Kejay Investments Inc. v Ontario Processing Vegetable Growers, 2005 ONAFRAAT 23

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

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Kejay Investments Inc. v Ontario Processing Vegetable Growers

Kejay Investments Inc. v Ontario Processing Vegetable Growers 2005 ONAFRAAT 23

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

March 31, 2005

DATE OF DECISION:

August 17, 2005

2005-23

NEUTRAL CITATION:

2005 ONAFRAAT 23

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 An Appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Kejay Investments Inc. from decisions of the Ontario Processing Vegetable Growers (OPVG) to:

• Impose a monetary penalty on the appellant and on KEJAY FARMS INC., Kejay Investments, KEJAY INVESTMENTS INC. (JASON STALLAERT), Kejay Investments Inc. (J. & K. Stallaert) and Kejay Brothers Farms in the amount of 10% of the outstanding balance on their deliveries of carrots to Strathroy Foods between October 24, 2004 and December 3, 2004

• Deny these companies a license to produce and market carrots in 2005

• Restrict the licenses of these companies to produce and market sweet corn, peas and tomatoes to 80% of their 2004 contract volumes

• Refuse to license the company to produce and market any other vegetables under the Plan in 2005

• Require these companies to undertake in writing to comply with and not be a party to any arrangement the effect of which is contrary to the Farm Products Marketing Act and Regulations, the General Regulations of the OPVG, any order or direction of the OPVG or any negotiated agreement or award respecting vegetables, before the OPVG will consider applications from these companies for licenses to produce and market processing vegetables in 2006; and upon reconsideration:

• to uphold its decision regarding the monetary penalty imposed on the appellant and on KEJAY FARMS INC., Kejay Investments, KEJAY INVESTMENTS INC. (JASON STALLAERT), Kejay Investments Inc. (J. & K. Stallaert) and Kejay Brothers Farms and amend its other decisions by delaying their implementation by one year.

Before:

Rod Stork, Chair; Mary Field, Member; Doug Flook, Member.

Appearances:

James Wickett, counsel to the appellant, Kejay Investments Inc.

Geoffrey Spurr, counsel to the respondent, the OPVG

Jason Stallaert, Officer of Kejay Investments Inc., appellant

Rob Anderson, Vice President of Operations, Strathroy Foods, witness for the appellant

John Mumford, General Manager, OPVG, witness for the respondent

Doug Lambert, Chartered Accountant, witness for the respondent

Background

On March 31, 2005 the OPVG held a hearing to determine if Kejay Investments Inc. (Kejay) had marketed carrots for processing during 2004 that were not priced within the OPVG 2004 Pricing Agreement (2004 Agreement). The OPVG decided that Kejay had marketed carrots to Strathroy Foods Limited that were not priced according to the 2004 Agreement.

Upon the discovery of an error in the carrot processing schedule, a reconsideration hearing was held by the OPVG on April 6, 2005 to re-examine the penalty and to make any adjustments necessary to correct the error in the carrot processing schedule. Based on its findings from the March 31, 2005 hearing and the April 6, 2005 reconsideration, the OPVG decided to penalize Kejay by imposing a monetary penalty, denying, restricting and reducing licenses in 2005 and to require the signing of an undertaking by Kejay

Counsel to Kejay requested a hearing to reconsider the OPVG penalties from the March 31, 2005 hearing and the April 6, 2005 reconsideration. A hearing was held April 26, 2005. The OPVG maintained the penalties decided upon from its March 31, 2005 and April 6, 2005 hearings on the matter, however, it adjusted the licensing cancellations, restrictions and the signing of the undertaking to apply to the years 2006 and 2007, the decision is reproduced below. The OPVG decided that Kejay:

• Be penalized in an amount equal to the outstanding balance for the deliveries in question, that being less than 10% of their gross sales of vegetables for processing in 2004.

• Be refused a license to produce and market carrots for processing in 2006,

• Have their 2006 licenses to produce and market sweet corn, peas and tomatoes limited to 80% of their 2004 contract volumes.

• Be refused a license in 2006 to produce and market any or all other vegetable under the Plan.

• Be required to, not later than January 31, 2007, undertake in writing to the OPVG that Kejay Brothers Farms and any, or all of the above named will comply with, and not be party to any arrangement the effect of which is contrary to the Farm Products Marketing Act and Regulations, the General Regulations of the Board, any Order or Direction of the Board or any negotiated agreement or award respecting vegetables, prior to consideration being given by the Board to the granting of any license to produce and market vegetables for processing in 2007.

DECISION OF THE TRIBUNAL

This matter was considered in Woodstock Ontario on July 14, 2005. Kejay appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from the decisions of the OPVG to impose monetary penalties, refuse, reduce and restrict licenses for producing and marketing processing vegetables, and to sign an undertaking with respect to the non contravention of the Farm Products Marketing Act, its regulations and/or the OPVG regulations and policies for production and marketing of processing vegetables in 2006.

Statutory Context

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

Idem

(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).

The Issue

1. Should the penalties against Kejay with respect to monetary payment, license cancellation, reduction and restriction and the signing of an undertaking remain in force?

The Evidence

Mr. James Wickett stated that Kejay sold several loads of carrots culled from its fresh market operation to Strathroy Foods Limited (Strathroy Foods). He stated that it was not necessary for Kejay to determine a price at which to sell the carrots as the prices were published in the OPVG 2004 Agreement.

Mr. Wickett said that Strathroy Foods made an administrative error in applying the correct tare to the carrots. The error has caused considerable difficulty for Kejay but the price remains the same despite a mathematical error in calculation. Mr. Wickett explained to the Tribunal that as a result of the OPVG’s penalty decisions, Kejay had lost approximately $90,000 in revenues for 2005 and an estimated $500,000 to $600,000 in lost revenue for 2006 due to contract cancellations.

Mr. Wickett explained to the Tribunal that every individual had a right to contract. He said that where a party might find itself penalized due to any ambiguity in legislation, then that party to whom the penalty might accrue, should be given the benefit of the doubt.

Mr. Spurr told the Tribunal that the matter before it consisted of two components, the manner in which the carrots were marketed and the actions of the producer, within the context of the regulated marketing system. He told the Tribunal that the regulated marketing system for processing vegetables provided certain and specific markets for growers and certain and specific supply for processors. Mr. Spurr explained that due to the provision of pro-rata deductions for vegetables there is still certainty of markets and supply for growers and processors should demand for product decline. He said that there is no pro-rata increase.

Mr. Spurr said that Kejay and Strathroy Foods contracted to market and process vegetables outside of the regulated system. He stated that the OPVG imposed the penalties against Kejay in an attempt to discourage such action. He said that the marketing and processing of carrots outside of the system was unfair to those producers and processors who participated within the regulated marketing system.

Robert Anderson

Mr. Robert Anderson testified before the Tribunal. He stated that he is the Vice President of Operations for Carriere Foods, formerly Strathroy Foods. He told the Tribunal that:

• Strathroy Foods had purchased carrots for processing from Kejay for several years. It purchased cull carrots for processing from Kejay in 2004. He dealt with Mr. Jason Stallaert with respect to the cull carrots in 2004.
• Cull carrots are the by-product of the fresh market carrot production system. Growers usually discard culls by spreading them on the fields after the fresh market carrots have been separated.
• He and Mr. Stallaert had first discussed the possibility of processing the culls in May 2004 should production vacancy be available at the plant.
• Kejay cull carrots were processed experimentally for the first time in 2004.
• It was expected that the tare applicable to the cull carrots would be 60 to 100 %. Based on the high tare it was decided that the carrots would be paid for based on the useable plant recovery.
• It was determined that there was some value in the cull carrots.
• The normal procedure for determining the tare is to take a 50 pound sample and to apply the tare based on the grade determined from the sample under the marketing agreement in place at the time.
• It is conceivable that a tare rate of 100 % can occur. If the rate of tare is equal to 100 % the value of the carrots would be nil.
• Processors may pay the grower any price above the minimum negotiated price as set out in the marketing agreement.

Mr. Anderson referred to a Production Summary and Grower Payment Reports prepared for the Kejay carrots. He stated that:

• Strathroy Foods’ baseline recovery rate for carrots was 75%. The Kejay culls resulted in plant recovery of 53% of the baseline recovery. The net recovery for Kejay culls was determined to be 39.53%. The price was multiplied by 53% and further reduced by 3.4%. Strathroy Foods applied a 3.4% reduction to all dicer carrots. The blended average price calculated was $38.50 per ton.
• The price for the carrots was multiplied by 53% due to an error by administrative staff. The net tons of carrots prior to processing, should have been multiplied by 53% however, the resulting figure derived from the calculation is the same.
• It is unknown why one load of Kejay culls were paid for at the rate of $31.50 per ton while the price of $38.50 per ton was paid for all other loads.
• He did not notice that one load of carrots was paid for at the rate of $31.50 per ton when he signed and issued payment for carrots purchased from October 22, 2004 through October 31, 2004.
• He became aware of the error in price calculation when it was brought to his attention by the OPVG. He explained to the OPVG that the price paid had been calculated based on the multiplication of the wrong variables, however, he did not explain to the OPVG that this was due to an administrative error.
• He was contacted by Kejay with respect to the errors at some time after the OPVG became involved. He explained the nature of the error to Mr. Stallaert.
• There was no arrangement between Kejay and Strathroy Foods to pay for the carrots other than those specified in the 2004 Agreement.
• In response to the OPVG’s Order that Strathroy Foods pay to the OPVG $112,249.00, the amount owed to Kejay for carrots and $582.26 in outstanding license fees he responded that cull carrot prices were not covered under the 2004 Agreement. He believed that cull carrots had no standing under the 2004 Agreement, therefore, Strathroy Foods did not intend to pay the outstanding balance on carrots but that it would pay the outstanding licence fees.
• The auditor also made an error in calculating the weights and price of carrots purchased and processed from Kejay. Strathroy Foods paid $27,028.00 in outstanding monies for Kejay carrots to the OPVG but the payment was not to be construed as an admission of wrong doing but that Strathroy Foods wished to resolve the matter.
• In 2004 Strathroy Foods purchased greater volumes of vegetables for processing than it had contracted with growers to purchase.
• Under the 2004 Agreement any price above the minimum price can be paid for the carrots. Strathroy Foods was confident that the rate of tare on cull carrots would be 60% to 100%. If the tare was 100%, the processor was not obliged to pay for the carrots.

In response to questions, Mr. Anderson stated that:

• Strathroy Foods is a medium to large size processor of carrots, and a member of the Food Processors of Ontario.
• He had been with Strathroy Foods since 1994 and had participated in pricing negotiations on behalf of processors.
• He agrees that grading is an important component of marketing carrots.
• The Kejay cull carrots were not graded in the manner provided for in the 2004 Agreement.
• Based upon a visual inspection of the Kejay cull carrots at delivery, Strathroy Foods decided to pay for them based on plant recovery.
• If the Kejay culls had been graded in the usual manner, the purchase price would have been higher.
• The experiment in processing the cull carrots is considered to have failed. The end product was not of sufficient quality to meet the demands of Strathroy Foods’ customers.
• The purchase of the culls was made as a private venture between Strathroy Foods and Kejay. Though the 2004 Agreement was the basis for purchasing the carrots, they were culls so they were not necessarily subject to the provisions of the 2004 Agreement.
• Strathroy Foods anticipated paying a lower price for the cull carrots than the minimum price negotiated with the OPVG. The $38.50 per ton paid for the carrots is approximately half the minimum price provided for in the 2004 Agreement.
• At the April 26^th, 2005 reconsideration hearing held before the OPVG he presented the miscalculated formula used by Strathroy Foods for the price paid. He also presented the correct formula at the April 26^th, 2005 hearing in an effort to illustrate that, mathematically, the figure derived from the calculation was the same.
• Neither the cheques in payment nor the accompanying production summaries held any indication that the carrots were culls. The data accompanying payment indicates that the carrots were oversized slicers.
• Strathroy Foods purchased a total of 3,100 tons of carrots from Kejay in 2004; 646 tons were cull carrots.
• Kejay was paid more than the minimum price for the cull carrots under the 2004 Agreement.
• In hindsight the OPVG should have been approached with a request for cull carrot processing under experimental conditions.
• Records of other processors’ returns on processing culls are not available for reference/comparison because they are competitors.
• Strathroy Foods did not mix the cull carrots from Kejay with any standard carrot loads. The production runs were kept separate and the frozen carrot weights were recorded in a sincere effort to determine the success of the experiment.
• Mr. Stallaert understood that the attempt to processing the culls was strictly experimental. It was agreed that the culls would be processed during a lull in production runs. To his knowledge Mr. Stallaert did not inform the OPVG that the culls were being processed experimentally.

Jason Stallaert

Mr. Jason Stallaert testified before the Tribunal. He stated that he was an officer of Kejay. Mr. Stallaert told the Tribunal that he and his brother had operated Kejay since 1994. He explained that Kejay is a vegetable grower with approximately 20 employees and one administrative staff member. Mr. Stallaert stated that:

• Kejay grows carrots for the fresh market. Carrots that are considered too poor in quality to be sold in the fresh market are usually spread back onto the fields. These carrots are referred to as cull carrots.
• In 2004, Kejay supplied Strathroy Foods with cull carrots for processing. He dealt with Rob Anderson at Strathroy Foods.
• Arrangements were made to supply Strathroy Foods with cull carrots at no predetermined price. An extremely high rate of tare was expected due to the low quality of the carrots; however, he expected that the price for the cull carrots would have been based on the 2004 Agreement.
• He and Rob Anderson agreed to experiment with processing the cull carrots as he understood that other processors had had some success with obtaining a usable finished product of some value.
• He expected that the processing plant recovery would drive the price of the cull carrots to a level that was higher than the minimum price in the 2004 Agreement.
• It is not his practice to validate any weights or levels of tare that are reported by the processor.
• Grower Payment Reports are received by the office administration staff and filed without review.
• He first became aware of a discrepancy between the price of $31.50 per ton and $38.50 per ton when the OPVG informed him of it by way of a letter. In response to the OPVG letter he discussed the discrepancy with Mr. Anderson. Mr. Anderson explained to him that the carrots had been paid for on the basis that had been discussed in the Spring of 2004. Mr. Anderson informed him that the tare was mistakenly applied to the carrot price rather than the volume but that the end figure was the same regardless.
• He assumed that the grading and tare application had been applied accordingly.
• With respect to a statement where he was quoted as telling the OPVG that he sold carrots at a price below the minimum per the 2004 Agreement, in his opinion the statement was taken out of context at the OPVG’s March 31, 2005 hearing.
• Historically, he had sold slicer grade carrots for processing; he assumed that the cull carrots would fetch a much lower price than slicer carrots. At no time did he intend to sell the cull carrots below the minimum price stated in the 2004 Agreement.
• He sells vegetables to a number of processors. As a result of the OPVG’s April 6, 2005 decision, two processors with whom he expected to contract had declined to do business with Kejay in the future.
• A contract consisting of 50 acres of peas for Kraft Foods was withdrawn resulting in a loss of $90,000 in revenue.
• He marketed $1,034,988.34 of carrots, (excluding cull carrots) corn, peas and tomatoes to processors in 2004. He had every intention of increasing that revenue in 2005.
• Due to the decision of the board and the reluctance of processors to contract with Kejay he estimates that $520,000 in revenue in addition to the monetary penalties imposed by the OPVG would be lost.

In response to questions Mr. Stallaert told the Tribunal that:

• He has an existing contract for slicer grade carrots with Omstead and Strathroy Foods for 2,500 tons. Kejay usually produces carrots beyond those contracted, but a processor is usually found to purchase them.
• He had become more familiar with the 2004 Agreement for marketing carrots in preparation for the hearing before the Tribunal. He understood that growers and processors contract to sell and purchase vegetables. He understood that there is an established protocol for sampling, grading and establishing tare for each load of carrots.
• Though the 2004 Agreement was not mentioned specifically, he and Mr. Anderson had an understanding that the cull carrot price would be based on the price negotiated by the OPVG in the 2004 Agreement.
• It is a requirement of the 2004 Agreement that within 36 hours of receiving the carrots, the processor shall send to the grower a Grading Report.
• If a Grading Report had been sent to Kejay with respect to the cull carrots, it was probably not reviewed as Kejay’s carrot production is primarily focused on the fresh market. Fresh market carrots are unregulated and more lucrative.
• He has always been dealt with fairly by Strathroy Foods, he assumes that the processors operate fairly. Processors are subject to auditing of their records from time to time.
• With regard to a cheque made out to Kejay for $24,749.51 he was not aware that it was prepared in payment for loads of regular and cull carrots delivered to Strathroy Foods. He can conjecture that, had he reviewed the cheque and the accompanying Grower Payment Reports, he may have remarked on the discrepancy in price for the cull carrots from $31.50 per ton to 38.50 per ton. The price for the cull carrots was determined based on the plant recovery.
• He anticipated that the tare on cull carrots would be very high. There is no indication with respect to the cull carrots, as to how the tare was applied.
• The 2004 Agreement has no provisions for pricing of carrots after obtaining the processed product nor does it contain any provisions with respect to any pricing for cull carrots.
• In his opinion Strathroy Foods paid more than the cull carrots were worth. If the value of cull carrots was determined in the context of the 2004 Agreement, they would have no value which is to say that in the case of cull carrots, tare is virtually 100%.
• There was never any intention on the part of Kejay or Strathroy Foods to contravene the 2004 Agreement for marketing carrots.
• Omstead Foods has notified Kejay that its existing contract expires in the Fall of 2005.
• 50 acres of peas contracted with Kraft Foods had been planted but the balance of 50 additional acres had been cancelled. It was not known why Kraft cancelled the contract for the remaining 50 acres of peas.
• Kejay’s 2005 and 2006 carrot contracts with Omstead Foods have not been affected by the OPVG decisions.
• He is too busy to attend OPVG board meetings however, he trusts and relies on the OPVG to act in the best interests of its grower members.
• Kejay has never sold cull carrots to a processor prior to its sales to Strathroy Foods in 2004.
• Many processors have expressed to him their disagreement with the OPVG’s decisions.

John Mumford

Mr. John Mumford appeared before the Tribunal. He stated that he is General Manager of the OPVG. Mr. Mumford testified that:

• Carrot grades are established through committee discussions. Growers and processors sit on the grading committee.
• The grading manual, as submitted into evidence, contains photographs of the various grades of carrots.
• A grade sheet is sent to the grower when a load of carrots is delivered to the processor. The grower may accept the grade as determined by the processor, or appeal to a third party for grade determination.
• There is no such carrot as a cull carrot listed in the the glossary of terms for carrots. Cull carrots are a construction of Kejay and Strathroy Foods.
• The “Door Grade Principle” prevents the transfer of risk for processing and product recovery to the grower. In addition, it prevents the grower and processor from making any special arrangements with respect to marketing vegetables outside of the OPVG negotiated marketing agreements. The OPVG does not support a recovery based method of determining payment for carrots.
• OPVG Regulation No. 1-2004 provides growers with the option of selecting processors with whom to contract. It also provides for pro-rated reductions to growers should processors determine that purchases be curtailed. The pro-rated contracts are in place for terms of three years.
• Processors are required to notify the OPVG in advance of the cancellation of a contract.
• An auditor was appointed to inspect the records of Strathroy Foods, when it became apparent to the OPVG that Kejay had delivered a load of dicer grade carrots to Strathroy Foods that were un-reported.
• In his estimation, Mr. Anderson and Mr. Stallaert marketed and processed carrots outside of the provisions of the 2004 Agreement.
• Kejay and Strathroy Foods calculated a price for the carrots based on processor recovery, they made calculations for price based on a tare that they invented. The OPVG minimum price for the carrots sold by Kejay to Strathroy Foods is $77.88 per ton. There is no tare calculation with respect to this price because the carrots were not graded.
• Based on the findings of the audit of Strathroy Foods, the OPVG ordered that Strathroy Foods pay the balance owing to Kejay for carrots in the amount of $112,249.15 and outstanding licence fees in the amount of $582.26 to the OPVG.
• Mr. Anderson indicated by way of letter dated March 28, 2005, that Strathroy Foods did not consider that marketing and processing of cull carrots was covered by the OPVG Agreement. Mr. Anderson also indicated that Strathroy Foods would not pay $112,249.15 but that it was amenable to paying the outstanding licence fees of $582.26 to the OPVG.
• An error in the recorded amount of carrots delivered for processing was discovered through the audit process. A corrected processing schedule for the cull carrots was obtained; it was determined that Strathroy Foods owed $27,028.09.
• Bills of Lading provided by administrative staff at Strathroy Foods used the term cull dicer to describe the cull carrots from Kejay. The OPVG considers the cull carrots to be of the dicer grade.
• He attended at the hearing for Kejay on March 31, 2005 where Mr. Stallaert was also in attendance. He recalls that Mr. Stallaert maintained that he had not done anything wrong. Mr. Stallaert indicated that he understood that the price paid for the cull carrots was less than the price set out in the 2004 Agreement. He recalls that Mr. Stallaert maintained that he had never intended to contravene the 2004 Agreement.
• In 2004, Strathroy Foods contracted for 25% less carrots than they processed in 2003, however, it processed similar volumes to those processed in 2003.
• The OPVG sent letters to the processors advising them of the penalties against Kejay (penalties determined before the reconsideration hearing of April 26, 2005) so that they would have adequate lead time to make alternate sourcing arrangements for 2005.
• At the request of Mr. Wickett, counsel to Kejay, the processors were advised by way of letters dated April 27, 2005 that a stay of the OPVG decisions was in place pending the outcome of the Tribunal’s decision on the matter. The letters indicated that processors were free to contract with Kejay for 2005.
• The OPVG would not discourage processor experimentation with “grade out” carrots if the price paid was within the 2004 Agreement. It is a common practice for the OPVG to enter into experimental processing methods with processors; this can be accomplished within the framework of existing marketing agreements
• There is no provision within the 2004 Agreement for the pricing of carrots based on processor recovery.
• OPVG analysis indicated that Kejay will lose approximately $293,000 in revenues due to the penalties.

Mr. Mumford responded to questions that:

• Obtaining a price for carrots after they have been delivered and processed is contradictory to the 2004 Agreement.
• He understands that Mr. Anderson and Mr. Stallaert entered into an agreement to base the price for cull carrots on plant recovery; this contravenes the 2004 Agreement.
• The OPVG would not have concerned itself with this matter if Strathroy Foods had paid any amount above the minimum negotiated price for the carrots.
• He did not take any notes at the March 31, 2005 hearing. No formula or calculations for the tare used by the OPVG to establish a price was made evident in the OPVG decision to penalize Kejay.
• Strathroy Foods was ordered to pay the outstanding balance owed to Kejay to the OPVG because it failed to tare and to issue a grading slip within 36 hours of receiving the carrots.
• The OPVG’s rationale in setting the penalty against a grower with no previous infractions was based on the supposition that Kejay had a profit margin of 10 to 20%. The penalty was based on Kejay’s gross revenues in the amount of $293,000. The OPVG has no jurisdiction to sanction processors.
• The level of penalty was discussed and the OPVG concluded that it was necessary in order to strongly discourage contravention of the rules governing the regulated marketing system.
• The outstanding monies for carrots owing to Kejay that was paid by Strathroy Foods to the OPVG was not a sanction against Strathroy Foods but an obligation as Strathroy Foods was a signatory party to the 2004 Agreement and the OPVG calculated that based on the appropriate grade and tare the outstanding balance owed Kejay was $27,028.09.
• The OPVG relied upon the advice of counsel with respect to its authority to reduce the quantity of vegetables that Kejay could contract for marketing to processors.
• The OPVG has no authority to reduce a producer’s licence under Subsection 23.(1)(c) of its General Regulations 2004. Section 24.(1) of the OPVG General Regulations 2004 was referred to at the Kejay reconsideration hearing.
• The regulation of processors falls within the jurisdiction of the Farm Products Marketing Commission.
• Grade certificates are made available to the OPVG upon request for the purpose of auditing.
• After determining, recording and basing the price of vegetables on the grade established at delivery, the processor is free to manufacture the end product that he/she wishes.
• No grower except Kejay has had sanctions levied against more than one crop within the past five years. The OPVG acted within the provisions of its regulations in assessing the penalties to Kejay. It felt that Kejay’s actions affected all of its crops.

Doug Lambert

Mr. Doug Lambert told the Tribunal that he is a Chartered Accountant. Mr. Lambert explained that he is the OPVG appointed auditor. Mr. Lambert said that he attends at five to six processing facilities per year to inspect the records to determine whether the growers and processors are in compliance with the provisions of the marketing agreements. Mr. Lambert referred to the Strathroy Foods Audit Report dated March 8, 2005. He submitted that:

• The OPVG instructed him to audit Strathroy Foods in 2004. He was alerted that there may be irregularities with carrot intake from Kejay.
• Though he was aware prior to the audit that Strathroy Foods might be under-reporting volumes, he is certain that he was able to remain unbiased in conducting the audit.
• He dealt with the Costing Manager at Strathroy Foods; she supplied him with intake inventories, harvest reports and general ledgers for all grade categories of carrots.
• The carrots from Kejay were referred to on shipping tickets supplied by Strathroy Foods as dicer carrots and cull dicer carrots.
• The total intake of net payable tonnage did not reconcile with payments made in the general ledger and quantities recorded in the harvest report.
• The Costing Manager provided an additional list of Kejay cull carrots, which when compared to the monies payable from the general ledger and the net payable tonnage recorded in the harvest report reconciled.
• He was informed by the Costing Manager that Kejay culls were processed in a manner that was not compliant with the 2004 Agreement. He was informed that licence fees were not deducted for the Kejay cull carrots and that though the records categorized the Kejay culls as dicers and slicers, no grade was assigned and the price paid for them was determined by Mr. Anderson.
• At the time of the audit he was not aware of the administrative error as explained by Mr. Anderson, with respect to the tare percentage being applied to the price as opposed to the weight of carrots received.
• The prices referred to previously by Mr. Anderson of $31.50 per ton and $38.50 per ton are not provided for in the 2004 Agreement.
• He made an error in formulae in a spreadsheet used to attempt to calculate the tare. A long time passed before the error was discovered.
• Kejay had a slicer carrot contract with a slicer processor in Ingersoll.

In response to questions Mr. Lambert replied that:

• He concluded that some of Kejay’s contracted oversize slicer carrots that were to have been marketed to the Ingersoll processor were sold to Strathroy Foods. The price of the oversized slicer carrots should have been set at the price for dicer carrots.

• With respect to marketing of slicer carrots, he believes that the grower and processor complied with the terms of the 2004 Agreement, however, with respect to the cull carrots, no grade was established, precluding the assignment of a price category.

• If vegetables are not weighed and graded as stipulated under the “Door Grade Principle” they are considered to be marketed in contravention of the 2004 Agreement.

• Kejay was a party to the transactions that took place in contravention of the 2004 Agreement.

• He makes no other conclusions with respect to any actions by Kejay except the findings evident in the March 8, 2005 Audit Report.

• Strathroy Foods was co-operative and forthcoming with information necessary for preparing the Audit Report.

• He audits the records of processors with respect to compliance under approximately 44 marketing agreements.

Summations

Mr. Wickett stated that Kejay had done nothing that contravened any of the OPVG Regulations. He argued that the facts of the matter that the Tribunal should rely upon were those facts adduced under oath at the Tribunal hearing; no other evidence had been submitted under oath.

Mr. Wickett explained that Strathroy Foods indicated to Kejay that the cull carrots might be successfully processed. He said that the evidence attested to the assumption that the price for the cull carrots was based on the provisions of the 2004 Agreement. Mr. Wickett told the Tribunal that both Strathroy Foods and Kejay recognized that the tare applied to the cull carrots would be extremely high. He stated that Mr. Anderson told the Tribunal that because of the high tare he decided to pay for the carrots based on plant recovery. Mr. Wickett reminded the Tribunal that Mr. Anderson had submitted that Mr. Stallaert expected the price of the cull carrots to be based on the 2004 Agreement. Mr. Wickett explained that Mr. Stallaert never knew that the cull carrots were not sampled for grade with the corresponding tare applied. He reminded the Tribunal that when the omissions were brought to Mr. Stallaerts attention several months later, Mr. Stallaert took it upon himself to make enquiries of Mr. Anderson.

Mr. Wickett stated that there is no wrong in selling carrots, or expecting that the carrots sold would be graded. He reminded the Tribunal that payment for the carrots in any amount above the minimum negotiated price was not in contravention of the 2004 Agreement. He said that there was no wrong done by Kejay in its expectation that Strathroy Foods would comply with the provisions of the 2004 Agreement.

Mr. Wickett told the Tribunal that the OPVG relied upon Section 13 of its General Regulations 2004. He stated that the meaning of Section 13 was ambiguous. Mr. Wickett told the Tribunal that reliance on ambiguity in this regulation constrains the rights of individuals to enter into contractual agreements. Mr. Wickett argued that the OPVG Regulations 2004 does not contain a definition of a “negotiated agreement” nor does it define the parties to the agreement. He said that the actions by Kejay do not constitute contravention of the 2004 Agreement.

Mr. Wickett addressed the issue of the OPVG reliance on Subsection 23.(1)(d) of its General Regulations 2004 in assessing the penalties against Kejay. He pointed out that Subsection 24.(1)(c) referred to in Subsection 23.(1)(d) does not exist, hence it renders the interpretation of Subsection 23.(1)(d) meaningless. Mr. Wickett stated that the OPVG relied upon the construal of its General Regulations 2004 from the more significant of two generalizations contained within it. He said that Kejay has effectively been penalized $400,000 in lost revenues, for marketing $25,000 worth of carrots that would have been thrown away.

Mr. Spurr stated that the OPVG relied upon Regulation 440 to the Farm Products Marketing Act. He stated that Regulation 440 was authoritative relative to the OPVG’s General Regulations 2004. He said that Regulation 440 delegated powers to the OPVG from the authority of the Farm Products Marketing Commission. Mr. Spurr referred to Section 18 of Regulation 440 to the Farm Products Marketing Act, stating that it was within this clause that the definition and authority of the negotiating agency may be found, as well as the documents resultant of the negotiating agencies’ deliberations. He stated that the negotiated agreement referred to in Section 13 of OPVG General Regulations 2004 is the same agreement that the negotiating agencies were empowered to make under Section 18 of Regulation 440 to the Farm Products Marketing Act.

Mr. Spurr cited the case of a tobacco farmer where the Divisional Court recognized the local board’s jurisdiction with respect to regulatory marketing matters. He stated that the Farm Products Marketing Act delegated to the OPVG its authority to penalize Kejay with respect to reducing its ability to market a regulated product.

Mr. Spurr told the Tribunal that Kejay attempted to prescribe the level of its participation within the regulated system. He stated that Kejay sold carrots for processing outside of the regulated system. He said that Kejay and Strathroy Foods entered into a private agreement to market and process a commodity that they termed cull carrots. Mr. Spurr stated that the testimony of Mr. Anderson and Mr. Stallaert indicated that they did not consider their business to be subject to the 2004 Agreement. Mr. Spurr argued that Strathroy Foods did not grade and tare the carrots because the intention was to base the price on processor recovery.

Mr. Spurr told the Tribunal that Mr. Stallaert had not disagreed with any of the statements attributed to him at the OPVG hearings; Mr. Stallaert had only qualified one statement as having been taken out of context. Mr. Spurr reminded the Tribunal that the testimony before it had been adduced under oath.

Mr. Spurr stated that regardless of Strathroy Foods’s mathematical error, the price for the carrots was based on processor recovery which is in contravention of the 2004 Agreement. He stated that the sanctions against Kejay were intended to penalize Kejay and to indicate to other participants within the system that the OPVG would not tolerate the activities of growers in contravention of its regulations. Mr. Spurr asked the Tribunal to dismiss the appeal in its entirety.

Mr. Wickett asked the Tribunal to reverse the penalty in its entirety. He stated that the OPVG should make its regulations clear and unambiguous. He stated that Kejay had not acted as Strathroy Foods had in the matter. He reminded the Tribunal that it was Strathroy Foods that listed the carrots as cull carrots on the inventory intake slips. He said that Mr. Anderson, not Kejay, determined the price of the carrots. Mr. Wickett argued that Mr. Anderson’s expectation that the plant recovery would net more money for the carrots than the application of tare, was tantamount to deciding to pay more for the carrots than the minimum provided for in the 2004 Agreement. He said that the term ‘cull’ is used in the grading manual for carrots so that it is untrue that Kejay has created a category for carrots. Mr. Wickett stated that Kejay’s enterprise in selling carrots for profit was the aim of the industry.

The Findings

Strathroy Foods is a signatory party to the 2004 Agreement. The Tribunal finds that it was incumbent upon Strathroy Foods to conduct itself with respect to purchasing carrots for processing as it agreed to, by signing the 2004 Agreement.

The Tribunal accepts the evidence with respect to the mandatory weighing and grading of vegetables pursuant to the ‘Door Grade Principle’. It is the finding of this Tribunal that under the ‘Door Grade Principle’ the onus is on the grower to ensure that his commodity is weighed and graded. It has been acceptably demonstrated to the Tribunal from the testimony and the grading schedules set out in the 2004 Agreement that the grading of carrots, and the taking of tare based on the grade are procedures resultant in the affixing of a price. The producer has responsibility within the process for obtaining a price in accordance with the marketing agreement. The Tribunal finds that Kejay had several opportunities to ensure that its responsibility under the marketing agreement was fulfilled. Mr. Stallaert’s evidence was that he was familiar with the processes for grading, applying tare and processor reporting. He neglected to review the Grower Payment Reports or any other weigh bills associated with the delivery of his carrots and he did not notice that grading slips did not accompany delivery documentation. It is the opinion of this Tribunal that Mr. Stallaert, an officer of Kejay, as a member of the OPVG had a responsibility to market its carrots under the presiding agreement.

The Tribunal was not convinced that Strathroy Foods and Kejay conspired to develop a plan to market the carrots outside of the 2004 Agreement. However, it is clear to the Tribunal that carrots were marketed outside of the 2004 Agreement through the neglect of Strathroy Foods and Kejay to assume their respective responsibilities under the 2004 Agreement.

The Tribunal heard the position of the appellant with respect to regulating licenses and imposing penalties, that the application of Subsection 23.(1)(d) of the OPVG General Regulations 2004 was not considered as authoritative or appropriate because it referred to Subsection 24.(1)(c) of the OPVG’s General Regulations 2004, which does not exist. Mr. Wickett argued that the General Regulations 2004 of the OPVG was ambiguous. The evidence of Mr. Mumford was that Subsections 23.(1)(d) and 24.(1) were considered with respect to imposing penalties on Kejay at the OPVG hearing. This panel finds that Subsection 23.(1)(d) of the OPVG General Regulations 2004 is relevant and specific. Subsection 23.(1)(d) derives its authority under Subsections 10.(d)(ii) and 10.(e) of Ontario Regulation 440 under the Farm Products Marketing Act.

Notwithstanding the typographical error in its General Regulations 2004 which refers to a subsection that does not exist, the Tribunal does not see any ambiguity with the authorities of the OPVG as stated in its General Regulations 2004 as conferred upon the OPVG by Ontario Regulation 440 to the Farm Products Marketing Act.

The Tribunal agrees with the position of the OPVG that participation by growers and processors outside of the negotiated agreements displaces the participants within the marketing system who are involved in marketing and processing vegetables in accordance with the regulations governing their activities. The Tribunal agrees that the OPVG is empowered to licence and limit licenses of persons who contravene the rules governing the marketing of processing vegetables. The Tribunal finds that the OPVG has the authority to penalize individuals where it finds that anyone has contravened the rules governing the regulated marketing of processing vegetables.

Kejay has never previously been alleged to have contravened a marketing agreement with respect to marketing vegetables for processing. The Tribunal finds that Kejay did participate in marketing carrots in 2004 without fulfilling its obligation under the 2004 Agreement. The evidence before this Tribunal is with respect to the marketing of carrots by Kejay in 2004. Based on the evidence the Tribunal finds that license restrictions and penalties relevant to the carrots marketed by Kejay to Strathroy in 2004 are fair and appropriate.

The Tribunal finds that the license restrictions and penalties imposed on any licence or production of vegetables by Kejay other than carrots are unfair and inappropriate.

It is the finding of this Tribunal that the requirement for Kejay to sign an undertaking with respect to complying with the Farm Products Marketing Act and Regulations, the General Regulations of the OPVG, any order or direction of the OPVG or any negotiated agreement or award respecting vegetables before the OPVG will consider applications from these companies for licenses to produce and market processing vegetables in 2006 (or delayed implementation to 2007) is unfair and inappropriate as there is no indication that Kejay has contravened any rules and regulations with respect to any other processing vegetable other than carrots.

Decisions and Reasons

After careful consideration of the evidence presented and submissions made, the Tribunal decided to partially grant the appeal. The Tribunal orders that:

1. KEJAY FARMS INC., Kejay Investments, KEJAY INVESTMENTS INC. (JASON STALLAERT), Kejay Investments Inc. (J. & K. Stallaert) and Kejay Brothers Farms pay a monetary penalty in the amount of 10% of the outstanding balance on their deliveries of carrots to Strathroy Foods made between October 24, 2004 and December 3, 2004, inclusive.

2. The OPVG is not to issue a license to produce and market carrots for processing in 2006 to KEJAY FARMS INC., Kejay Investments, KEJAY INVESTMENTS INC. (JASON STALLAERT), Kejay Investments Inc. (J. & K. Stallaert) and Kejay Brothers Farms.

3. KEJAY FARMS INC., Kejay Investments, KEJAY INVESTMENTS INC. (JASON STALLAERT), Kejay Investments Inc. (J. & K. Stallaert) and Kejay Brothers Farms are to sign an undertaking in writing to comply with, and not be a party to any arrangement the effect of which is contrary to, the Farm Products Marketing Act and Regulations, the General Regulations of the OPVG, any order or direction of the OPVG or any negotiated agreement or award respecting carrots for processing, before the OPVG may consider applications from these companies for licenses to produce and market processing carrots in 2007.

4. All other penalties with respect to the restrictions, cancellation and limitation of licences with respect to any processing vegetable other than carrots produced by KEJAY FARMS INC., Kejay Investments, KEJAY INVESTMENTS INC. (JASON STALLAERT), Kejay Investments Inc. (J. & K. Stallaert) and Kejay Brothers Farms are rescinded.

The reasons for this decision are evident in the findings above.