Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West
Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West
Guelph, (Ontario) N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca
Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: AFRAAT@ontario.ca
AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL
APPEAL:
Osztrovics v The Ontario Flue-Cured Tobacco Growers’ Marketing Board
Osztrovics v OFCTGMB (Decision with Reasons) 2012 ONAFRAAT 16
STATUTE:
Ministry of Agriculture, Food and Rural Affairs Act
HEARING:
May 24, 2012
June 11, 2012
2012-16
NEUTRAL CITATION:
2012 ONAFRAAT 16
Osztrovics v The Ontario Flue-Cured Tobacco Growers’ Marketing Board (Decision with Reasons)
IN THE MATTER OF SECTION 16 OF THE MINISTRY OF AGRICULTURE, FOOD AND RURAL AFFAIRS ACT, R.S.O. 1990, CHAPTER M.16, AS AMENDED.
AND IN THE MATTER OF: An appeal to the Agriculture, Food and Rural Affairs Appeal Tribunal by Violet Osztrovics of Burford, Ontario, from the decision of The Ontario Flue-Cured Tobacco Growers’ Marketing Board denying her 2012 application for licence eligibility to produce tobacco.
Before: Nicholas Richter, Vice-Chair; Paula Lombardi, Vice-Chair; Richard Smelski, Member
Appearances:
Daniel Chitiz, counsel for the appellant
Alastair McNish, co-counsel for the appellant
Violet Osztrovics, appellant/witness
Geoffrey Spurr, counsel for the respondent
Fred Neukamm, witness for the respondent
REASONS FOR DECISION
This appeal was heard by the Agriculture, Food and Rural Affairs Appeal Tribunal (the “Tribunal”) on May 24, 2012, in the Tribunal Boardroom, Guelph, Ontario. The appellant, Violet Osztrovics (“Violet”), appealed the decision of The Ontario Flue-Cured Tobacco Growers’ Marketing Board (the “Board”) denying her 2012 application for licence eligibility to produce tobacco. As the matter was urgent, the Tribunal released its decision without reasons on May 28, 2012, and dismissed Violet’s appeal. These are the reasons for the Tribunal’s decision.
Introduction
In February 2012, Violet submitted an application for licence eligibility to the Board for the 2012 crop year. That application was denied by the Board because of Violet’s relationship to her son, Victor Osztrovics (“Victor”). The Board perceived that Violet was making her application on behalf of Victor, and the Board was not prepared to grant a licence to Victor because of Victor’s prior contraventions of the Board’s regulations. The Board determined that Victor was de facto the producer standing behind Violet’s licence eligibility application and denied the application on that basis.
On April 12, 2012, the Board held a hearing to reconsider its decision to deny Violet’s application. Violet attended the hearing with counsel and gave evidence to the Board. After hearing that evidence, the Board confirmed its decision to deny Violet’s application for licence eligibility in 2012.
Violet appeals the Board’s decision and asks the Tribunal to issue an order directing the Board to grant her a 2012 licence to produce tobacco. Violet alleges that the Board incorrectly determined that she was applying for licence eligibility to grow tobacco on behalf of Victor and that there was no basis to deny licence eligibility to her.
The Issues
The issues to be determined on this appeal are:
whether Violet’s 2012 application for licence eligibility to produce tobacco should be granted; and
if so, whether Violet should be granted a 2012 licence to grow tobacco.
The Evidence
A. The Osztrovics Farm
Violet was the only witness who testified on behalf of the appellant. Violet is 69 years old. She resides on a farm in Burford, Ontario, where she has lived since 1959. Her husband, John Osztrovics (“John”), died in 2008. Violet has been involved in farming at the farm for the past 54 years. When the family started growing tobacco, Violet was involved in all aspects of the work, including seeding in the greenhouse, working the land, pulling the plants, planting, replanting, watering, carrying the guns, and cultivating. In recent years, Violet’s involvement has consisted primarily of speaking to the workers and overseeing their work. The farm has a number of employees, some of whom have worked on the farm for 25 years.
The farm consists of a number of parcels of land, in close proximity to each other. Violet provided the Tribunal with a map of the farm, and described three distinct parcels of land on which the family produces tobacco (it appears from the map that there may be other parcels of land that are part of the farm, but they were not described in the evidence). The central parcel of land is approximately 100 acres and fronts on Concession Road 6 to the south and Lawrence Road to the west (the “Central Parcel”). Violet’s home is located on the Central Parcel. Violet is seeking a licence to produce tobacco on approximately 51.5 of the 100 acres comprising the Central Parcel.
Immediately to the north of and adjoining the Central Parcel is another parcel of land that fronts on Lawrence Road to the west (the “Northern Parcel”). The extent of the Northern Parcel is not clear from Violet’s evidence or from the map that she provided, but it appears to be of a substantial size. Violet’s son, Victor, and Victor’s wife, Elysia Osztrovics (“Elysia”), reside on the Northern Parcel. Their home is located very close to the property line between the Northern Parcel and the Central Parcel, in close proximity to some of the fields on which Violet proposes to produce tobacco.
To the south of the Central Parcel is another parcel of land that appears to front on County Road 53 to the north (the “Southern Parcel”). It is not clear from Violet’s evidence or the map she provided whether the Southern Parcel adjoins the Central Parcel, but they are in very close proximity to each other. Violet described the Southern Parcel in her evidence as being “right beside my house.” It is unclear whether anyone lives on the Southern Parcel, but it includes fields totalling 12-14 acres on which Violet proposes to produce tobacco.
The Tribunal was not provided with any evidence regarding the ownership of the Northern Parcel, where Victor and Elysia live. The Central Parcel was owned by Violet until June 1, 1999, when she transferred it in a series of transactions to herself, John, and Osztrovics Farms Ltd. (“OFL”) for total consideration of $650,000. As a result of those transactions, Violet and her husband, John, were granted a life interest in the Central Parcel, and OFL received the remainder interest. The Southern Parcel was originally owned by Violet until June 1, 1999, when she transferred it to OFL for $135,000. Violet and John did not receive a life interest in the Southern Parcel, which is beneficially owned by OFL. Violet testified that, to date, she has not received payment of any of the consideration for these two transfers. Her understanding was that she would be paid for the property over time and that the decision as to whether to make a payment would be made together with Victor.
B. Osztrovics Farms Ltd.
OFL is an Ontario company that was incorporated on January 28, 1997. Victor and Elysia own all of the common shares of OFL. There are also Class A special shares which carry voting rights and are retractable and redeemable for $1.00 per share. Violet and Victor own all of the Class A shares of the company. Although the shareholders’ register that was provided to the Tribunal is confusing, the parties are agreed that, since the company was incorporated in 1997, Violet has had voting control of the company. Victor became bankrupt in June 2011, and his shares have therefore vested in the trustee in bankruptcy. To date, none of Violet’s shares have been retracted or redeemed.
Since incorporation, Victor and Elysia have been the sole directors of OFL until Victor’s bankruptcy in 2011, when Violet replaced Victor as a director. Similarly, Victor and Elysia have been the sole officers of the company from the date of incorporation until Victor’s bankruptcy, with Victor holding the office of president and Elysia holding the office of secretary-treasurer. After Victor’s bankruptcy in 2011, Elysia replaced Victor as president while retaining her position as secretary-treasurer. The current situation, then, is that Elysia and Violet are the sole directors of the company, and Elysia is the sole officer of the company. Violet has never been an officer of the company. Violet acknowledged on her cross-examination that up until the True Blend Incident (which occurred in 2010 and is further described below), Victor had effectively been in charge of OFL “with my cooperation and my talking with him all the time.”
Fred Neukamm was the only witness called on behalf of the respondent. Mr. Neukamm is the chair of the Board and has a background in tobacco farming, although he is not currently a tobacco producer. Mr. Neukamm testified that Violet had not been an applicant for a licence to produce tobacco since the late 1990s, and that any involvement of OFL during Mr. Neukamm’s tenure on the Board (which began in 2002) had always been conducted by Victor. It appears, then, that around the time that OFL was incorporated and the properties were transferred to the company in the late 1990s, there was also a transfer in the day-to-day control of the tobacco operation from Violet to Victor.
C. Victor’s Contraventions of the Board’s Regulations
Victor ran into difficulties with the Board not long after this transition. Both Violet and Mr. Neukamm testified about a number of incidents between Victor and the Board, and the Tribunal was also provided with documentation relating to those incidents. From that evidence, the Tribunal finds that:
In 2003, Victor signed an inspection sheet for the 2003 crop which failed to identify a field where he was growing tobacco. The Board decided that the crop should be cut down and destroyed, and this decision was affirmed by the Tribunal (the “2003 Incident”).
In 2005, the Board determined that Victor, with full knowledge of his obligation to disclose his tobacco fields, failed to do so and swore a false certification to the Board. As a result, the Board decided that 7.63 acres of tobacco should be destroyed. In addition, the Board ruled that all of Victor’s tobacco would remain subject to detention by the Board until it was either sold in accordance with the Board’s regulations in effect at the time or destroyed under supervision of the Board. The Board concluded its decision by stating that “[t]he Board is extremely concerned by Mr. Osztrovics’ cavalier attitude towards the completion of the Inspection Sheet in 2003 and again in 2005. With this decision, it should be clear to Mr. Osztrovics that the onus is on him to identify his fields and carryover to the inspector and that the Board will not be as lenient with any further breach of the General Regulations of this nature” (the “2005 Incident”).
In 2008, the Board determined after a hearing that OFL had circumvented the marketing plan for tobacco by causing 1,276 pounds of its tobacco to be processed by True Blend, a new business venture of Victor’s that did not have a buyer’s licence at the time and could not lawfully purchase tobacco from OFL. The Board further found that OFL had substantially overproduced tobacco in 2008. OFL had requested permission to transfer additional tobacco to True Blend, and this request was denied. In addition, the Board ordered the destruction of the approximately 1,276 pounds of tobacco that was unlawfully transferred to True Blend. OFL was represented at the hearing by Victor and counsel (the “2008 Incident”).
In 2009, the Board determined that Victor had violated the Board’s regulations by seriously under-reporting his tobacco acreage by 15.46 acres and failing to have a contract of purchase for those acres. The Board made a number of orders against Victor as a result of these infractions, including an order placing Victor’s 2009 crop in detention and an order requiring Victor to pay the Board a service charge in an amount that reimbursed the Board for its expenses in connection with the detention. That service charge, totalling $3,698.99, remains unpaid (the “2009 Incident”).
Violet testified that she was not aware of the 2005 Incident, the 2008 Incident, or the 2009 Incident. She was not asked about the 2003 Incident. Mr. Neukamm testified that, while he did not want to suggest that Violet was being untruthful, he was surprised that she was not aware of these incidents. He thought that for someone with a vested interest in the farm, she ought to have been aware that these things were going on.
D. The True Blend Incident
In addition to the above incidents, in which Victor engaged in unlawful activities as a producer, Victor also ran into difficulties with the Board as a result of his activities with True Blend, a buyer of tobacco. True Blend was a business started by Victor (apparently with a partner, Brian Poreba) for the purpose of acquiring tobacco from producers. True Blend defaulted on the purchase of tobacco from producers for the 2010 crop year totalling approximately $6.5 million (the “True Blend Incident,” described by Violet’s counsel in his opening statement as the “True Blend fiasco”). As a result of the True Blend Incident, Mr. Justice McDermid of the Ontario Superior Court of Justice issued an order on April 1, 2011, freezing all of Victor’s and True Blend’s assets. This matter remains before the courts. In June 2011, as a result of the True Blend Incident, Victor made an assignment into bankruptcy.
Violet testified that she had no involvement with the True Blend business, was not a principal of the company, and did not have any interest in the company. She also said that she was not a party to the litigation that is currently before the courts as a result of the True Blend Incident. She did acknowledge on cross-examination, however, that True Blend had purchased some of OFL’s tobacco while she was a shareholder of OFL.
Violet testified that up until Victor started the True Blend business, he had been very involved in the farm. In 2009 and 2010, however, he started spending a lot more time on the True Blend business and less and less time on the farm, to the point that Violet told Victor that he was not spending enough time on the farm. True Blend was located in Tillsonburg, approximately a 45-minute drive from the farm. Violet said that, as a result of Victor’s absence from the farm, she spent more time out with the workers to make sure that everything was going right.
E. Subsequent Applications to the Board
In spite of the incidents described above, the Board was quite lenient in dealing with subsequent applications from Victor. In 2009, for example, Victor was granted a licence to produce tobacco, notwithstanding the 2003 Incident, the 2005 Incident, and the 2008 Incident. The Board’s leniency was not rewarded, however, as Victor then proceeded to under-report his tobacco acreage by 15.46 acres in 2009 and also failed to have a contract of purchase for those acres.
Notwithstanding these further violations, the Board granted Victor an exemption for 2010 allowing him to be an eligible producer. It appears that Victor required an exemption because of his affiliation with True Blend, which was a manufacturer or leaf dealer. Mr. Neukamm testified that the Board normally prohibits a producer from being affiliated with a manufacturer or dealer, although the Board sometimes grants exemptions. In this case, Victor’s exemption was subject to conditions, one of which was that he pay the service charges arising from the 2009 Incident. As noted above, those service charges were never paid.
Instead, it appears that Victor’s wife, Elysia, applied for an exemption from the board so that she could obtain a licence to produce tobacco in 2010. Elysia apparently required an exemption because, as a result of her marriage to Victor, she was affiliated with True Blend. The Board granted Elysia’s application for an exemption, and Elysia then became the licensed producer for the 2010 crop. Violet testified that she was aware that Elysia was applying for a licence to grow tobacco on the property for 2010, and she was content with that “[b]ecause Elysia and I talked things over and if it wasn’t going right, you know, we could help each other, if Victor was going away a longer time [dealing with the True Blend business].”
In 2011, Elysia applied once again for licence eligibility to produce tobacco. Victor did not apply this time. The Board determined that Elysia was an ineligible applicant because of her affiliation with True Blend, and advised her that her application had been denied. Upon learning of this decision, Elysia called the Board to ask if her mother could apply in her stead. The following day, Elysia asked the Board to reconsider its decision on the ground that she had been granted an exemption and treated as eligible in 2010. The Board convened a hearing, but upheld its original decision. By this time, the Board had learned from certain licensing documents obtained from the provincial government that Elysia was not just the spouse of a buyer but was in fact a director of True Blend. In addition, True Blend had by this time defaulted on its obligations to producers in 2010, and the court had made its order freezing True Blend’s and Victor’s assets (which, according to the Board’s reasons for decision, extended to assets owned jointly by Victor and Elysia). The Board was not prepared to grant Elysia another exemption in these circumstances.
A few days after the Board released its reasons for decision to Elysia, a Mr. David Szabo applied to the Board for licence eligibility. That application was initially granted based on the information provided by Mr. Szabo. The Board subsequently learned, however, that Mr. Szabo was related to Victor. This information had not been disclosed on Mr. Szabo’s application. Mr. Neukamm testified that the Board held a hearing and that Mr. Szabo appeared before the Board with a friend or prospective partner. The Board questioned Mr. Szabo extensively in order to determine his knowledge of the farm and his technical capabilities to produce a crop of tobacco. Upon this extensive line of questioning, it became very obvious to the Board that Mr. Szabo had absolutely no knowledge of what was to take place on the farm that spring. As a result, the Board determined that Mr. Szabo’s application was being made to circumvent the Board’s prior decisions and the denial of Elysia’s licence application.
Violet testified that Mr. Szabo was one of Victor’s workers, but she did not know that he was submitting an application. She said that she would not have approved of the application, as she did not think he was the right kind of person to grow tobacco because he was not competent enough and did not have a background in tobacco production.
F. The 2012 Applications
In 2012, Violet and Elysia both applied separately to the Board for licence eligibility. Victor did not apply. Violet testified that she decided to apply for a licence because “it came to a time that it was my farm – that was my retirement and I was going to get ahold of how it’s running so I could have my farm that I worked all my life to keep it.” Violet said that she made the decision to apply for licence eligibility in 2012 all by herself and that nobody told her to apply. Specifically with respect to Victor, Violet said that she did not ask him but told him that she was going to apply for a grower’s licence.
The Tribunal was given a copy of Violet’s application for licence eligibility. Violet testified that the application was in her handwriting and bore her signature. Violet testified that she met the definition of an eligible applicant as set out in the Board’s General Regulations 2012-2013 (the “Regulations”). This was not disputed by the Board. Violet also confirmed her willingness to honour the obligations imposed on a licence holder as set out under section 6 of the Regulations. Violet’s application for licence eligibility was submitted on time, and she paid the required administration fee.
Violet testified that after submitting her application, she was advised by means of a message on her answering machine from the Board’s secretary, Christine Jacob, that her application had been denied. No reasons were provided for the rejection. Violet followed up with Ms. Jacob to request reasons for the Board’s decision. By letter dated March 5, 2012 (the “Rejection Letter”), the Board gave the following reasons for its decision:
The Tobacco Board denied your licence eligibility application due to your obvious relationship to Victor Osztrovics.
Essentially, the Tobacco Board perceived your application to be made on behalf of Victor Osztrovics, your son, and the Tobacco Board is not prepared to grant a licence application to Victor Osztrovics.
Victor Osztrovics has engaged in prior contraventions of Tobacco Board regulations. In 2008, following a hearing, a crop that he owned was destroyed. In 2009, he was found to have unreported, by failing to disclose 15 acres of tobacco. In addition, Victor Osztrovics failed to pay tobacco detention costs invoiced to him by the Tobacco Board on December 15, 2009 in the amount $3,698.99, which amount remains unpaid.
It is noteworthy that Victor Osztrovics himself has not submitted a 2012 licence application.
The Tobacco Board has determined that Victor Osztrovics is de facto the producer standing behind your licence eligibility application and determined to deny your application accordingly.
Although Violet does not dispute her relationship with Victor, she does dispute that she made her application on behalf of Victor and that Victor is de facto the producer standing behind her licence eligibility application. Violet said that the board never discussed those issues with her before releasing its decision. She also said that the Board never gave her an opportunity to pay the outstanding tobacco detention costs owed by Victor as a condition of granting her a licence.
By letter dated March 21, 2012, Violet, through her counsel, advised the Board that she wished to appeal the Board’s decision to the Tribunal. She indicated her willingness to waive her right to a hearing before the Board and asked the Board to do the same.
On March 28, 2012, the Board responded through its counsel advising Violet that it was not prepared to waive a hearing before the Board. As a result, the Board held a hearing on April 12, 2012. In a letter that same date, the Board confirmed its earlier decision to deny Violet’s licence eligibility to produce tobacco for 2012. No further reasons were provided for the Board’s decision. Violet then appealed the Board’s decision to the Tribunal.
As noted above, Elysia also applied for licence eligibility in 2012. Violet testified that the reason she and Elysia had each applied was that they each had their own land on which they could grow and that they would each support each other. She said on cross-examination that they had worked on their applications together. Elysia’s application was also rejected by the Board and that decision was confirmed at a hearing on the same day as Violet’s hearing. Elysia did not appeal the Board’s decision to the Tribunal. Violet testified that she was the only one who appealed because she had to get a hold of her life and her situation.
Violet testified that her application and Elysia’s application did not cover the same land. Elysia was going to grow on her property and Violet would grow on hers. Violet said that she and Elysia got along, and that they would each support each other. Violet said that her application was for the Central Parcel, over which she has a life interest, and the Southern Parcel, which she sold to OFL but for which she has not yet been paid. Mr. Neukamm, on the other hand, testified that he attended both Violet’s hearing and Elysia’s hearing before the Board. His recollection of how the two appeals were presented to the Board was that both applications covered the same land. He said that the two applications were mirror images of each other, and that it seemed to the Board that Violet and Elysia were applying for a licence for one or the other of them but not both, whichever one the Board was going to tolerate. It is not necessary for the Tribunal to resolve this issue as it accepts Violet’s evidence that, as of the date of the hearing before the Tribunal, Violet’s intention is to produce tobacco only on the Central Parcel and the Southern Parcel.
Violet was asked both at the hearing before the Board and at the hearing before the Tribunal what role Victor would play in the 2012 tobacco crop, if a licence were granted. With respect to the hearing before the Board, Mr. Neukamm testified that, to the best of his recollection, Violet had told the Board that Victor’s role was undefined. This evidence was uncontradicted.
Before the Tribunal, Violet testified that she had discussed with Victor what his role would be if she received a licence to grow tobacco on the property, and she said that his role was going to be very limited. Violet explained that she was going to be the main controller and main advisor to what they were going to do. She added that Victor had not given her any indication as to whether in fact he was going to work on the property. When asked if Victor had told her what his future plans were, Violet responded, “not yet.”
On cross-examination, however, Violet’s evidence was somewhat contradictory. She testified that she saw Victor every day and sometimes more than once a day, yet she had not discussed with Victor what his role would be if in fact Violet were able to grow tobacco this summer. She said that they did not have plans yet as to what they were going to do with Victor. She said that her plan was to save her farm. Although Violet alluded several times in her evidence to wanting to save the farm, she did not provide the Tribunal with financial statements or any other documentation setting out the farm’s financial circumstances or business strategies.
Violet was asked on cross-examination whether the land had been prepared for tobacco production this summer. She said that all of the land had been prepared, whether for tobacco or not. She denied that Victor had been involved in preparing the land. She said that the land had been prepared by a worker named “Doug” or one of the other workers on the farm. Violet did acknowledge that Victor was involved in producing ginseng on the farm, together with Violet, Elysia, and the farm’s offshore workers.
Violet was also asked on cross-examination about crop insurance. She said that OFL had applied for insurance in the past, but that it had not applied for 2012 for the acres on which she proposed to grow tobacco.
With respect to the disposition of the tobacco crop, Violet testified that she intended to enter into a contract of purchase with “whoever Elysia had,” which she said was a registered buyer known as “White Buffalo.” According to Mr. Neukamm, Violet would not be able to enter into a contract with White Buffalo until she had a licence. Violet testified that Elysia had spoken to White Buffalo, but that she had not. Violet said that she was pretty sure that she could become a very good negotiator in terms of price, but that she had not had any discussion with White Buffalo on that issue. She did not know where White Buffalo was located.
G. The Regulatory Context
Mr. Neukamm provided an historical overview of the regulation of tobacco production in Ontario. He explained that the Board had gone from a quota system to a licensing system in the spring of 2009, immediately after the implementation of the Tobacco Transition Program (the “TTP”), which was a program funded by the federal government which caused the quota system to be eliminated. Under the new system, there are just slightly in excess of 200 licensed growers. The vast majority of the tobacco is purchased by two companies, Alliance One and Norfolk Leaf. There are a number of smaller buyers, but approximately 95% of the crop is purchased by those two companies. Under the new system, the Board does not market tobacco but functions as the licensing agency of Ontario tobacco producers on behalf of the Province of Ontario.
Mr. Neukamm explained that buyers of tobacco register with the Board, which then allows them to contract with an eligible farmer. In order to be registered as a buyer with the Board, a buyer must provide the Board with their requisite licensing with the Canada Revenue Agency and the Ontario Ministry of Finance.
The Board enacts its regulations on an annual basis in relation to the coming crop year. Mr. Neukamm said that in consultation with the Canada Revenue Agency, the Ontario Ministry of Finance, the Royal Canadian Mounted Police, and the Ontario Provincial Police, the Board had been encouraged to include in its regulations a prohibition on offering a production licence to anyone who had any sort of excise offence or illegal tobacco sales against them.
Mr. Neukamm explained that growers enter into a contract for purchase with a buyer for a targeted volume or poundage of tobacco to be grown. This poundage is then translated into an intended acreage grown at a reasonable targeted yield. The Board allows some surpluses due to growing conditions. The Board also allows some excess acreage but only up to 2% of the original contracted acreage. Anything over 2% results in destruction by the Board. The same holds true for unreported acreage. Acreage is determined by GPS done by a third party contractor. Mr. Neukamm explained that the reason for destruction in these cases is that, in the view of the major buyers of tobacco, any surplus tobacco is at risk to enter the illicit market. Mr. Neukamm said that illicit sales of tobacco products are a major concern for both levels of government and, to a degree, for society at large. He said that in the past two crop years, the Ontario Ministry of Finance had seconded two and often three of their officers to the Board to assist in tobacco inspections.
Mr. Neukamm explained that, in evaluating whether an applicant should get a licence to produce tobacco, the Board would consider a number of factors including the person’s technical and financial capability and the applicant’s prior track record, with a view to maintaining integrity within the sector. Mr. Neukamm said that the overarching principle of the Board’s regulations was that an appropriate, eligible producer is growing tobacco in a prescribed amount, selling that tobacco to a licensed buyer, and reporting to the satisfaction of the Board, thereby helping to ensure integrity within the sector.
H. The Board’s Rejection of Violet’s Application
With respect to Violet’s application, Mr. Neukamm explained that the application had been rejected because the Board had a track record of behaviour by Victor which led the Board to the conclusions set out in the Rejection Letter. Violet had not been an applicant since the late 1990s. Any involvement of OFL had always been conducted by Victor. Victor had been a licensee in 2009, but had run afoul of the Board’s regulations in that year. In 2010, Elysia applied for a licence. In 2011, she applied again and was denied. Immediately upon that denial, one of Victor’s workers, Mr. Szabo, applied for a licence to grow on the same farm. As a result, there was a track record of behaviour that led the Board to believe that Victor’s involvement was continuing in this operation, and nothing that the Board heard given as evidence at the time led the Board to believe otherwise. The Board remained unconvinced that Victor did not have a significant role in that farming operation and did not have the comfort that he was not going to have his hands all over the tobacco crop.
Mr. Neukamm said that, while Violet has never had any prior contravention of the Board’s regulations, the only way that he could see issuing a licence to her for this farm would be if there were some bona fide method of preventing Victor from having any involvement in that tobacco production. Mr. Neukamm said that he was not sure how this could be done. He said that there was enough evidence of prior contraventions of the Board’s regulations, and a perception of risk of further contraventions, that it was not in the public interest for Victor to be anywhere near a crop of tobacco.
When pressed on cross-examination, Mr. Neukamm said that it would be sufficient for the Board to deny a licence to Violet if Victor were to drive a truck on the farm, if this involved the production of tobacco. He said that it did not matter how minimal a role Victor might play, from the Board’s point of view that would be a basis for denying Violet a licence to grow tobacco. Mr. Neukamm acknowledged that, while the Board may have had the power to grant Violet a licence subject to the condition that Victor not be involved, the Board chose not to do so. However, Violet did not offer any assurance to the Board about keeping Victor out of the tobacco operation. Mr. Neukamm also acknowledged that the Board did not want to grant Violet a licence on the condition that she pay the $3,698.99 owed to the Board by Victor. The Board did not want to impose any condition on a licence but simply wanted to proceed with an outright refusal to grant the licence.
Analysis
Issue #1: Whether Violet’s 2012 application for licence eligibility to produce tobacco should be granted
It falls to the Tribunal in this case to determine whether Violet’s 2012 application for licence eligibility should have been granted by the Board. Under section 16(11) of the Ministry of Agriculture, Food and Rural Affairs Act, R.S.O. 1990, c. M.16, the Tribunal is empowered to direct the Board to take such action as the Board is authorized to take and as the Tribunal considers proper, and for this purpose the Tribunal may substitute its opinion for that of the Board.
Under section 3, subparagraph 1 of Ontario Regulation 208/09, enacted under the Farm Products Marketing Act, R.S.O. 1990, c. F. 9, the Farm Products Marketing Commission has delegated its regulation-making powers to the Board to provide “for the licensing of any or all persons before commencing or continuing to engage in the producing, assembling, buying, offering for sale, selling, storing or transporting of tobacco.” The Board has exercised these powers by enacting the Regulations. The Board is also empowered under section 4(2)(b) of Ontario Regulation 208/09 to refuse to grant a licence where, among other things, the Board “is of the opinion that the applicant . . . has failed to comply with or has contravened any provision of the Act, the applicable regulations or any order or direction of the local board or of a marketing agency of Canada.”
The Regulations contemplate a two-step process for obtaining a licence to produce tobacco: (1) applying for licence eligibility under section 3 of the Regulations, and (2) applying for a licence to produce under section 5 of the Regulations. With respect to the first step, all applicants seeking to enter into a contract for purchase of tobacco are required under sections 3(1) and 3(2) of the Regulations to complete and file with the Board an application for licence eligibility and to pay an administration fee of $100.00. Under section 3(3) of the Regulations, the Board may then determine the eligibility of the applicant based on the information contained in the application or may require further information from the applicant. In this case, there is no issue that Violet filed her application in a timely manner and that she paid the administration fee.
Section 1(c) of the Regulations defines an “eligible applicant” as an applicant for a licence to produce who intends to enter into a contract for purchase and who is not an ineligible applicant. An ineligible applicant is one who has participated in certain government programs such as the TTP, has a record of contraventions of the laws dealing with the control of the production, marketing, and taxation of tobacco or tobacco products, or who is licensed as a domestic manufacturer or an export leaf dealer or is affiliated or associated with such entities. The Tribunal accepts that, under these provisions, Violet is an eligible applicant if her application is considered without reference to her relationship with Victor.
The issue in this case is whether it is appropriate to consider Violet’s relationship to Victor in assessing Violet’s application. In Villetard’s Eggs Ltd. v. Canada (Egg Marketing Agency), 1995 CanLII 3590 (FCA), [1995] 2 F.C. 581 (C.A.), the Federal Court of Appeal considered a similar issue in the context of a licence application for interprovincial trade in eggs. In that case, the licensing agency had denied the application because the applicant was closely related to a partnership whose licence had been revoked for breaching the applicable regulations. In assessing the application, the licensing agency had treated the applicant and the related partnership as the same entity. The court upheld the licensing agency’s decision to deny the licence and also affirmed the agency’s approach in treating the applicant and the partnership as a single entity. The court held that, in the circumstances, it was essential for the licensing agency to consider the interrelationship between the parties and that it might have been a reversible error for the agency to fail to take that interrelationship into account.
Similarly, this Tribunal in Knotek Brothers upheld the cancellation of a licence on the basis that the licence holder had produced a crop under a related party’s licence in order to circumvent restrictions on its own licence. Although the facts in Knotek Brothers were different from the facts in this case, the general principle remains that a licensing agency may look behind the applicant at related parties in deciding whether to grant a licence.
In assessing a licence application, it is important to keep in mind the purpose of the legislation under which the Board operates. Section 2 of the Farm Products Marketing Act provides that “[t]he purpose of this Act is to provide for the control and regulation in any or all aspects of the producing and marketing within Ontario of farm products including the prohibition of such producing or marketing in whole or in part.” In the case of tobacco, the control and regulation of the product is particularly important because of the risk, described by Mr. Neukamm, that surplus tobacco will find its way into the illicit market. It is therefore appropriate for the Board to subject an applicant to a fairly high degree of scrutiny before deciding whether to grant an applicant eligibility for a licence to produce tobacco.
In this case, there were ample grounds for the Board’s concern that Victor was de facto the producer standing behind Violet’s licence eligibility application. Among other things:
Violet had not applied for a licence since the late 1990s;
since then, Victor had been the applicant, and all of the Board’s dealings had been with Victor;
after the Board made payment of the outstanding service charges a condition of Victor’s exemption in 2010, Elysia became the applicant;
after Elysia was refused an exemption in 2011, her first response was to ask whether her mother could apply in her stead;
when the Board confirmed its decision to deny Elysia an exemption in 2011, one of Victor’s employees, Mr. Szabo, applied for licence eligibility; and
after Mr. Szabo was unsuccessful in obtaining a licence in 2011, both Violet and Elysia applied for licence eligibility in 2012.
In the face of strong circumstantial evidence that Victor was involved in Violet’s application for licence eligibility, and given Victor’s long record of contravening the Board’s regulations, it was incumbent on Violet to satisfy the Board that Victor’s presence on the farm would not result in further contraventions of the Board’s regulations. Under the reasoning in Villetard, the Board was entitled to treat Violet and Victor as one unit for the purpose of assessing Violet’s application.
Violet’s evidence before the Tribunal was unsatisfactory in a number of respects. She was led through much of her evidence, which gave the appearance that her evidence was tightly controlled. On some occasions, particularly with respect to corporate and financial issues, Violet appeared hesitant in giving her answers. Violet also appeared to downplay Victor’s presence on the farm. For example, the map of the farm that Violet provided to the Tribunal bears a handwritten annotation “Elysia Home” with an arrow pointing to the house where Victor and Elysia live. It was only on cross-examination that the Tribunal learned that Elysia’s home was also Victor’s home and that Victor still resided there.
Even disregarding the above concerns, Violet’s evidence was unsatisfactory on the crucial issue of what Victor’s role would be if a licence to produce tobacco were granted. This issue was raised with Violet at the hearing before the Board, and her response was that Victor’s role was undefined. Clearly, this issue was important to the Board, and the Board was not satisfied with Violet’s answer given that the Board confirmed its original decision to deny Violet’s application for licence eligibility. There were six weeks between the hearing before the Board and this hearing before the Tribunal, and it would have been reasonable for Violet to make use of that time to prepare a detailed plan that addressed the Board’s concerns about Victor’s involvement.
Instead, Violet testified before the Tribunal, in chief, that she had discussed the matter with Victor and that his role would be very limited. She said that she would be the main controller and the main advisor, but she did not indicate whether Victor would also be a controller or an advisor. She did not provide any details as to what Victor’s role would be. Rather, she told the Tribunal that Victor had not given her any indication as to whether he was going to work on the property, as if it were up to Victor whether he would be involved in producing tobacco. Surely, if Violet was planning to take control, as she repeatedly testified, it would not be up to Victor to determine his involvement in the tobacco operation.
On cross-examination, Violet’s evidence changed somewhat. In chief, she testified that she had discussed with Victor what his role would be; in cross-examination, Violet testified that she had not discussed this issue with him even though she spoke to Victor every day and sometimes more than once a day. Violet’s evidence on this crucial issue falls far short of what would be required to satisfy the Tribunal that, as Mr. Neukamm put it, Victor would not have his hands all over the tobacco crop. This concern was heightened by Violet’s evidence that, with respect to the farm’s ginseng operation, she, Victor, Elysia, and the offshore workers all worked on the crop together. It was not clear to the Tribunal how the tobacco crop would be any different, other than Violet’s statement in chief that Victor’s role would be very limited. Given Victor’s lengthy history of contraventions and his ongoing presence on the farm, bald assurances are not sufficient to address the Tribunal’s concern that Victor’s presence on the farm will result in further contraventions.
There were other aspects of Violet’s evidence that also caused the Tribunal concern. For example, although Violet has been in control of OFL since the company was incorporated in 1997, she was not aware of the 2005 Incident, the 2008 Incident, the 2009 Incident, or the True Blend Incident at the time those incidents occurred. It is hard to understand how Violet could not have been aware of any of these incidents, especially when she testified that, while Victor had effectively been in charge of OFL, this was “with my cooperation and my talking with him all the time.” Although Violet said that she was now taking control, the Tribunal was not provided with any evidence that Victor agreed to this plan or that Violet had the practical ability to assert her control against Victor if Victor decided to ignore Violet’s wishes.
Another concern is that Violet did not appear to be particularly knowledgeable about the tobacco operation or about what would be happening on the farm. She did not appear to have much knowledge about what specific steps had been taken to prepare the land to grow tobacco. She did not seem to know much about the buyer to whom she hoped to sell her crop. She had not had any discussions with the buyer; Elysia had those discussions. She also did not appear to have given much thought to whether crop insurance would be required.
Violet has the onus on this appeal of persuading the Tribunal that her 2012 application for licence eligibility should be granted. Given the deficiencies in Violet’s evidence, the Tribunal is not satisfied that Violet has met her onus. The Tribunal agrees with the Board’s approach in treating Violet and Victor as one for the purposes of assessing Violet’s application. While the Tribunal accepts that Violet is sincere in her wish to take control of the farm, she has not satisfactorily addressed the Board’s concern, shared by the Tribunal, that granting Violet’s application would result in further contraventions of the Board’s regulations by Victor. Any such contraventions would seriously undermine the legislative purpose of providing for the control and regulation of the producing of tobacco in this province. Based on the evidence before it, the Tribunal is not prepared to substitute its decision for the Board’s decision and to grant Violet’s application for licence eligibility. The Tribunal finds that the Board’s decision was reasonable in the circumstances.
In reaching this decision, the Tribunal acknowledges some of Violet’s criticisms of the reasons given by the Board in its Rejection Letter. The Tribunal accepts Violet’s evidence that she did not make her application on behalf of Victor, and the Board’s perception that this was the case may well have been wrong. However, the Board had strong circumstantial evidence at the time that Violet’s application was yet another attempt by Victor to circumvent the Board’s regulations. The Tribunal also accepts Violet’s point that none of the incidents cited by the Board in the Rejection Letter prevented Victor from being licensed in 2009 or Elysia from being licenced in 2010. By the time the Board rejected Violet’s application, however, the Board had become aware of further incidents involving Victor, including the True Blend Incident and the 2011 application by Mr. Szabo. As for the Board’s determination that Victor was de facto the producer standing behind Violet’s licence eligibility application, there was some justification for this statement, not in the sense that Victor asked Violet to apply for licence eligibility but rather in the sense that there appeared to the Board to be a strong risk that Victor would continue his involvement with the 2012 tobacco crop if a licence were granted, in which case the change in applicant might not result in any effective change in producer.
The Tribunal does not agree with Mr. Neukamm’s statement that, no matter how minimal Victor’s role might be, this would provide a basis for the Board to deny Violet a licence to produce tobacco. It remains open to Violet to obtain a licence to produce if she can provide a clear, detailed, and transparent plan, satisfactory to the Board, setting out Victor’s role, if any, in the production of tobacco. If Victor is going to be involved in the crop, then the extent of his involvement and the limits on his involvement would need to be clearly set out and agreed upon. Violet would have to provide the Board with satisfactory evidence that Victor accepted the plan and agreed to be bound by it. There would also have to be a mechanism setting out what would happen if Victor violated the plan. If Victor is not going to be involved in the crop, then the Board would have to be satisfied that Violet had the necessary labour and facilities in place to allow her to produce tobacco without Victor’s involvement. Violet would also have to provide the Board with satisfactory evidence of Victor’s agreement not to become involved, and there would have to be a mechanism setting out what would happen if Victor violated this agreement. None of the above is intended to set out a rigid structure for what such a plan would look like but is intended to give some direction to the parties if Violet decides to apply for licence eligibility in the future. The Board may have other suggestions or areas of concern, and the requirement for a plan should be tailored to the prevailing circumstances. The fact that Victor resides on the farm, in itself, should not be a permanent bar to Violet’s eligibility for a licence to produce tobacco, so long as the Board’s legitimate concerns are addressed.
Issue #2: Whether Violet should be granted a 2012 licence to grow tobacco
Having decided that Violet’s 2012 application for licence eligibility should not be granted, it is not necessary to decide this issue. The Tribunal notes, however, that section 5 of the Regulations contemplates a separate application for a licence to produce once an application for licence eligibility has been granted. As it appears from section 5 that the application for a licence to produce addresses such issues as historical yields and yields per acre, on which the Tribunal has no evidence, the Tribunal would not be inclined in any event to direct the Board to grant Violet a licence to produce without first giving the Board an opportunity to assess Violet’s application and, if granted, to impose such terms and conditions upon a licence as the Board considered appropriate.
Conclusion
For all of the above reasons, the Tribunal issued its order on May 28, 2012, dismissing the appeal.
Dated at Hamilton, Ontario, this 11th day of June, 2012.