 12, 1999.

• The majority of producer calls he receives come before their quota transfers are processed.

• He first heard from Mr. Kressibucher in early-mid April 1999. He distinctly recalled speaking to him on one other occasion and there may have been another call as well.

• He believed Guido Verstraeten witnessed Ms. Munro’s signature on the CFO forms.

• He explained that he advised Mr. Kressibucher to indicate that Ms. Munro did not have any interest in any other quota holdings when he filled out the CFO forms on her behalf. He explained that this was because he was processing the partnership severance at the same time, but the documents were in separate files and he wanted to prevent confusion.

• In his view, on May 29, 1999 Ms. Munro was in a partnership and was not an allotee of quota in her own name.

• He caught the error regarding the legal address of Ms. Munro’s property when he received a copy of the deed. This sort of error was common. He prefers to receive a copy of a complete deed, but as long as a registry office stamp is on the portion submitted, that is acceptable.

• He received an application to relocate Ms. Munro’s quota to a different property after the final approval of the quota transfer. Mr. Kressibucher told him it was because they could not find water on the first farm.

• He verified that the CFO approved the transfer of quota from Ms. Munro to Mr. Kressibucher before the quota freeze was implemented.

• On May 28, 1999 there was no conversion policy.

• He does not require that purchase or sale documents be submitted but has a general indication of the value of quota. He had no reason to doubt Mr. Roe’s evidence on the trading price of quota. If he had received a copy of a private sales agreement he would have noted the price of quota and filed the agreement.

• He did not attend board meetings where the quota conversion policy was developed; his role was to implement the policy that the board develops.

• Ms. Munro qualified for an allocation of quota under the new conversion policy under section 3 of the policy. He believed Ms. Munro’s application was in order as of May 29, 1999.

• Most producers are aware they can split quota between family members and only call him to discuss the procedure. It was not unusual for spouses or other joint owners to dissolve a partnership and establish one partner as a new producer.

• An approval in principle of a quota transfer is valid for 90 days. The effective date of a quota transfer is the date that the board passes a motion to give the transfer approval in principle.

• The CFO needs to know if a producer has an interest in more than one quota holding for purposes of its export policy.

At the conclusion of Mr. Fortuna’s testimony, the Tribunal was asked to order the CFO to disclose additional documents to the other parties. The Tribunal decided to allow the examination of these documents. An order to that effect was issued February 8, 2001. The Tribunal also allowed that Mr. Fortuna could be recalled as a new witness, and that other witnesses could be called, in order to testify on the new evidence in these documents.

When the hearing reconvened on April 24, 2001, all parties agreed that Mr. de Rijcke should be allowed to re-open the appellant’s case and the Tribunal granted a motion to that effect.

Ms. Elaine Umphrey

Ms. Unphrey testified that she held a Small Business/Agriculture position with the Beaverton Branch of the Canadian Imperial Bank of Commerce (CIBC). She said she had been in this position for two years, and had been with the bank for 25 years. She said she was familiar with mortgages and had worked on two or three files involving marketing quota.

Ms. Umphrey indicated that she recognized a document filed by Mr. de Rijcke as an $800,000 mortgage from the CIBC. She said she had not seen the property in question and did not know what the purchase price had been.

Ms. Umphrey testified that she first learned there was a dispute between Van Moorsel Farms Ltd. and Ms. Munro regarding the ownership of quota in late December 2000, as the result of a newspaper article. She said she understood that Ms. Munro held the quota and that it was to be assigned to the bank. She confirmed that she had written to the CFO on January 4, 2001. She said she had sent the marketing board a direction, signed by Ms. Munro the day before, which authorized it to inform the CIBC of any applications for a transfer of Ms. Munro’s quota, and to deny an application for transfer unless the CIBC concurred. She explained that this assignment should have been made when the mortgage was processed in September 1999 and that a new account manager had caught the error. She said that there was no dollar value allocated to quota. She confirmed that there were a different number of quota units associated with the property in January 2001 than in August 1999.

In response to questions, Ms. Umphrey clarified:

• The $800,000 mortgage was an accumulation of various debts from Ms. Munro and Mr. Kressibucher. The Brock Township property and the Georgina Farm were both secured, as were the quota holdings of both Mr. Kressibucher and Ms. Ms. Munro.

• There was no value assigned to units of quota in the credit agreement.

• There were 10,008 quota units listed in 1999 and 16,508 units in 2001.

• She did not know if the CIBC would ever have an assignment of partial quota units to a loan.

Mr. Frank Fortuna

Mr. Fortuna explained that he had provided additional information as directed by the Tribunal. He briefly explained what additional documents had been provided and explained that he had written check marks on the producer requests for quota transfers, once they had been approved by the CFO. He said that check marks in his log book indicated he had spoken with the people whose names were checked.

Mr. Fortuna explained that a request by Mr. Kressibucher and Ms. Munro to dissolve their partnership was not conditional on the quota transfer from Van Moorsel Farms Ltd. to Ms. Munro being approved. However, he said the two transactions were related. He verified that he wrote to the parties to inform them that the partnership dissolution had occurred.

Mr. Fortuna verified that the quota transfer between Van Moorsel Farms Ltd. and Ms. Munro was finalized on August 4, 1999 by way of regulation 1624-1999. He said that there were 14 quota transfers approved in that regulation. He confirmed that the Brock Township property owned by Ms. Munro was inspected by CFO staff. However he noted the quota was relocated to a Georgina Township property. He said the chicken-growing premises on that property were also inspected.

Mr. Fortuna testified that the Georgina Township property purchased by Ms. Munro had belonged to Mr. Peter Scheuring, the son of Mr. Mike Scheuring who was the Chair of the CFO until May 1999. He said that both Mr. Peter Scheuring and Mr. Mike Scheuring had transferred quota to new producers in early 1999 and as a result neither were eligible to receive 6,500 units of basic quota under the new quota conversion policy.

Mr. Fortuna indicated that his records showed that Mr. Van Moorsel had been involved in three quota transfers when he became a producer, one further transfer and then two transactions whereby he and his son John Van Moorsel switched farms.

Mr. Fortuna testified that in the past five years an overwhelming number of new entrants to the chicken industry were former dairy producers. He said he thought this affected the price of quota.

In response to questions, Mr. Fortuna indicated:

• He spoke with Ms. Elaine Umphrey, perhaps twice each year, but he did not know the manager of her CIBC branch.

• He did not inform Ms. Umphrey that the quota referred to in the direction signed by Ms. Munro on January 3, 20 01 was in dispute. A standard CFO response letter was sent. He was not sure that the basic quota transfer was in dispute.

• Ms. Munro’s basic quota holdings were adjusted as a result of the CFO decision to convert additional crop quota to basic quota.

• His logbook was his only record of phone calls.

• He did speak with Mrs. Irma Kressibucher who he understood was related to Mr.Urs Kressibucher but who was not his mother. Later the same day he spoke with Mr. Kressibucher and sent him CFO quota transfer forms.

• He confirmed that he had five conversations with Mr. Kressibucher and/or members of his family between April 10, 1999 and mid-May 1999, and ten phone calls between April 10, 1999 and July 21, 1999. He could not recall the details of each call.

• He had one conversation with Mr. Van Moorsel during the course of the quota transfer.

• He had no conversations with any representative of CIBC in between April 1999 and August 1999.

• It was not necessary for Ms. Munro to dissolve her partnership with Mr. Kressibucher in order to purchase quota on her own.

• It was his opinion that family members split operations in order to be eligible for additional crop quotas. The CFO policy at the time tended to encourage family members to be independent producers as each was then eligible for an allotment of additional crop quota.

• This splitting was permitted by the board.

• A number of quota transactions to which Mr. Van Moorsel and/or Van Moorsel Farms Ltd. had been a party, had been approved despite errors in the information provided on the CFO forms.

• It was not unusual that more than half of a set of quota transactions approved in 1999 would result in the splitting of quota between family members.

• The effect of Ms. Munro severing her partnership with Mr. Kressibucher and establishing her own farm was that they would both be eligible for additional crop quotas, and ultimately both were eligible for an allocation of 6,500 units of new basic quota in 2000.

• There were other producers who he had spoken to as frequently as he spoke with Mr. Kressibucher.

• John and Lynn Van Moorsel were still eligible chicken producers but he believed their quota was issued to a corporate name.

Summations

Mr. de Rijcke told the Tribunal that his client did not agree to sell all rights to future quota allocation when he sold his basic quota to Ms. Munro in May 1999. He pointed out that Mr. Van Moorsel had gone to the trouble to enter a private contract to transfer the quota and that the CFO had chosen to ignore that contract. He said that as far as Mr. Van Moorsel was concerned, he owned the quota until it was completely paid for in September 1999. Mr. de Rijcke reminded the Tribunal that Dr. Fox had testified that it was reasonable for quota holders to assume they had acquired property rights in quota and that the communication of the quota freeze and the new policy by the CFO was vague.

Mr. de Rijcke asked the Tribunal to consider this situation in light of the principles of equity and fairness. He pointed out that Ms. Munro had testified that it was well known that the CFO intended to introduce a quota conversion policy, that Mr. Kressibucher had much more contact with CFO staff than his client, and that Ms. Munro purchased a farm from a relative of a board member. He suggested that the evidence created an aura of suspicion even though he could not prove that insider trading occurred.

Mr. de Rijcke said that the fact that the CIBC was willing to extend a mortgage of $800,000 to Ms. Munro supported the argument that a financial loss to Van Moorsel Farms Ltd. was countered with a financial gain to Ms. Munro. He cited a number of cases which he suggested lent support to the notion that regulatory bodies must be sensitive to commercial transactions.

Mr. de Rijcke told the Tribunal that his client still had facilities suitable for chicken production and was able to re-enter the business. He said 6,500 units of quota was only 0.023% of the total Ontario basic quota and that there would be little impact on other chicken producers if the CFO were to allocate this amount to his client.

Mr. Spurr submitted that Mr. Van Moorsel had testified that he understood that he was selling his entire quota allocation and that he knew that this meant he would not be able to continue to produce chicken. He said that the evidence showed that Mr. Van Moorsel understood the implications of the CFO notice to producers dated May 28, 1999, that he discussed this document with a local board representative and that he was clearly told at that time that he would not be eligible for a new allocation of quota. He pointed out that Mr. Van Moorsel did not object to the CFO’s approval in principle of his quota transfer, or its subsequent final approval. He also said the evidence showed the appellant was familiar with quota transfers and knew how the system worked.

Mr. Spurr stated there was no evidence of a conspiracy theory. He suggested that had members of the Scheuring family been involved in insider trading, they would not have sold their own quota prior to the implementation of a quota freeze, as this meant that they were not eligible for an additional allocation of 6,500 units of basic quota. He pointed out that, to be fair, if the Tribunal were to order the CFO to allocate 6,500 units of basic quota to Van Moorsel Farms Ltd., it would have to allocate the same amount to the Scheurings and all other producers in similar circumstances. Mr. Spurr also disagreed that there was any correlation between the size of Ms. Munro’s mortgage and the value of quota.

With respect to Dr. Fox’s evidence, Mr. Spurr suggested that his arguments were based on the premise that quota was the property of producers. Mr. Spurr quoted a number of cases in which the courts found that quota is not property. He said that quota is a revocable licence to produce and that a contract between buyers and sellers was subordinate to the regulatory system. He suggested that Dr. Fox’s criticisms of the clarity of the CFO’s communications were not relevant as he said there was no evidence that Mr. Van Moorsel was confused. He also reminded the Tribunal that Mr. Van Moorsel did not bring his private contract to the attention of the CFO, until after it had given final approval for his quota transfer.

Mr. Spurr concluded that Mr. Van Moorsel had contracted to sell his entire quota holdings to Ms. Munro, he had been paid and the transfer had been approved by the CFO. He submitted that there was no basis to reverse this transaction and that issuing additional quota to Van Moorsel Farms Ltd. would have the effect of paying Mr. Van Moorsel twice for the same quota. He asked that the Tribunal not order the CFO to allocate 6,500 units of quota to Van Moorsel Farms Ltd., even if it were to find that Ms. Munro should not have been allocated additional quota. He said that Mr. Van Moorsel chose to sell his quota when he did and received a fair market value for it.

Mr. Still submitted that the appellant’s case was based on innuendo and was not supported by the facts. He said that there was no evidence of an aura of suspicion and maintained that the fact was that Mr. Van Moorsel had testified that he knew he was selling his entire quota holdings to Ms. Munro in May 1999. Mr. Still asked that his client be awarded costs and that the appellant be assessed a penalty because his argument that Ms. Munro had been involved in suspicious activity was not proven.

Mr. de Rijcke said that nothing improper was done in the hearing and that it was important for the Tribunal to consider the appearance of fairness, as well as actual fairness. He submitted that Dr. Fox had focused on process, not the details as to who had ownership. He also reiterated that it was reasonable for lay people to assume that quota is their property and that the CFO is simply the repository.

Findings

The Tribunal finds that the matter under appeal is the dealings between Van Moorsel Farms Ltd. and the CFO, not the arrangement made between Van Moorsel Farms Ltd. and Ms. Margaret Munro. The Tribunal finds no evidence to support the contention that Ms. Munro had access to any information not available to any other chicken producer or potential chicken producer who chose to attend the 1999 annual meeting of the marketing board. The Tribunal also accepts that it was common knowledge in this industry that when additional crop quotas are large, some of this quota is transferred to basic quota, and that the state of the industry in early 1999 was that the additional crop quotas were very large. There was no evidence to support the contention that either Ms. Munro or Mr. Kressibucher did anything wrong.

The Tribunal accepts the argument that quota is not the personal property of producers.

The Tribunal notes that cases before the courts cited by both the appellant and the respondent supported this view. However, as a license, the right to produce chicken has a value. The Tribunal notes that the CFO has treated quota as a license in that it has cancelled quota as a penalty for non-compliance with its regulations.

The Tribunal appreciated that the expert witness, Dr. Fox, was knowledgeable about supply management marketing systems. But, the Tribunal did not find that his testimony was particularly helpful in this case. The Tribunal did not find the correspondence from the marketing board to be confusing. The Tribunal notes that is within the purview of the CFO to set terms and conditions as it manages its licensing function.

The Tribunal finds that Mr. Van Moorsel chose to exit the chicken industry in early May 1999 and that he arranged to have the appropriate forms filled in and submitted to the CFO so that he would be able to do so. The Tribunal finds that he was not eligible to receive an additional allocation of quota once the CFO froze quota transfers effective May 29, 1999 as his application for a quota transfer had been accepted at that point. Evidence was presented that he was not treated any differently than other producer who initiated quota transfers before the quota freeze was implemented.

The rules of procedure of the Tribunal do not provide for the awarding of costs or assessment of penalties on appeals under the Farm Products Marketing Act.

Decision and Reasons

After carefully considering the evidence presented and the submissions made, the Tribunal decided to deny the appeal of Van Moorsel Farms Ltd..

The reasons for this decision are:

1. In the opinion of the Tribunal there is no reason for the CFO to reverse its approval of the transfer of quota between Van Moorsel Farms Ltd. and Ms. Margaret Munro. All parties acted in good faith and in compliance with CFO policies.

2. In the opinion of the Tribunal, there is no reason to direct the CFO to allocate 6,500 units of basic quota to Mr. Van Moorsel as having contracted to sell his basic quota, he was no longer an eligible producer, as defined by the CFO policy.

Dated at Guelph, Ontario this 8th day of June, 2001.