Woodbury Leaf Inc. v. The Ontario Flue-Cured Tobacco Growers’ Marketing Board, 2011 ONAFRAAT 27

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

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1, chemin Stone Ouest

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

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

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Woodbury Leaf Inc., v. The Ontario Flue-Cured Tobacco Growers’ Marketing Board

Woodbury Leaf Inc., v. OFCTGMB 2011 ONAFRAAT 27

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

May 26, 2011

DATE OF DECISION:

August 10, 2011

2011-27

NEUTRAL CITATION:

2011 ONAFRAAT 27

IN THE MATTER 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 Woodbury Leaf Inc. and Joseph Allan Slusarczyk Jr. and Joshua Slusarczyk, respectively of Burford and Harley, Ontario, from decisions of The Ontario Flue-Cured Tobacco Growers’ Marketing Board regarding requests to rescind quota transactions and amend applications under the Tobacco Transition Program.

Before:

Paula Lombardi, Vice-Chair; Jane Sadler Richards, Member; John Rudics, Member

Appearances:

Thomas White, counsel for the appellants

Joseph Slusarczyk Sr., (Woodbury Leaf Inc.), appellant/witness

Joseph Allan Slusarczyk Jr., appellant/witness

Stan Symons, witness for appellants

Barry Bresner, counsel for the respondent

Fred Neukamm, witness for the respondent

Chris Van Paassen, witness for respondent

DECISION OF TRIBUNAL

Overview

This appeal was heard by the Agriculture, Food and Rural Affairs Appeal Tribunal (“Tribunal”) on May 26, 2011 in the Tribunal Boardroom, in Guelph, Ontario.

Tobacco Transition Program (TTP)

On February 13, 2009, the Ontario Flue-Cured Tobacco Growers’ Marketing Board (“Board”) and the federal government, represented by the Minister of Agriculture and Agri-Food Canada (“AAFC”), entered into the Canada-Ontario Tobacco Board Funding Agreement for the Tobacco Transition Program (“TTP”). Under the TTP, the federal government allocated money to assist tobacco growers with exiting the industry by paying them $1.05 per pound of Basic Production Quota (BPQ) with the intent that participating growers never re-enter tobacco production.

The Board’s responsibilities¹ under the TTP included, among others:

• removal of the current quota system for the production and marketing of Tobacco; and the implementation of a permanent licensing system through the enactment of regulations;

• communicating to all Eligible Recipients the timing and details of the TTP process and the requirements to participate in the TTP;

• drafting and distributing the Application Form to all potential Eligible Recipients;

• ensuring Eligible Recipients complete and submit an Application Form; and

• calculating and making payments to Eligible Recipients.

The Appellants agreed with the Board’s evidence that several meetings were held with the growers by representatives of the program and the Board to explain the TTP.

Appeal to the Board

In their appeal, the Appellants requested that the Board allow the following:

1. The TTP application by Joshua Slusarczyk be revoked;

2. The TTP application of Joseph Slusarczyk Jr. be revoked;

3. The rescission of the transfer of quota by Joshua Slusarczyk to Woodbury Leaf Inc. (“Woodbury”) be rescinded and that the original quota transfer be permitted in favour of Woodbury;

4. The rescission of the transfer of quota by Joseph Slusarczyk Jr. to Woodbury be rescinded and that the original quota transfer be permitted in favour of Woodbury; and

5. The combined total of Joshua Slusarczyk’s and Joseph Slusarczyk Jr.’s quota be allowed to form part of Woodbury’s original TTP application.

Background of Slusarczyk Appeal

Joseph Slusarczyk Sr. is the President of Woodbury Leaf Inc. and has grown tobacco in Ontario since the 1960s. His three sons (Joshua, Joseph Jr. and Jason) have worked on the farm since they were born. Mr. Slusarczyk Sr. first acquired quota in 1978 and he and his sons have bought quota at different times since then.

The evidence presented by the Appellants confirms that as of August 2008, Woodbury held 864,484 BPQ and the shareholders in Woodbury included five family members (parents (Joseph Sr. and Nancy) and sons (Joshua, Joseph Jr. and Jason)). Also, the three Slusarczyk sons each held quota in their own names (Joshua 68,201 BPQ; Joseph Jr. 92,588 BPQ; Jason 12,000 BPQ). Only holders of BPQ as of August 1, 2008, the time of the announcement of the TTP, were deemed eligible to participate in the TTP.

The Appellants agreed that in 2009 there were discussions with the federal government about a program to transition tobacco growers out of the tobacco industry. The Appellants initially claimed it was their understanding their quota would be purchased for a fixed price per pound and if a producer wanted to grow tobacco they would be required to obtain a licence. The Appellants’ concern was that they felt the TTP was confusing and the rules were constantly changing.

The constant changes in the interpretation of the rules resulted in the Appellants’ understanding that the Board recommended that all transfers, with some limited exceptions such as wills, be rescinded to preserve grower eligibility for TTP funds. According to the Appellants, this recommendation from the Board came at the very last minute.

It was based on this alleged recommendation from the Board that Joseph Jr. and Joshua claim to have rescinded their transfers of quota to Woodbury. The Appellants claim that after they rescinded their transfers, the federal government clarified its position on the TTP guidelines so that transfers would be acceptable in circumstances where a transferor of quota subsequently applied for a licence to produce tobacco on land owned by a TTP recipient. It was at that time the Appellants attempted to revoke their rescission of the transfers, or in other words, requested that the transfers be granted to Woodbury. The Appellants request to grant the transfers was denied by the Board. The request became part of the appeal brought by the Appellants to the Board and subsequently to the Tribunal.

The Appellants’ position is that: constant changes to the Board’s policy, interpretation of the rules and distribution of information concerning the TTP were extremely confusing; the shortness of time to make decisions made it impossible for them to properly assess the impacts of their decisions; the information from the Board to the producers was incorrect; the manner in which the TTP was implemented was contrary to provincial and federal policy to ensure the continuity of family farm operations; and the Board allowed other producers to rescind their transfers.

Development and Implementation of the TTP

The Board provided an overview of the TTP program and its implementation. The Board’s concern was that the tobacco industry was in decline. An exit program for tobacco growers who wanted to leave the industry had been discussed by the Board with the federal government for several years.

The Board entered into an agreement with the federal government to fund the TTP. Initially, the Board’s impression from the federal government was that quota transfers would be acceptable provided the prescribed dates were met. A concern arose when it appeared that some producers were taking advantage of the program and transferring BPQ with the intention of still growing tobacco - when the main purpose of the program was to facilitate the exit of producers from the tobacco industry.

The federal government stepped in and reiterated the purpose of the TTP. The federal government indicated that they would audit those producers who had transferred quota, and advised the Board that continued funding of the TTP was in jeopardy. The federal government advised the Board that except in certain specified situations, the transfer of BPQ by producers who intended to continue growing tobacco, was contrary to the TTP. This information was disseminated to tobacco producers and their lawyers and accountants by the Board so they could make an informed decision about whether or not to participate in the TTP.

In this appeal, the Board’s position is that the Slusarczyk family want to maximize their benefit under the TTP. In the Slusarczyk family’s situation, the TTP funds represented more than $1 M Cdn and the Board’s concern is that they want to take advantage of the TTP by the two Slusarczyk sons (Joshua and Joseph Jr.) divesting themselves of BPQ, then the family could receive the TTP funds, and subsequently the two sons could apply for a licence to produce tobacco. According to the Board, there were numerous producers who complied with the intent of the TTP – they did not participate in the TTP because they wanted to continue to produce tobacco.

Issues

1. Did the process and information surrounding the wind down of the tobacco quota system and access to the TTP create a situation where the Appellants were treated differently from any other producers so that they were unable to make a decision?

Evidence before the Tribunal

Divestiture of Appellants’ Holdings under the TTP

According to the evidence brought before the Tribunal by the Appellants, on or before March 20, 2009 and after the announcement of the TTP, Joseph Jr. and Joshua divested themselves of their shares in Woodbury, leaving Joseph Sr. and Nancy as the only shareholders in Woodbury.

The Appellants testified that it was their understanding that growers could transfer their BPQ and at the same time still be permitted to apply for a licence to grow tobacco. Based on this understanding, Joseph Jr. and Joshua completed their quota transfers to Woodbury in accordance with what they thought were the rules of the TTP.

Mr. Joseph Slusarczyk Sr. testified before the Tribunal that the constant changes in the requirements of participating in the TTP coupled with the manner in which information was distributed to the producers resulted in confusion amongst the producers about the implementation of the TTP. Mr. Joseph Slusarczyk Sr. advised that he was previously a member of the committee and involved in the Board. Mr. Slusarczyk Sr. agreed in cross-examination that his son Jason did not participate in the TTP and that he is currently renting land from Woodbury to grow tobacco pursuant to his licence. The other two Slusarczyk sons (Joseph Jr. and Joshua) are assisting Jason and working for wages. During cross-examination, Mr. Joseph Slusarczyk Sr. confirmed his understanding that if you accepted funds from the TTP, you could continue to rent your land to another tobacco grower provided you were being paid at commercial market value – similar to an arm’s length transaction.

Purpose of the TTP

It is clear from the Board’s evidence, that even prior to the formalization of the TTP, the Board communicated to producers the details of discussions and communications it had with the federal government about an exit program for tobacco producers from the tobacco industry.

The Board provided the Tribunal with extensive documentary evidence indicating it had continually communicated that the objective and intent of the TTP was to allow producers to exit the tobacco industry. The Board submitted into evidence numerous documents consisting of letters, meetings, information packages, news articles, emails, updates in the Board’s general newsletters, and telephone scripts dated from approximately January 2008 to March 2009, where the Board advised producers of the status of the “exit program” that eventually became the TTP. These documents included changes in the position of the federal government as it related to the implementation of the TTP. The Board also held question and answer sessions and a hotline was established whereby producers could call in and ask questions about the TTP. However, it is important to note that despite changes in the guidelines concerning the implementation of the TTP, the objective of the TTP never changed.

The Tribunal was presented with numerous documents clearly stating that the TTP was implemented to provide funding to producers who wished to “transition out of the industry and producers who accept transition assistance will not be able to re-enter tobacco production.”² The regular communications made by the Board related to the specifics of the TTP and continued between and amongst the Board, the federal government, holders of tobacco BPQ, lawyers, accountants and other interested parties.

The Board held conference calls that included three representatives from AAFC. All representatives of the tobacco growers including lawyers and accountants were asked to participate in the conference calls. The evidence before the Tribunal shows the Board went to great lengths to assist producers and their counsels in understanding the TTP.³ The federal government released several fact sheets reiterating the objective of the TTP to provide assistance to tobacco producers exiting the tobacco industry.⁴

Implementation of the TTP

As of February 13, 2009, the Board and the federal government executed the TTP Agreement that set out the terms and conditions of the program designed to facilitate the transition of BPQ holders out of the tobacco industry.

As of March 20, 2009, the three Slusarczyk sons divested themselves of their shares in Woodbury Leaf Inc. leaving the parents as the sole shareholders in Woodbury. At the same time, each Slusarczyk son transferred their BPQ to Woodbury, resulting in Woodbury having 1,037,273 BPQ. Initially, the deadline for producers to submit a TTP application was March 23, 2009.

On March 24, 2009, representatives from the Board called all the producers who had decided to transfer BPQ to advise them of the federal government’s intention to audit individuals who transferred quota with the intent of maintaining their eligibility to obtain a licence to grow tobacco. The federal government was concerned that tobacco growers were trying to circumvent the intent and purpose of the TTP, which was to assist some producers in exiting the tobacco industry. The Board advised producers by telephone that the above scenario could be considered a circumvention of the TTP and that the federal government may require these individuals to repay any monies received from the TTP. The Board scripted⁵ this call to producers, which was made by the Board’s representatives within a very short timeframe, to ensure that all producers received the same information about the position of the federal government at the same time.

Mr. Slusarczyk Sr. and the Board’s representative testified that during the telephone call the Board advised all producers who had decided to participate in the TTP program, including Mr. Slusarczyk Sr. and his family, to seek the advice of their lawyer because they were being provided the opportunity to rescind their transfers in light of this new information about the federal government’s intention.

The Board required those wishing to rescind their transfers to take the following steps:

i complete and have each transferor and transferee sign a form to revoke transfer for every BPQ number;

ii complete a new TTP application;

iii complete an Irrevocable Direction form (if required); and

iv submit all documents to the Board’s head office by close of business on March 27, 2009.

The evidence presented to the Tribunal overwhelmingly shows that the Board communicated every change, amendment and clarification in the TTP by the federal government to producers and to holders of BPQ.⁶ At times, the information transfer occurred at the last minute and on the eve of the end of the TTP program, but the Appellants were unable to refer to any evidence showing they were treated any differently from other producers. The evidence indicated that the Board went to great lengths to provide updated information about the TTP to all producers at the same time.

In a letter dated March 25, 2009 to the Board, the federal government reiterated the following objective of the TTP, which was: “...to provide assistance to producers exiting the sector. The TTP is not intended to provide compensation, whether directly or indirectly, to an existing producer who then subsequently receives a license to stay in the tobacco production business, nor to a person who was not a quota holder before the program’s inception.”⁷ Both Joseph Slusarczyk Sr. and Joseph Slusarczyk Jr. testified they had been advised of the objective of the TTP by the Board and agreed they had received the regular communications, attended meetings and discussed the TTP with the Board.

The Board advised producers that on March 27, 2009 eligibility to participate in the TTP as a holder of BPQ was extended to March 30, 2009. The purpose of this extension was to provide producers time to rescind BPQ transfers if they wanted to continue to produce tobacco and were going to seek a licence from the Board.

As of March 30, 2009, the Slusarczyk family had decided to rescind their transfers of BPQ to Woodbury, and two of the Slusarczyk sons - Joshua and Joseph Jr. submitted new applications and decided to participate in the TTP. According to the purpose and intent of the TTP, this meant that the two sons would not be eligible to obtain a licence from the Board to continue to produce tobacco. In other words, the two sons (Joshua and Joseph Jr.), by participating in the TTP, had decided to exit the tobacco industry. One of the sons, Jason Slusarczyk, decided to retain his BPQ and did not submit a new application for the TTP. As required by the TTP, on March 31, 2009 the Board removed the quota system (Regulation 122 – 2009), and replaced it with the licensing system that is currently used to regulate the production of tobacco in Ontario.

Having made the decision to rescind the transfer of BPQ, the parents and two of the three sons in the Slusarczyk family were effectively out of tobacco production and gave up their ability to continue as growers in the tobacco industry. Jason Slusarczyk, who did not participate in the TTP, obtained a licence from the Board to produce tobacco. Both Joseph Slusarczyk Sr. and Joseph Slusarczyk Jr. testified that Jason Slusarczyk is the only member of the family that is allowed to produce tobacco. The Appellants testified that Jason Slusarczyk is renting land from Woodbury, and the two Slusarczyk sons who participated in the TTP are being paid wages by Jason Slusarczyk for their work as Jason is the only member of the family that holds a licence to produce tobacco.

The Board’s witness, Mr. Fred Neukamm, testified that the Board had an obligation to uphold the integrity of the TTP and the intent to assist growers in making a permanent exit from the tobacco industry. After the telephone call of March 24th, 2009, Mr. Neukamm testified that all of the BPQ transfers were rescinded except for a handful of producers who were in unique circumstances.

Mr. Neukamm advised the Tribunal that those individuals who did not reverse their transfers were audited. Also, the Board and the federal government developed a list of those participating in the TTP or who were considered a beneficiary of the TTP to determine who received a benefit in any way from the TTP. If an individual was on the list, then the federal government told the Board that they were deemed ineligible for a licence to produce tobacco.

Mr. Neukamm confirmed that in May 2009, the Board allowed some amendments to the TTP applications but did not permit any transfers of BPQ. Mr. Neukamm admitted there were numerous appeals but most, if not all, had to deal with corporate situations where some corporate partnerships wanted to withdraw their names from the TTP application or one of the partners wanted to divest. Mr. Neukamm could not recall any other appeals dealing with a transfer and re-transfer similar to the Slusarczyk appeals.

Findings and Reasons

The Tribunal accepts the evidence of the Board that the TTP was a federal government program and that it was the federal government that raised a concern about the transfer of BPQ between related parties that may circumvent the intention of the TTP, which was to facilitate the exit of producers from tobacco production. The evidence shows that the Board notified BPQ holders that the federal government intended to flag any applicants for a licence to produce tobacco who had transferred BPQ and that there was a risk that the federal government would audit those individuals to determine whether they received any direct or indirect benefit from the TTP. It was clear that if an individual received a benefit from the TTP and applied for a licence to produce tobacco, then they may be required to pay the TTP monies back to the federal government.

The Tribunal notes that, other than hearsay and allegations, there was no evidence or testimony before the Tribunal to support the Appellants’ allegations that they were treated differently, or received different information about the program, than any of the other producers.

The evidence shows that the position of the federal government was immediately communicated by the Board to producers and they were provided an opportunity to revoke any transfers they had made if they were concerned their transfers may contravene the federal government’s guidelines for participation in the TTP. The producers, including Mr. Slusarczyk Sr., were advised to consult with their legal counsel to determine whether or not to rescind the transfers of quota. The two Slusarczyk sons, Joseph Jr. and Joshua, rescinded their transfers to Woodbury and participated in the TTP.

The evidence presented to the Tribunal by the Board established that, subsequent to the rescission of the two Slusarczyk sons’ transfers, the federal government clarified its position on the TTP guidelines to indicate that transfers for individuals who wanted to continue to grow tobacco would be acceptable if, for example, a transferor of BPQ subsequently applied for a licence to produce tobacco on land owned by a TTP recipient, if that land and/or infrastructure was rented at fair market value and the TTP participant did not benefit from the tobacco crop.

It is the Tribunal’s opinion that based on the evidence before it, all producers made decisions based on the information provided by the Board. This information included the AAFC hotline, newsletters, emails, and information sheets, among others, in addition to the advice from producers’ legal counsel on the best strategy to follow. The majority of producers elected to rescind their transfers and did not challenge or appeal the decision of the Board.

The Tribunal accepts the evidence of the Board that all producers received the same information at the same time. There was no evidence presented to the Tribunal by the Appellants that when Joseph Jr. and Joshua rescinded their transfers they intended to apply for a licence to produce tobacco similar to their brother Jason.

The Tribunal recognizes that the information about the TTP and the change in the guidelines was confusing for producers; it is clear from the evidence that all producers were in the same position and received the same information at the same time. The Appellants were treated no differently than any other producer. Further, the Tribunal accepts the written and oral evidence of Board that the objective of the TTP remained constant throughout the process, which was to allow producers to transition out of the tobacco industry on the understanding they would no longer grow tobacco.

ORDER OF THE TRIBUNAL

For the reasons set out above, the Tribunal denies the appeal.

Dated at London, Ontario this 10th day of August, 2011

Footnotes

1. 1The detailed responsibilities of the Board are set out in article 3.2 of the TTP Agreement.
2. 2Exhibit 1, Tab 18, Agriculture and Agri-Food Canada, Just the Facts, Tobacco Transition Program.
3. 3Exhibit 1, Tabs 29 – 32.
4. 4Exhibit 1, Tabs 34-35.
5. 5if the purpose of [their] transfer was to maintain eligibility for a licence to grow, and if [they] are granted a licence, [their] quota transfer may be deemed a circumvention of the TTP and both parties to the transfer may be responsible to repay the money. Mr. Slusarczyk Sr. was told that the Federal government intends to flag any applicants for a licence who have transferred quota and may audit those individuals to ascertain whether direct or indirect benefit from the TTP was realized.
6. 6Exhibit 1.
7. 7Exhibit 1, Tab 35.