Wine Council of Ontario v Grape Growers of Ontario, 2005 ONAFRAAT 13

Agriculture, Food and Rural Affairs Appeal Tribunal

1Stone Road West Guelph, Ontario

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

N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: Tribunal@OMAF.gov.on.ca

1, chemin Stone Ouest Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: Tribunal@OMAF.gov.on.ca

APPEAL: Wine Council of Ontario v Grape Growers of Ontario

Wine Council of Ontario v Grape Growers of Ontario 2005 ONAFRAAT 13

STATUTE: Ministry of Agriculture, Food and Rural Affairs Act

HEARING: April 12 and 13, 2005

DATE OF DECISION: May 18, 2005

2005-13

NEUTRAL CITATION: 2005 ONAFRAAT 13

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 the Wine Council of Ontario (WCO), St. Catherines, Ontario from decisions of the Grape Growers of Ontario (GGO) to:

1. Enact a regulation to amend Sugar Grade Schedules.
2. Impose late harvest fees in an amount equivalent to 25% of the price of normal harvest for payments made to grape growers by Andres Wines Ltd., and Vincor International Inc., after November 22, 2004.

Before: John Taylor, Vice Chair; Mary Field, Member; Doug Flook, Member.

Appearances: Linda Franklin, appellant, President of the Wine Council of Ontario. Len Penachetti, witness, on behalf of the Wine Council of Ontario. James McIlroy, counsel to the Wine Council of Ontario. Debbie Zimmerman, respondent, CEO Grape Growers of Ontario. Art Smith, witness, on behalf of the Grape Growers of Ontario. Geoffrey Spurr, counsel to the Grape Growers of Ontario

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on April 12 and 13, 2005. The Wine Council of Ontario (WCO) appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from decisions of the Grape Growers of Ontario (GGO) to enact Sugar Grade Schedules for grapes and to impose late harvest fees in an amount equivalent to 25% of the price of normal harvest for payments made to grape growers by Andres Wines Ltd., and Vincor International Inc., after November 22, 2004.

Statutory Context

Section 16 (1) and 16 (2) of the Ministry of Agriculture, Food and Rural Affairs Act states:

Appeal to Tribunal

16. (1) Subject to subsection (4), if a person is aggrieved by an order, direction, policy or decision of the Commission or Director, made under the Farm Products Marketing Act or the Milk Act, that person may appeal to the Tribunal by filing with the Tribunal and sending to the Commission or Director written notice of the appeal. R.S.O. 1990, c. M.16, s. 16 (1).

(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. R.S.O. 1990, c. M.16, s. 16 (2).

Preliminary Matter

In his opening statement Mr. James McIlroy told the Tribunal that the subject of the WCO appeal was a matter of the GGO having overstepped its authority under the legislation, with respect to unilaterally setting minimum sugar grade prices for grapes and late payment penalties. He explained to the Tribunal that the GGO’s position as stated in its February 10, 2005 decision from the appeal of the WCO, was that its privilege to determine sugar schedules for grapes was conferred by historical convention. Mr. McIlroy referred to the Ontario Farm Products Marketing Commission (OFPMC) and the Farm Products Marketing Act, (the Act) with respect to the delegation of authority from the OFPMC to the Marketing Boards. He stated that the OFPMC had sub-delegated certain authorities to the GGO, but the OFPMC had not delegated to the GGO the authority to set sugar schedules. He explained that the OFPMC did not sub-delegate the setting of sugar schedules to the GGO because it was not within the legislated jurisdiction of the OFPMC to do so. It was Mr. McIlroy’s assertion that the legislative authority to set minimum prices for grapes was contained in Regulation 414 to the Act.

Mr. McIroy told the Tribunal that Sections 13 and 14 of Regulation 414 to the Act specifically provided for the establishment of sugar schedules by Negotiating Agencies. Mr. McIlroy illustrated his contention stating that ‘grade’ with respect to grapes, was integral to the sugar schedule and price. He maintained that the Negotiating Agencies were the only bodies with the legal purview to set sugar schedules for grapes.

Mr. McIlroy stated that he would lead evidence that supported his assertions that the GGO had overstepped its authority with respect to changing the sugar schedules and to applying penalties for late payments. He stated that the WCO wished the Tribunal to substitute its opinion for that of the GGO as the Tribunal had the power to do so pursuant to Section 16 (11) of the Ministry of Agriculture, Food and Rural Affairs Act.

Mr. Geoffrey Spurr made his opening statement saying that Regulation 414 to the Act, makes reference to the difference between sugar schedules and minimum prices for grapes.

Mr. Spurr stated that the GGO does not equate sugar schedules with ‘grade’ of grapes. He stated that the GGO holds that ‘grade’ is relative to the terms and conditions for marketing grapes. Mr. Spurr explained that the 2004 Sugar Schedule had been implemented through regulation of the GGO, which is appealable to the Tribunal. He stated that, if the decision with respect to establishing sugar schedules was the province of a Negotiating Agency or Arbitration Committee as claimed by Mr. McIlroy, then the Tribunal did not have jurisdiction to hear appeals from matters decided by these bodies.

Mr. Spurr stated that the relief requested by the WCO was not defined within the scope of the Tribunal’s jurisdiction as provided for in Section 16 (11) of the Ministry of Agriculture, Food and Rural Affairs Act. He explained that the opinion of the Tribunal was not a decision of the Tribunal. He asked the Tribunal to decline to hear the appeals as its legislated function was not accomplished by the giving of its opinion.

Mr. Spurr explained that the GGO had rescinded its decision with respect to the payment of penalties as stated in its February 10, 2005 decision from appeals of the WCO. He said that the GGO had not implemented payment penalties, which exhausted any necessity of investigating the authority of the GGO to make decisions with respect to payment of penalties.

Mr. McIlroy responded to Mr. Spurr’s opening statement saying that the legal opinion of Ms. Debbie Zimmerman, CEO of the GGO was included in its decision of February 10, 2005 and that this stated opinion was an exercise in denying the relief requested by the WCO. Mr. McIlroy stated that, in addition to its present appeal before the Tribunal, the WCO sought to avoid finding itself in similar circumstances with respect to the decisions/opinions of the GGO in future.

Mr. McIlroy asserted that the GGO’s maintenance of its opinion in light of the evidence he intended to adduce, was a frivolity against which the WCO sought costs for the hearing before the Tribunal.

Decision on Preliminary Matters

Counsel for the GGO objected to the Tribunal hearing and deciding the issue with respect to the authority of the GGO to establish penalties on the basis that the GGO had decided not to implement the penalties that it had decided to impose. Therefore, there was no remaining issue on the matter of penalties that this Tribunal needed to address.

The argument by counsel for the WCO is that it appealed to the GGO to admit that it had no authority to impose penalties and the GGO refused to accede to the request. The WCO is fearful that the GGO may in future, impose the penalties or different penalties whenever it may wish to do so. The counsel for the WCO wishes the Tribunal to rule on whether the GGO has such power to begin with.

It is the decision of the Tribunal with respect to the preliminary matters that the parties will address the decisions of the GGO as appealed to it by the WCO. The Tribunal will hear arguments to make a decision as to whether the legislation empowers the GGO to make the decisions/opinions that it made with respect to the penalties.

The decision of the GGO not to apply the penalties will not prevent the Tribunal from hearing and deciding whether the GGO had the authority to make a regulation to impose penalties.

Mr. Spurr stated that the GGO acknowledged that it had no authority to impose penalties for late payment but that its jurisdiction under Regulation 414 to the Act, gave the GGO the authority to impose penalties for the late payment of licensing fees.

Mr. McIlroy requested that the Tribunal note in its decision, that the GGO had acknowledged that it does not have the authority to impose penalties.

The Evidence

Mr. Leonard Penachetti testified before the Tribunal. He stated that he was the President of Caves Springs Cellars Winery; a member of the WCO. He explained to the Tribunal that in addition to being a processor, Cave Springs Winery was also a producer member of the GGO. He stated that he has participated as a member of the Negotiating Agency on behalf of the WCO. He referred to the agreements for marketing the wine grape crop for 1993 to 2001 stating that he was involved as a Negotiating Agency Member in each of those years. Mr. Penachetti told the Tribunal that he had also participated on the Grape Processing Industry Advisory Committee (GPIAC). He referred to the Minutes of the Meeting of the GPIAC March 18, 1991. He explained that:

• The GPIAC meets as required throughout the year to discuss general issues within the industry.
• The GPIAC delegates represent both grape growers and processors. Both WCO and GGO are represented on the GPIAC.
• The GPIAC meetings are recorded in its minutes and decisions are taken by vote.
• There is a GPIAC subcommittee that addresses technical issues within the industry such as grape grading and procedures for sampling grapes.
• The term ‘Brix’ indicates the level of sugar in harvested grapes. Sugar content of grapes is the primary interest of winemakers; sugar is a primary factor of quality.
• The level of sugar in grapes is tracked for five years to establish data for the base level of sugar for the variety, the sugar standard. The five year average Brix level is recorded because Ontario has a different climate than other traditional grape growing regions of the world. It would not be appropriate to apply those sugar standards to Ontario grown grapes. Climate affects the sugar content of grapes.

Mr. Penachetti referred to the Minutes of GPIAC meetings in 1991 and to the Brix sugar standards schedules, He said that:

• In 1991 the base price of grapes was expressed as a range that corresponded to the degree of Brix in each variety of grape. The schedule for Brix ranges and price paid for each increase in the Brix level was proposed at the GPIAC meetings in 1991.
• It was proposed that optimally, sugar standards should be agreed upon at GPIAC early in each year, so that they are established by the time price negotiations take place in the summer and to provide adequate time for growers to adjust their viticulture practices.
• A dispute with respect to a unilateral decision to abolish sugar schedules occurred in 1991. The WCO sought a legal opinion at the time and was advised by Mr. Robert Shapiro that the WCO did not have the legislated authority to unilaterally set sugar schedules. No single party proceeded to set sugar schedules unilaterally in 1991.
• There are three important measurable components in grapes, Brix, acid and Ph, but only the measure of sugar level or Brix affects the price.
• An OFPMC Member sat on the GPIAC assuming the role of facilitator and resource person. OFPMC staff provided this same assistance from time to time.
• As recorded in the Minutes of the GPIAC Meetings April 23, 1993 and July 27, 1992, issues such as grape grading, and establishing sugar standards for new grape varieties were routinely the types of issues dealt with by the GPIAC.
• In 2004 there was no Pricing Agreement for grape classes 5 to 10e. The pricing offer for these classes went to arbitration. The arbitrator chose the final offer submitted by the WCO.
• The arbitrator determined that the agreed upon prices were effective from the date signed by the six members of the Negotiating Agency. The Award from arbitration was effective October 25, 2004. The arbitration Agreement and Award was signed by the Chair and one staff member of the OFPMC November 8, 2004.

Mr. Penachetti referred to the 1993 and 2003 agreements for marketing grapes in classes 5 to 10e. He pointed out that the Negotiating Agency sets the minimum price for each class of grape. He explained that with regard to the Agreements from 1993 through 2003:

• The base minimum price per tonne is set relative to the level of Brix sugar standards.
• Once the base minimum price is agreed upon, a formula is used to calculate the price as it moves upward or downward according to the increase or decrease of the Brix level.
• The price is tied to the level of Brix. The sugar schedule is expressed as a table that indicates the price per tonne based on the level of Brix and the increment of price increase or decrease, relative to an increase or decrease in the Brix level.
• There is a cap on price and corresponding Brix level at 125% of base minimum price.
• The members of the Negotiating Agency initial each page of the sugar schedules in the annual agreement to indicate their accord with each sugar schedule.
• Grading techniques and technical procedures for sampling grapes and measuring Brix are appended to the annual agreements.
• Independent Government Graders measure the Brix level of grapes with a refractometer.
• If wineries are equipped with scales, each load of grapes is weighed. The weight of a load of grapes may be recorded on the weigh bill but the Brix reading must be recorded on the weigh bill.
• There are presently 14 classes of grapes for which Brix standards have been determined. In 1993 there were only seven classes of grapes for which Brix standards had been determined.
• Grapes are classed as experimental varieties until production reaches 100 tonnes. At the 100 tonne level of production, experimental varieties are considered significant enough to be included in discussions of GPIAC for the purpose of establishing sugar standards.
• Although he did not participate on the Negotiating Agency in 2003, he was aware of the progression of the negotiations as he was a member of the WCO in 2003.
• In anticipation of a surplus of Chardonnay and Cabernet Franc grapes, the increment of Brix increase in the formula for pricing, was decreased by half in 2002. The Brix levels were based on the levels used in calculating the 2001 sugar schedules.
• An Addendum to the 2002 Agreement was prepared, indicating the appropriate levels of Brix for the Chardonnay and Cabernet Franc varieties.
• Prices to growers can be affected by reducing the base minimum price for grapes and/or reducing the increment in price increase in relation to the increment in increase or decrease in Brix.

Mr. Penachetti responded to questions that:

• Membership in the WCO is voluntary and that some Ontario grape processors are not members.
• Although it is provided for in Regulation 414 to the Act, he is not aware of an instance when a member of the Ontario Food Processors Association has participated on the GPIAC.
• Brix is a measurement of sugar content in grapes and is the only qualitative factor measured by the Government Graders. The Government Graders do not measure acid or Ph levels in grape samples. Sugar schedules are formulated to reflect incentives and disincentives for Brix content.
• Grade and sugar schedules are considered synonymous. A sub-committee within GPIAC addressed issues such as the initial sugar grading of new varieties of grapes.
• Sugar schedules are usually based upon agreement by the GPIAC before the Negotiating Agency begins it deliberations for pricing agreements.
• He agrees with the legal opinion provided by the WCO’s advisor dated April 17, 1991 with respect to the illegality of the WCO proceeding unilaterally to set minimum prices for grapes. The WCO sought the legal opinion at the time in response to the opinion of an OFPMC staff member who asserted that the GGO had the right to set sugar standards unilaterally. It was asserted at the time by the GGO that sugar standards are categorized as a ‘term or condition’ of marketing grapes which the GGO has the authority to regulate under the legislation.
• The WCO’s final offer for arbitration in 2004 provided for the sugar schedules for Chardonnay and Cabernet Franc varieties to be marketed at the level that was agreed to in 2001 and the removal of price caps put in place in 2002. WCO projected an increase of revenue of $200,000.00 or $25.00 per tonne to growers of Chardonnay and Cabernet Franc grapes.
• Arbitration is based on final offer selection.
• He is aware of circumstances where particular conditions of sugar schedules have been determined during price negotiations.

Ms. Linda Franklin, President of the WCO told the Tribunal that she was present during the price negotiations for the 2004 crop. Ms. Franklin testified that:

• A meeting of the Negotiating Agency took place on July 26 and 27, 2004. A representative of the OFPMC was present. Agreement was reached with respect to the definition of late harvest juice only.
• Each meeting of the GPIAC commenced with the review and submission for approval of the Minutes of the preceding meeting. Both GGO and WCO representatives took turns recording the minutes.
• She recorded the Minutes of the GPIAC meeting July 26, 2004.
• No agreement was reached with respect to the GPIAC discussions to establish sugar schedules. At the GPIAC meeting July 26, 2004, the Chair of the GGO stated that the GGO had the regulatory authority to set the sugar schedules for Chardonnay and Cabernet Franc grapes. The GGO proceeded to unilaterally adopt the sugar schedules for Chardonnay and Cabernet Franc from the 2001 Marketing Agreement.
• There cannot be agreement on pricing without first having an agreement on sugar schedules.

In response to questions Ms. Franklin told the Tribunal that:

• The sugar schedule reflects the level of quality for grapes. sugar schedules are a mechanism for improving the quality of grapes. Quality impacts price.
• The GGO does not have the authority to unilaterally set prices for grapes.
• In 2002 sugar schedules were adjusted to lesser values for Chardonnay and Cabernet Franc at the request of the GGO because of a crop surplus for these two varieties.
• Sugar schedules cannot be adjusted without considering the impact of the change on grape prices.
• The WCO was first apprised of the GGO Regulation 1-2004 in October 2004 when the pricing final offers were sent to arbitration. GGO Regulation 1-2004 was effective July 27, 2004.
• The final offer tabled by WCO at the July 27, 2004 Negotiating Agency meeting was based on the 2001 sugar schedules.
• Negotiating Agency members are selected from GPIAC participants.
• GPIAC meetings usually commence in the January or February however, the meetings have not taken place in the usual manner over the last two years.
• Ideally, sugar standards should be agreed upon by GPIAC early in the year, allowing growers time to adjust their viticulture practices.
• Sugar schedules must be agreed upon before price negotiations can take place.
• Brix pricing formulae are applied to the schedules for sugar standards in each variety of grape. The discussion and establishment of sugar standards is not the function of the price Negotiating Agency.
• She first became aware that the GGO wished to change the sugar schedules for 2004 at the GPIAC and Negotiating Agency meetings of July 26, 2004. The intentions of the GGO came as a surprise to WCO meeting attendees. She took notes at the meeting.
• In 2004 the price negotiations did not conclude in agreement. The offers of the parties were sent to arbitration. The final offer of the WCO was selected by the arbitrator.
• Offers are submitted for arbitration if no agreement is reached by midnight on the second day of negotiations.
• The WCO represents grape processors and the GGO represents grape growers on the Negotiating Agency.
• Some members of the Negotiating Agency are incumbent from one year to the next. As a result some members can recall the proceedings of the previous year.
• The GGO Regulation 1-2004 was signed into effect on July 27, 2004 the same day that the WCO final offer for arbitration was made.
• It is helpful to use the use the sugar schedules from the previous year as a benchmark at the beginning of GPIAC discussions each year.
• The sugar standards are established based on a five year rolling average because the Brix levels usually increase. In 1996 Brix levels were low because of poor weather, sugar standards were adjusted in response to concern from growers.
• In circumstances where it is anticipated that the crop will be poor, the minimum price increases.

Mr. Art Smith, CEO of the Ontario Fruit and Vegetable Growers’ Association appeared as a witness on behalf of the GGO. He told the Tribunal that he was formerly CEO of the GGO and that he had also been a grape producer. Mr. Smith told the Tribunal that he had served as a member of the OFPMC for three years. Mr. Smith told the Tribunal that:

• Sugar schedules were first introduced to the industry at the beginning of the 1980’s. Initially, there was a sugar schedule for only the De Chaunac variety of grape. Sugar schedules for other varieties were established throughout the 1980’s.
• If there were no sugar standards and all varieties of grapes were priced the same, there would be no incentive to growers to increase the quality of grapes.
• Five year weighted average statistics are compiled by recording the weight of a load of grapes and the Brix level in each load over a five year period. The effect of weather on a crop in any given year is not discernable in statistics compiled using the five year weighted average method.
• The GGO has always participated in grape pricing negotiations.
• In experimental varieties of grapes, no sugar schedules are prepared until production reaches a certain level.
• Optimally, sugar standards should be established early each year before price negotiations commence. The earlier the sugar standards are established the more time growers have to adjust their practices.
• Sugar standards only indicate sugar levels, but other qualitative factors such as volatile acidity are linked to pricing.
• The base price of grapes is established through price negotiations.
• Grading methods and Brix determination processes are specified in the annual marketing agreements.
• Sugar content has generally increased by seven or eight percent. There is no incentive to growers to increase quality if they are not remunerated as a result.
• He recalls that the GGO’s unilateral authority to set sugar schedules was raised at a meeting of the GPIAC in 1991. An OFPMC staff member expressed the opinion that sugar standards are a matter for the GGO to decide as a ‘term or condition of marketing grapes’. He agrees with this opinion.
• In 2002 he was a staff member at GGO, he recalls that a price agreement was not reached for Chardonnay and Cabernet Franc grapes. The price offers for these two varieties went to arbitration.
• He does not agree with the WCO’s position that sugar standards can be agreed upon during price negotiations because price negotiations occur in late July, which leaves very little time for growers to adjust their viticulture practices.

Mr. Smith responded to questions that:

• He agrees with the directives of the GGO Secretary/General Manager in a memo dated September 25, 1990, that sugar standards and prices are established as a result of negotiations between winery and grower representatives.
• The GGO has the power to unilaterally determine the terms and conditions for marketing grapes.
• He cannot recall an instance when sugar standards were determined by any means other than negotiation.
• In 2004 the arbiter selected the offer of WCO to roll back sugar schedules for Chardonnay and Cabernet Franc varieties to the levels that were agreed upon in 2001, this affected the price.
• Sugar in grapes is measured; sugar content affects price.
• Once the base price for each variety and class of grape is established through negotiation, the sugar standards are applied with other elements of the formulae such as the incremental increase in Brix and corresponding increase in price per Brix increase. The sugar schedules are a result of this tabulation.
• The passing of Regulation 1-2004 by the GGO has no significance as it does not impact upon the price of grapes. The GGO prepares regulations annually.
• If the WCO offer for arbitration in 2004 had been different, the consequences of the existence of Regulation 1-2004 may have been different.

Ms. Debbie Zimmerman told the Tribunal that she has been the CEO of the GGO since November 1993. She told the Tribunal that she was hired by the GGO with a mandate to improve the relationship between the WCO and the GGO. She explained that she had attempted to schedule GPIAC meetings early in 2004. Ms. Zimmerman advised the Tribunal that, historically, discussions about sugar schedules were begun at meetings of the GPIAC. Ms. Zimmerman explained to the Tribunal that:

• A review of sugar schedules was discussed at a meeting held April 28, 2004. The purpose of the meeting was to discuss broad industry issues. The meeting was attended by WCO and GGO representatives and members of the OFPMC.
• At the April 28, 2004 meeting it was recognized that sugar is not the only measure of quality in grapes. It was determined that qualitative values and viticulture practices should be considered during price negotiations in 2004.
• At the July 21, 2004 meeting of the GPIAC it was decided that the sugar schedules should be ratified by the appropriate signatories seven days after the conclusion of price negotiations. Though the Minutes of the meeting indicate that this course of action was agreed upon, the Minutes have not yet been approved.
• The issue of signing off on the sugar schedules arose due to the occurrence of a typographical error in the formulae for Brix increment increase in 2003.
• At the GPIAC meeting July 26, 2004 GGO was frustrated that discussions with respect to the sugar schedule and the creation of a new category for Syrah grapes did not progress. The meeting carried over into the next day, July 27, 2004.
• GGO Regulation 1-2004 was submitted to the appropriate staff member of the OFPMC accompanied by the 2004 Brix Schedule on August 4, 2004. The attached Brix schedule did not contain the prices for the grapes as the pricing offers were in arbitration at the time.
• The GGO did not copy the WCO with Regulation 1-2004 and its accompanying schedule as it was believed that the OFPMC staff member would make the regulation and attached documents available to the WCO.
• All grape processors received a copy of the 2004 Brix Schedules as part of the Information Package for the 2004 Grape Crush.
• The GGO recognizes that Regulations should be issued to the WCO as soon as they are enacted.
• In its February 10, 2005 decision from the appeals of the WCO, the GGO took the position that its regulatory mandate included the supervision of GPIAC meetings and price negotiations to ensure timely and constructive results. The GGO also took the position that sugar schedules were informally negotiated through discussion however as this was not the case in 2004, the GGO had correctly taken the appropriate action to resolve the deadlock by enacting Regulation 1-2004 on July 27, 2004.
• Regulation 1-2004 was the statement of the agreements that resulted from the negotiations.
• There was very little co-operation from WCO at GPIAC meetings. It is important to the industry that stakeholders work together.

In response to questions, Ms. Zimmerman explained that:

• There were two advisory committees in the industry. One committee was known as the GPIAC and the other committee was chaired by a staff member of the OFPMC.
• Price negotiations were not discussed at the meeting chaired by the OFPMC staff however, a Ministerial directive for the GGO’s governance review was discussed. The governance review was completed by March 31, 2005 per the directive.
• As a result of the review, all grower members of the GGO were involved in the process of restructuring the governance, the new structure has been applied with respect to industry consultations beginning in 2005.
• Government Grape Graders measure sugar. With regard to the GGO’s 2002 and 2003 Annual Reports, the topics Grape Grading and Sugar Bonus’ are captured under the heading of ‘Grape Grading Program’.
• Brix measurement must be indicated on the grape weigh slip but it is not mandatory that the acid and Ph measurements are indicated.
• ‘Brix’ is defined as the amount of sugar in grapes that are marketed by sugar standards established for each variety as indicated in the GGO Regulation 1-2004.
• The GGO has the legal authority under Regulation 414 of the Act, to set the sugar schedules for grapes without consultation with WCO. Historically, sugar schedules have been the subject of discussions at GPIAC.
• The GGO was reluctant to enact the Regulation 1-2004 as it preferred that negotiations resulted in agreement.
• GGO decided to enact Regulation 1-2004 after the WCO’s final offer was tabled.
• Regulation 1-2004, effected the annulment of the arbiters’ award.
• Typically, each page of the formal agreement for marketing the grape crop is signed by the representatives of the Negotiating Agency. Informal agreements are verbal agreements arising from discussions at GPIAC meetings.
• To date no meetings have been held to discuss the marketing of the 2005 crop.

Final Arguments

Mr. McIlroy stated that the appeal was specific to the question of whether the GGO or the Negotiating Agency had the authority to set sugar grade schedules. He stated that historical precedence does not supplant legislated delegation of authority. Mr. McIlroy argued that the evidence indicated that agreement often resulted from negotiations however, the process of arbitration is the only option when there is no agreement.

Mr. McIlroy stated that the GGO said they were in agreement with the WCO offer only to do an about face and enact Regulation 1-2004. He said that the WCO cannot afford to find itself in similar circumstances in the future. Mr. McIlroy stated that the GGO used its purported authority as an implement of intimidation against the WCO, should the WCO fail to agree with the GGO during negotiations. Mr. McIlroy said that no one Negotiating Agency party, has the right to unilaterally set sugar schedules in circumstances where agreement has not been reached. He asserted that the GGO did not wish to negotiate further and so, passed Regulation 1-2004 when its wishes were thwarted.

Mr. McIlroy explained further, that the negotiation process is about money and that the dutiful attention of the WCO to its interests has been mistakenly interpreted by the GGO as an indication of uncooperativeness on the part of the WCO. He stated that it should be recognized that the WCO offered to agree to change the sugar schedule for Chardonnay and Cabernet Franc grapes back to the levels under which they were marketed in 2001.

Mr. McIlroy reminded the Tribunal that the GGO was created under statute and as such it has no inherent powers. He said that the GGO ‘s legislated mandate with respect to ‘terms and conditions’ of marketing, does not include pricing of grapes, its mandate permits it to regulate ‘terms and conditions’ of payment for grapes. Mr. McIlroy pointed out that the OFPMC had the discretion to sub-delegate authority to the GGO as provided for under Section 8(1) (iv) of the Farm Products Marketing Act. He reminded the Tribunal that the OFPMC did not exercise that authority with respect to the GGO.

Mr. McIlroy explained that the evidence clearly indicated that it was compulsory to record Brix levels on the weigh bills. He said that it was conclusive that when money changed hands in the grape industry, Brix level was the leading qualitative factor of import. He said that price fluctuates according to Brix level. Mr. McIlroy stated that there is no definition of ‘grade’ in the legislation but the definition of ‘grade’. in the Farm Products Grades and Sales Act, makes reference to quality. He said that it is absurd to define ‘grade’ with respect to grapes, as anything but sugar content.

Mr. McIlroy reminded the Tribunal that the parties agreed that sugar standards for grapes should be established through consultation and agreement before the price negotiations commence. He stated that the GGO has the authority to set fees for the service of grading grapes.

Mr. McIlroy reviewed the relief requested by the WCO in its appeal. He requested that the Tribunal grant the WCO costs in the proceeding. He said that the GGO recognized that it had no authority to impose the 25% late payment penalty, but it did so only after time and expense had been expended to bring the appeal to the Tribunal Mr. McIlroy said that GGO acted frivolously in maintaining that it had the authority to enact the Regualtion 1-2004 with respect to pricing. He requested that the Tribunal make an order for costs against the GGO in the amount of $10,000.

In his final argument Mr. Spurr told the Tribunal that the GGO had the power under Regulation 414 to the Farm Products Marketing Act to set the terms and conditions of marketing grapes. He stated that legally there was an almost imperceptible distinction between the functions of price setting and determining the particulars of marketing a crop.

Mr. Spurr pointed out that Mr. McIlroy’s definition of Brix sugar schedules as, ‘sugar grade schedules’ is not a common industry reference. He stated that sugar schedules should not be understood to indicate grade in the manner in which ‘grade is referred to in Regulation 414. Mr. Spurr said that witnesses had testified that the sugar schedules indicated qualitative features of grapes. He stated that production incentives and disincentives were specific to quality and that quality drove incentive.

Mr. Spurr referred to Section 7. (1), paragraphs 23 and 25 of the Farm Products Marketing Act which prescribes the functions of the GPIAC and the Negotiating Agency. He explained that the Act conferred upon the GPIAC, the jurisdiction to deal with matters relating to quality. He argued that the Negotiating Agency has no authority with respect to setting the terms and conditions for marketing grapes.

Mr. Spurr said that the while the WCO is mentioned in Regulation 414 to the Farm Products Marketing Act, in the context of participating on the GPIAC, the WCO does not have the authority to speak for all industry processors. He pointed out that the Ontario Food Processor Association had declined to exercise its authority to appoint a member to the GPIAC. Mr. Spurr stated that the GPIAC’s function is to advise on qualitative issues and that the Brix schedules are established based on qualitative factors, therefore the function of the GPIAC is intergral to the function of the Negotiating Agency. He stated that contrary to Mr. McIlroy’s assertions, the establishment of sugar schedules is within the purview of the GGO in its mandate to set terms and conditions for the marketing of a regulated product.

Mr. Spurr told the Tribunal that history cannot alter statute however, the industry does have its established practices. He stated that the Negotiating Agency does not deal with all grading issues. He said that the evidence indicated that the full sugar schedule was not the subject of negotiation except in 2004. Mr. Spurr told the Tribunal that the GGO was not suggesting that the Brix levels for each variety should be re-established each year. He said that Regulation 414 of the Farm Products Marketing Act does not contain any provision for the negotiation of Brix schedules each and every year. He said that the Brix schedules are used in the preceding year as a starting point and that if GGO Regulation 1-2004 is rescinded per the appeal of the WCO, there will not be any Brix schedules in place for 2004 except for Chardonnay and Cabernet Franc grapes. Mr. Spurr said that Regulation 1-2002 is specific to 2004.

He stated that the marketing agreements are basically pre-set blueprints from which a schedule is produced when the appropriate price is applied to the formulae. He stated that both the GGO and WCO agreed to return to the 2001 values for sugar schedules for Chardonnay and Cabernet Franc grapes which effectively nullifies Regulation 1-2004. Mr. Spurr argued that the true issue is the Brix schedules for all other varieties. He stated that under normal circumstances the marketing agreement is for the in-year crop but the Brix schedules relied upon in an agreement are not necessarily from the previous year but may be derived from the aforementioned five year rolling average. He stated that the WCO’s position relied upon a definition of Brix schedule, as being synonymous with ‘grade’ He said that it had not been proven that this definition defeated the position of the GGO with respect to its authority over setting the terms and conditions for marketing grapes.

With respect to the request for an order for costs, Mr. Spurr told the Tribunal that it would be inappropriate to make an order for costs under Tribunal Rule 28. He stated that Tribunal Rule 28 provides for costs based on conduct in bad faith. He reminded the Tribunal that the respondent was not permitted to seek costs at the risk of discouraging genuine appellants. He stated that the GGO conceded the matter of the 25% late payment penalty upon the determination of the Tribunal. He said that the GGO is of the opinion that there has been excessive litigation in the matters at hand. He stated that the GGO set out the protocol for managing issues with respect to the sugar schedules in its February 10, 2005 decision from the appeals of WCO. He said that the WCO could be confident that the GGO did not take the position that it may impose its authority on the WCO in future. Mr. Spurr stated that legally there is an automatic stay of GGO Regulation 1-2004.

Mr. McIlroy replied to Mr. Spurr’s final argument stating that the GPIAC’s mandate is limited to making recommendations. He stated that more than half of the material comprising the annual marketing agreements consist of the pricing formulae. He pointed out that the 2003 Grape Marketing Agreement contained over 50 minimum prices for the Chardonnay variety depending on Brix levels. Mr. McIlroy said that the rescinding of Regulation 1-2004 would not create a nullity as Mr. Spurr asserted, because payment had already been made for the 2004 crop.

The Findings

The Tribunal accepts the testimony of Mr. Penachetti that the sugar standards for Brix are usually derived from the analysis of data and discussion and agreement of the participants of the GPIAC meetings. The Tribunal is mindful that there is no provision in Regulation 414 to the Farm Products Marketing Act for the GPIAC to make decisions with respect to any aspect of the production or marketing of grapes. The GPIAC is only empowered to make recommendations, with respect to the production and marketing of grapes. The Tribunal accepts the evidence of Mr. Penachetti and Ms. Zimmerman that the sole qualitative feature of grapes that must be measured and recorded when grapes are sold is the level of Brix.

Clearly the measure of Brix is integral to the price of grapes as the annual marketing agreements contain formulae, the main components of which, are prices per tonne based on level of Brix per variety of grape. This Tribunal accepts the evidence of Ms. Franklin and Mr. Penachetti that sugar schedules are based on Brix levels per variety. It also accepts Ms. Franklin’s evidence that sugar schedules are integrally linked to price.

The Tribunal finds that when Section 7 (1) Paragraph 25 of the Farm Products Marketing Act is considered, as being more specifically articulated in Sections 13 and 14 of Regulation 414 to the Farm Products Marketing Act, it is clear that the fixing of minimum price for all grades, quality and varieties of grapes is to be a function of the Negotiating Agency whether it adopts the minimum price as awarded by arbitration or settles upon the minimum price through agreement. Accordingly the Tribunal agrees with the position put forth by the WCO. The Tribunal finds that the GGO does not have the power to set the minimum prices for grapes.

Through the enactment of its Regulation 1-2004 the GGO established the sugar schedules that have price implications. The GGO does not have the authority to make the provisions of Regulation 1-2004 with respect to the sugar schedules which affect pricing. The Robert Shapiro opinion letter made April 17, 1991 (see Exhibit 1 Tab1, page 24)is to the same effect. The authority as provided for in Regulation 414 to the Farm Products Marketing Act to set minimum prices is the function of the Negotiating Agency.

It was demonstrated that the members of the Negotiating Agency signed the pages of the annual marketing agreement where the negotiated minimum price was listed. The Tribunal does not accept Ms. Zimmerman’s evidence that the parties signed the agreements having satisfied themselves that the documents contained no typographical errors as occurred in 2003. The marketing agreements as referred to by Mr. Penachetti from years prior to the 2003 agreement, also contain the signature of participants of the Negotiating Agency. The Tribunal finds that that this practice was implemented to signify the agreement of the parties for the stated minimum price, rather than assurance against error or as a longstanding industry practice.

The Tribunal agrees with the position of the WCO and the GGO that in the interests of fostering greater harmony in the grape industry that such matters as sugar standard, grades, measurements of Brix and quality should be agreed upon at GPIAC meetings in time for recommendations to be made to the GGO and WCO so that any issues are resolved well in advance of the time when the Negotiating Agency carries out its role.

Costs

The Tribunal finds that the GGO was unreasonably reluctant to concede that it had no authority to impose the late payment penalty. The GGO only admitted that it had no authority to impose late payment fees after having spent a morning of the Tribunal’s and the appellants’ time in arguing the matter. In addition the WCO has incurred expenses to prepare for and pursue the matter of the penalties in the appeal. It was only upon the decision of the Tribunal on this preliminary issue that the GGO was finally willing to withdraw from its defense of its purported authority. The position of the GGO has unduly elongated this hearing. While Mr. McIlroy suggested that the Tribunal consider an award of costs nearing $10,000.00, we find that only a nominal award is warranted. That award is as set out in our order below. This award is clearly within the ambit of Rule 28 of the Tribunal Rules.

Decision and Reasons

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

1. That the appeal of the WCO is granted.

2. The Tribunal orders that the Regulation 1-2004 is rescinded on the grounds that the GGO had no authority to make a Regulation that has the effect of unilaterally setting prices for grapes.

3. The Tribunal awards nominal costs payable by the GGO to the WCO in the amount of $500 for unnecessarily pursuing the issue of its power to assess late payment penalties to the WCO.

4. There is no other order for costs