Wine Council of Ontario et al. v. Ontario Grape Growers’ Marketing Board, 2002 ONAFRAAT 10

Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West

Guelph, (Ontario) N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: AFRAAT@ontario.ca

Wine Council of Ontario et al. v Ontario Grape Growers’ Marketing Board

Wine Council of Ontario et al. v OGGMB 2002 ONAFRAAT 10

Ministry of Agriculture, Food and Rural Affairs Act

February 14, 2001

DATE OF DECISION:

February 28, 2002

2002-10

2002 ONAFRAAT 10

Wine Council of Ontario et al. v Ontario Grape Growers’ Marketing Board

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

An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by the Wine Council of Ontario and by Andres Wines, Birchwood Estate Wines, Cave Spring Cellars, Chateau des Charmes, Cilento Wines, Colio Wines, Creekside Estate Winery, De Sousa Wine Cellars, East Dell Estates, Harbour Estates Winery, Harvest Estates Wines, Henry of Pelham, Hernder Estates, Inniskillin Wines, Joseph’s Estate, Kacaba Vineyards, Kittling Ridge, Konzelmann Estate, Lailey Vineyards, Lakeview Cellars, Malivoire Wine Company, Marynissen Estates, Pelee Island Winery, Peninsula Ridge Estate Winery, Pillitterri Estates Winery, Puddicombe Estate Farm, Reif Estate Winery, Stonechurch Vineyards, Stoney Ridge Cellars, Strewn Inc., Thirty Bench Winery, Thomas & Vaughan, Vincor International, Vineland Estates, Vinoteca Inc., and Willow Heights from decisions of the Ontario Grape Growers’ Marketing Board to: 1) Not provide a copy of its budget for 2001-2002 to the Wine Council of Ontario; 2) Not reverse the license fee increases found in Board Regulations-2001; 3) Not provide an exemption to winery growers from the increases in license fees specific to generic VQA promotion and VQA administration; or not provide for a process of election to permit all growers to direct the allocation of license fees with regard to these particular expenses; and 4) Not withdraw its proposed application of a 5% penalty and 2% interest per month on the increases in license fees for 2001-2002 withheld by winery grower members of the Wine Council of Ontario.

Before:

Paul Gillen, Vice Chair; Doug Flook, Member; Andy Koopal, Member.

Appearances:

Robert Shapiro, on behalf of the Wine Council of Ontario

Linda Franklin, on behalf of the Wine Council of Ontario

Len Pennachetti, on behalf of the Wine Council of Ontario

Rob Wilson counsel to the OGGMB and Geoff Spurr co-counsel to the OGGMB

Art Smith, on behalf of the OGGMB

John Neufeld, on behalf of the OGGMB

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on Thursday, February 14, 2001. The Wine Council of Ontario (WCO) on behalf of its winery grower members, appealed to the Tribunal from the decisions of the Ontario Grape Growers Marketing Board (OGGMB) not to provide a copy of its budget for 2001-2002 to the WCO, nor reverse the license fee increases found in Board Regulations-2001, nor provide an exemption to winery growers and an election by all growers to direct the fee increases to specific marketing strategies, nor withdraw its proposed application of a 5% penalty and 2% interest per month on the increases in license fees for 2001-2002 withheld by winery grower members of the WCO.

The Background

The OGGMB’s source of income is generated through the levying of license fees on its growers. The OGGMB informed its growers that the license fees for the 2001 vintage year were to increase substantially, the increase was to cover financial commitments for the current year and next two years as well as responding to disease pressures that reduced the crop. The OGGMB fiscal year runs from February 1^st to January 31^st. The WCO requested that the OGGMB budget for the 2001 vintage year be released as it was believed to contain the justification for the increase. The WCO winery growers decided to withhold the increase in license fees and protest the pending imposition by the OGGMB of a 5% penalty and 2% interest per month, on the fees that were withheld. Mr. Shapiro told the Tribunal that the issue regarding the exemption of winery growers or a provision of option for producers to elect to designate moneys for promotion was presently before the Farm Products Marketing Commission (FPMC) and no longer an issue under appeal.

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 Issues

Was it within the jurisdiction of the OGGMB to substantially increase its licencing fees?

Is the OGGMB under any obligation to justify the increase in fees to the extent of publishing its budget?

Is the intention of OGGMB to apply late payment penalties of 5% and interest of 2% monthly on outstanding licence fees an inappropriate use of Ontario Regulation 395/01 under the Farm Products Marketing Act, Regulations 2001 6. (4) and (5) OGGMB Regulations.

The Evidence and the Findings

Mr. Robert Shapiro made submissions to the Tribunal on behalf of the WCO. Mr. Shapiro told the Tribunal that the notice of increased licence fees was issued by the OGGMB in a newsletter of September 26^th, 2001 and that the increases ranged from 65% to as high as 95%. Mr. Shapiro said that the increase was levied without grower or winery consultation. Mr. Shapiro told the Tribunal that the application of a 5% late fee, and interest on outstanding fees of 2% per month was made pursuant to a new regulatory authority of the Board and that it was first conceived as a measure to be taken against producers who were chronically late in submitting fees. Mr. Shapiro submitted that the spirit of the regulation was distorted if it were to be applied against producers in the present circumstance. Mr. Shapiro asked the Tribunal to find that OGGMB Regulations 2001 6. (4) and (5) were ineptly applied.

Mr. Shapiro submitted to the Tribunal that:

The Board informed its members of the fee increases in its September 26, 2001 newsletter; this was the only information offered by the Board with reasons for the increase.
The licence fee per tonne increase for Vinifera (wine producing grapes) was the highest for all varieties with the Chardonnay grapes increased by 96%.
The Board indicated that it wished to generate $973,000 in fees for the 2001/2002 fiscal year.
The WCO members who withheld fees pending the appeal did so in the amount of $78,000.
At the time of the fee increase in September of 2001, 25% of the vintage 2001 crop had been harvested.
On November 6, 2001 the WCO met with the Board and its legal counsel to discuss the fee increases. The WCO requested that the budget be released and the Board denied the request.
The deadline date for submission of fees to the Board is November 15, each year; the dispute by the WCO was underway before this date.
The WCO and the Board had an agreement for a Joint Marketing Fund; the Board invoiced the WCO for $20,000 on January 9, 2002. The WCO was not confident in the Boards ability to actually make payment on committed funds as the January 9, 2002 invoice reflected commitments that were to have been paid in previous years.
The Board had a surplus of $756,118 as of January 31, 2001.
Prior to the passing of Regulations 2001, the Board indicated that growers were liable to the penalties and interest stipulated in the pending new Regulation.
On November 8, 2001, counsel to the OGGMB sent a threatening letter to the WCO, stating that interest and late payment charges would be applied against outstanding fees.

Mr. Len Pennachetti gave his testimony on behalf of the WCO stating that he is the Chair of the Vintners Quality Alliance of Ontario, (VQAO) a statutory body. Mr. Penachetti said that he was also Chair when the VQAO was a voluntary body. Mr. Pennachetti explained to the Tribunal that the VQAO involves its members in extensive consultations in order to reach agreement with regard to fees and that the VQAO also tries to source funds in other areas. Mr. Penachetti told the Tribunal that the funds received by the VQAO from the marketing boards were the result of consultations. Mr. Pennachetti said that the OGGMB should release its budget.

In response to questions, Linda Franklin, Executive Director for the WCO and Mr. Shapiro indicated that:

All grapes produced by winery growers are used by the winery growers for wine production; additional grapes are purchased from independent growers.
A few of the WCO members had paid the increased fees in error, or under protest and had not signed a document stating their wish to appeal.
The WCO Board discussed a $25 per tonne fee to be added to the price of grapes and rejected the motion; however, the WCO Board favoured advancing the fee of $25 tonne to the OGGMB for promotion. The 2001 fee increase was also discussed and rejected.
If the WCO appeal is granted, the Board should consider reducing spending in an effort to stay within the previous years budget.
Mr. Shapiro understood the “Unappropriated Net Assets” in the OGGMB Statement of Financial Position at January 31, 2001 to indicate that the Board had a surplus.
In a January 31, 2002 letter, the Board offered to guarantee payment of VQAO and VQA commitments if doing so would persuade the WCO to abandon the appeal now before the Tribunal. The letter was too little, too late and the WCO was now focusing on the issue of the fee increase without consultation.
The budget should have been revealed so that it could be examined for justification of the fee increases.
In Mr. Shapiro’s opinion the growers should be entitled to see how their marketing board plans to spend their money, and the budget should be revealed after the setting of prices has been negotiated.
The Farm Products Marketing Act does not direct or prohibit the publishing of budgets by marketing boards.
Mr. Shapiro was not aware of any specific wording in the Regulations 2001 that limited its use or application, but he maintained that OGGMB Regulations 2001 6. (4) (5) were conceived specifically as a tool to deal with OGGMB members who were chronically late in paying licencing fees.
The WCO members were not characteristic of the offenders for which the regulation was created.
The WCO would not have requested that the budget be released if the fee increases were in the 5% to 10% range. Significant fee increases warrant industry wide consultations.
The silence of non-WCO growers on the issues before the Tribunal, should not be interpreted as any indication of their satisfaction with the fee increases.
The WCO is a voluntary organization whereas the OGGMB is not; the WCO members have the option of withdrawing from the organization if dissatisfied with the fees.
WCO members are not allowed to sit on the OGGMB.
Dispute resolution discussions were underway between the WCO and OGGMB, facilitated by the FPMC, when the WCO was informed that the OGGMB had requested the authority to apply penalties and interest to members who submitted their fees late.
Ms. Franklin spoke with Mr. Art Smith, General Manager of the OGGMB. He indicated that the penalties and interest would be applied to members who were often tardy in submitting their fees. Ms. Franklin said that the WCO was in agreement with the new authority, as it was construed as being part of the ongoing dispute resolution consultations.
Ms. Franklin advised the withholding of fees by WCO members, pending the outcome of the hearing presently before the Tribunal, believing that there was a dispute resolution system in place and that there was provision in the dispute resolution system for doing so.

Mr. Rob Wilson, counsel to the OGGMB, acknowledged that the fee increase for the 2001 vintage year was extraordinary. Mr. Wilson explained to the Tribunal that the fees reflected the needs of the industry and wine makers. Mr. Wilson said that the budget figures were the result of extensive consultation with the OGGMB Board of Directors, staff, and the Grower Committee. Mr. Wilson told the Tribunal that licence fees are the Board’s only source of revenue. Mr. Wilson told the Tribunal that there was no formal dispute resolution system in place between the WCO, producers and OGGMB and that it was the understanding of the OGGMB that fees are to be remitted on time but under protest if the grower so wishes.

Mr. Art Smith testified before the Tribunal that he was the acting Secretary/Manager to the OGGMB and that he had served as Chair to the OGGMB in the late 1980’s and early 1990’s. Mr. Smith explained to the Tribunal that:

The OGGMB elects representatives from various production regions to sit on a Grower Committee. The function of the Grower Committee is to advise the Board of Directors on current issues within the industry.
The bulk of the OGGMB work is undertaken on behalf of growers of wine grapes, which account for sales of up to $40,000,000 a year. Juice grapes account for sales of $6,000,000 or $7,000,000 per year.
In 2001 the OGGMB incurred an expense related to arbitration for the pricing of two Vinifera classes of grapes.
Regulations cannot be drafted until the price for all grape varieties has been established.
The license fees are established after the prices are set, at which time the size of the crop is known and the amount of grapes that the wineries will purchase is known.
Disease pressures in 2000 left the board in a deficit position.
The fee increases were relative to the price per tonne. The Vinifera grapes average $1,500 tonne whereas the Hybrid varieties average $50 to $60 per tonne.
There have been no complaints from Hybrid grape growers.

Mr. Smith said that he received two telephone calls from the WCO with regard to the fee increase which he answered to the callers’ apparent satisfaction. Mr. Smith explained to the Tribunal that the “Unappropriated Net Assets” referred to in the OGGMB Statement of Financial Position as at January 31, 2001, included the building that housed the OGGMB offices which is owned by the OGGMB and the amount of $565,000 for Board operating expenses for nine months. He said that the amount of grapes wineries commit to buying affects the balancing of the budget. Mr. Smith said that the FPMC advises Marketing Boards to hold in reserve an amount equal to at least one and one half years operating expenses in case of a total crop failure. Mr. Smith stated that the Board cannot collect fees if the crop is not harvested. Mr. Smith said that in 2001 there were extraordinary increases in expenditures, including commitments that were divided between two fiscal years. Mr. Smith said that if the Tribunal granted the appeal of the WCO and rescinded the fees, the Board would be in a very serious financial position. Mr. Smith said that Ms. Franklin advised the WCO members to withhold fees in contravention of the regulations. Mr. Smith said that:

Some WCO members may not be fully apprised of the gravity of the consequences of withholding fees and it was only WCO members who withheld fees.
The dispute resolution consultations facilitated by the FPMC had never been formally adopted by the board.
The budget was balanced and it was not the Boards’ policy to release its budget.
The negotiated price for grapes is the minimum price that can be paid.

In response to questions Mr. Smith said that:

The Board had over $1,000,000 in cash to meet its commitments and to operate its business.
The OGGMB would be able to operate if it were required to refund the licence fees but it would not be able to meet its financial commitments.
He was not certain what percentage of the grape licence fee per tonne is used for promotion.

Mr. John Neufeld, Chair of the OGGMB testified before the Tribunal that:

He is finishing his seventh term as Chair of the OGGMB, and last served on the Board of Directors in the mid 1980’s.
He is a grower of Vinifera grapes for juice and ice wine.
He owns a small estate winery and sits on the board of the VQAO and is a VQA member, but he is not a member of the WCO.
He has never approached the OGGMB Grower Committee to request that it consult with winery growers.

Mr. Neufeld said that the largest concern arising from his discussion with industry growers is the complaint of misinformation. Mr. Neufeld said that the issue of “surplus” illustrates this complaint and that when the financial position of the board is explained, the growers realize that there are in fact no surplus funds. Mr. Neufeld told the Tribunal that the Board had not decided whether or not to impose penalties on the WCO members who had not yet paid their licence fees.

In response to questions Mr. Neufeld said that:

Invoices for outstanding fees had been sent to WCO members, as a means of informing them of their outstanding balances and what their decisions to withhold fees may cost.
He has paid his fees for the year on time.
He was part of the decision making process for the fee increases and he had seen the budget.
Each winery must meet certain specifications to be able to label its product with the VQA seal on it labels.
He sells grapes to other processors.
His estate winery business had been established for six months and that he has produced and sold wine.

Mr. Shapiro summarized the position of the WCO stating that the consultation that the Board employed among its 20 member Grower Committee is not sufficient to justify the extraordinary fee increases. Mr. Shapiro said that the WCO wished to see the financial document that supported the fee increase and asked that Mr. Smith’s testimony be given little weight, as the budget was not introduced into evidence to support his testimony. Mr. Shapiro asked the Tribunal to order the Board to reduce the licence fees to the level that they were in 2000. He asked that the Board be directed to hold extensive industry wide consultations when it was contemplating such extraordinary increases. Mr. Shapiro said that Mr. Neufeld’s testimony does not reflect the Boards action of sending actual invoices containing penalties and interest to producers who have outstanding licence fees. Mr. Shapiro told the Tribunal that the regulation governing the application of penalties and interest for outstanding fees is being unfairly applied, as it was an authority conferred upon the Board for the purpose of dealing with producers who frequently paid their fees late. Mr. Shapiro requested that the Tribunal order the Board to reverse the penalty and interest fees.

Mr. Wilson told the Tribunal that the OGGMB is satisfied with its decisions and that with the exception of the WCO the industry supports its efforts. Mr. Wilson said that, the justification for fee increases have been explained in terms of financial commitments outlined in its budget and the promotion of the industry. Mr. Wilson said that the Board should be able to decide how it applies regulations with regard to penalties and interest on outstanding fees.

The Findings

The Tribunal examined the evidence presented and made the following findings:

The OGGMB provided notice to its growers of the fee increase for the 2001, vintage year in its newsletter of September 26^th , 2001. The newsletter contained an acknowledgment of the significant increase in fees and an explanation. Evidence was provided to the Tribunal that the Board carried a deficit of $155,354 from fiscal 2000 and that there were commitments distributed over 2001 and 2002 that had to be met. In the previous two years the OGGMB had reduced the licence fees.

A few of the WCO growers have submitted their fees under protest for the 2001 vintage year. The winery growers are charged with an increase in proportion to the price of Vinifera grapes per tonne. The wineries also purchase grapes for processing, from independent growers which affects a portion of their overall costs.

It is not the regular practice of the OGGMB to release its budget to growers and there is no legislative provision to compel it to do so at the request of its growers. The OGGMB releases to its growers an audited Annual Report and Financial Statement annually.

The issue of WCO exemption from licence fees or the option that theses fees be directed specifically to the support of VQA promotion and VQA administration was withdrawn by the appellants.

Decision and Reasons

The appeal of the WCO with respect to the application of penalties and interest on licence fees submitted after the annual November 15 deadline is partially granted. The Tribunal heard evidence that the WCO believed that the application of the penalties and interest would remain stayed, until the outcome of the present hearing. In fairness to the winery growers who did submit their fees by the deadline and the perception that a stay of penalties is in effect while matters are pending before the Tribunal, the Tribunal orders that the 5% penalty be applied to all outstanding licence fees as of November 15, 2001. The Tribunal further orders that the Board refrain from imposing the interest of 2% per month on outstanding fees, unless they remain unpaid after April 15, 2002. Though the regulation was adopted only three days before it was to be applied, the Board has the authority under its Regulations 2001, Section 6(4)(5) and under Ontario Regulation 395/01 of The Farm Products Marketing Act to impose penalties and interest on licence fees submitted after the November 15 deadline.

The appeal of the WCO with respect to the OGGMB making available to the WCO, its budget for fiscal year 2001/2002 is denied. The Board acted within its normal business practices by not releasing confidential working documents.

The appeal of the WCO with respect to the reversal of licence fee increases to the amount levied in 2000 is denied. The Board acted within its authority to generate revenue and meet its financial commitments on the advice of its Board of Directors and its Grower Committee. While the Board acknowledged that the increase was substantial, some WCO growers have submitted their fees by the deadline and no evidence was presented to indicate that the appellants would suffer catastrophic financial losses if they were to pay the increased fees.

ORDER OF THE TRIBUNAL

After careful consideration of the evidence presented and the submissions made, the Tribunal orders:

The OGGMB apply a 5% penalty to all licence fees outstanding as of November 15, 2001.
The OGGMB may not apply interest on outstanding licence fees unless, the fees remain unpaid after April 15, 2002.

Dated at Woodstock Ontario, this 28^th, day of February, 2002.