Alan Cunnington v. Dairy Farmers of Ontario, 2012 ONAFRAAT 25

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:

Cunnington v Dairy Farmers of Ontario

Cunnington v DFO [Amended] 2012 ONAFRAAT 25

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

April 3, 2012

DATE OF DECISION:

August 15, 2012

2012-25

NEUTRAL CITATION:

2012 ONAFRAAT 25

Cunnington v Dairy Farmers of Ontario [Amended]

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 Alan Cunnington, of Caledon, Ontario, from a decision of the Dairy Farmers of Ontario denying a request to transfer quota to his daughter.

Before: Susan Whelan, Vice-Chair; Kirk Walstedt, Chair; Tim Mousseau, Member

Appearances:

Alan Cunnington – appellant

Leanne Cheesmond – witness for appellant

Graham Lloyd – General Counsel and Corporate Secretary for respondent, Dairy Farmers of Ontario (DFO)

George MacNaughton – witness for respondent

David Murray – witness for respondent

AMENDED DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on April 3, 2012.

Appeal Overview

Mr. Alan Cunnington is a dairy farmer holding Dairy Farmers of Ontario (“DFO”) licence #594474. He and his wife, Julie, have been dairy farmers since 1978 and owners of quota since approximately 1990. Since 1993 they have rented facilities to continue their dairy operations. Mr. Cunnington seeks to transfer their entire quota holdings of approximately 23 kgs to their daughter Leanne Cheesmond nee Cunnington, who farms with her husband Tomas and his parents, Paul and Elaine Cheesmond, who farm under DFO licence #629332. Neither Leanne nor Tomas Cheesmond currently hold any quota.

Leanne Cunnington was married to Tomas Cheesmond in September of 2008. In the spring of 2009, a new dairy barn was planned for the property of Tomas and Leanne Cheesmond, to house the existing dairy cows owned by Paul and Elaine Cheesmond and the future dairy cows of Leanne and Tomas Cheesmond. This facility was constructed and fully operational by November of 2010.

Beginning in 2006, and continuing to 2010, DFO made a number of changes to the DFO quota transfer policies dealing with transfers from parents to children. Prior to this, quota transferred easily between parents and children.

The DFO asserted that at the time of the planning of the construction of the dairy barn on Leanne and Tomas Cheesmond’s property, the 2009 policy allowed a transfer to a child and a merger with an ongoing operation. This policy was changed in 2010. By letter dated July 23, 2011, Mr. Cunnington applied to the Dairy Farmers of Ontario (the “Board”) for an exemption from the DFO Quota Policy instituted in 2010. This request was denied by the DFO.

Mr. Cunnington now appeals the decision of the DFO to deny his request to transfer their quota holdings to their daughter Leanne Cheesmond. Mr. Cunnington alleges that the DFO Quota Policy changes implemented in 2010 were confusing and not properly communicated to DFO’s members and, therefore, he missed the earlier date of July 31, 2010 to apply for the transfer. Applying by this date would have allowed the application for a transfer to be considered under the 2009 policy. He is requesting that the Tribunal overturn the Board’s decision and that he and his wife be allowed an exemption to transfer their entire quota holdings to their daughter Leanne Cheesmond.

The Parties to the Appeal

Mr. Alan Cunnington, as appellant, and the DFO, as respondent, both appeared as parties on the appeal.

The Issue to Be Determined

The sole issue for determination on this appeal is whether Alan and Julie Cunnington should be allowed to transfer their quota to their daughter Leanne Cheesmond who farms with her husband Tomas and his parents, Paul and Elaine Cheesmond, who farm under DFO licence #629332. Two separate licence holders cannot operate out of the same facility, therefore this transfer would effectively merge the quota of Mr. Cunnington with that of the Cheesmonds.

Mr. Cunnington applied to the DFO for an exemption to the 2010 policy on Parent to Child Transfers and the DFO denied this request in November of 2011. However, as is noted in the reasons below, the Tribunal is of the view that Mr. Cunnington applied to the DFO for an exemption and phrased his appeal to the Tribunal in terms of an exemption solely because he was informed by DFO staff that he would have to apply for an exemption from the 2010 Parent to Child Transfer policy, as the transfer proposed by Mr. Cunnington would not be allowed under the 2010 policy without an exemption being granted because of the merging of the quota that would result.

The Parent to Child Transfer Policies

The DFO policy that governed quota transactions between parents and children prior to August of 2007 was not produced. However, the evidence was that quota transferred easily between parents and children prior to 2007.

In August of 2007, DFO’s policy that governed quota transactions between parents and children read as follows:

Section E - 1 General Rules for Acquiring or Selling Quota

“Sales or purchases of quota may be made:

(b) Through a one-time donation of quota from a parent to a child, on the condition that the child agrees to ship milk on a continuous basis for two years from the effective date of transfer before being able to sell, merge, transfer or donate the acquired quota.”

In August of 2009, DFO’s policy was revised and allowed sales or purchases of quota to a child under Section E - 1 as follows:

(b) “Through a donation of quota from a parent to a child a maximum of one time in any rolling 12-month period, on the condition that the child agrees to ship milk on a continuous basis for two years from the effective date of transfer before being able to transfer or donate the acquired quota. Also, producers who receive quota through a donation are not permitted to link their licensed dairy facility to the licensed dairy facility from which the quota was donated. Parents who donate to a child cannot at any time be added to the licence of the child or immediate family of the child or successors or take over the licence of the child or successors.”

In February of 2010, a new policy took affect under Section C, item number 3, Parent to Child Transfer as follows:

“A parent can transfer quota to a child who does not hold any quota on the condition that the child agrees to ship milk on a continuous basis for five years from the effective date of the transfer before being able to transfer the quota.

Children who hold quota or purchase quota as part of an on-going operation, or purchase quota on an exchange are not eligible to receive a quota transfer from a parent.

Producers who receive quota through a transfer are not permitted to link their licensed dairy facility to the licensed dairy facility from which the quota was transferred.

Parents who transfer quota to a child cannot at any time:

(a) be added to the licence of the child; and

(b) take over the licence of the child or their successors.”

Evidence

The Tribunal heard from four witnesses: Mr. Alan Cunnington and his daughter, Leanne Cheesmond, on behalf of Mr. Cunnington’s appeal and Mr. Richard Murray and Mr. George MacNaughton on behalf of the DFO. All of the parties filed documentary evidence which was admitted into evidence by the Tribunal on consent.

The central DFO documents in this appeal include the letter dated January 19, 2010, advising that the quota transfer policy was under review; the letter of March 2, 2010 announcing quota policy revisions; the notice of April 28, 2010 concerning the deadline for filing requests for quota transactions planned under the August 1, 2009 quota policies; and the policy excerpts of 2007, 2009 and 2010, as listed above. The DFO also provided the P5 Quota Policy Harmonization Update for 2010 which was part of the background for the DFO 2010 policy changes. No other policy documents or regulations were cited by either party.

Appellant

Mr. Alan Cunnington

Mr. Cunnington and his wife Julie coupled with Mr. Barry Shields to operate a dairy farm in 1980. In approximately 1990, Mr. Sheilds left the dairy business and the Cunningtons went into business with Mr. John MacFarlane. This new arrangement also included the purchase of quota. In 1993, this new arrangement ended due to the death of Mr. MacFarlane’s wife and, since that time, Mr. and Mrs. Cunnington have been renting facilities to continue their dairy operation.

Mr. Cunnington testified that his daughter, Leanne Cheesmond, was active in the family dairy farm operation since a very young age and that she participated in several 4H dairy clubs. In 2002, while Leanne Cheesmond was in her final year of high school, her mother, Julie Cunnington, was diagnosed with breast cancer and Mr. Cunnington testified that he suggested at that time that they should sell the cows and the quota. Mr. Cunnington advised the Tribunal that Leanne Cheesmond was prepared to quit school immediately to prevent this from happening as she wished to be able to take over the dairy herd some day. Knowing their daughter’s intentions, the Cunnington’s did not sell their cows or quota and, instead, they hired relief milkers and adjusted their schedules while Julie Cunnington was undergoing treatment.

He testified that Leanne Cheesmond attended the University of Guelph and graduated with a degree from the department of Biology. She is currently enrolled in the Advanced Agricultural Leadership Program with the University of Guelph and is employed at Pioneer Seed as a crop researcher. In 2007, Leanne Cheesmond was engaged to Tomas Cheesmond and, at this point in time, Mr. Cunnington advised that he wished to retire within 3 to 5 years and pass his legacy, both the cows and quota, to their daughter.

Mr. Cunnington testified that Paul and Elaine Cheesmond, and their children Katherine and Tomas, immigrated to Canada from the United Kingdom in 2003 to allow the children to pursue their desired careers in agriculture. The Cheesmond family had experience with a dairy herd of 150 milking pedigree Holsteins and followers, most of which were either imported from Canada or bred from Canadian imports, which provided the incentive to make the move to Canada. They purchased 20 kgs of quota to start their dairy farm in October of 2003 and have slowly expanded to over 30 kgs of quota.

Mr. Cunnington advised the Tribunal that he felt the policy that the DFO has implemented is unfair because it does not allow parents to transfer quota to a child who marries a dairy farmer. And secondly, he also indicated that he believes that the correspondence to communicate this policy dated April 28, 2010 is both confusing and misleading. He maintained throughout his testimony that he believed that the application to transfer quota under the previous policy needed to be made prior to January 1, 2012. He testified that he believed this to be the relevant date as there was no transaction taking place, just a simple transfer from parents to daughter. He testified that he did not think that a transfer was a transaction under the policy.

Mr. Cunnington submitted several letters from individuals very familiar with the dairy industry who also felt the correspondence was confusing and misleading. These individuals included Mr. Larry Sheardown, the former President of Jersey Canada, and Andrew and Jennifer Vandermuelen. Mr. Vandermuelen is also a former President of Jersey Canada. In addition, Mr. Cunnington referred to the petition that he submitted, signed by 40 dairy producers and 20 individuals in the agribusiness, as further evidence that the notice of the April 28, 2010 was confusing.

Mr. Cunnington testified that he takes exception to the opening statement by DFO that he did not have concrete plans to transfer his quota to his daughter. He explained that there was indeed a concrete plan and that plan was that Leanne Cheesmond would take over the dairy herd approximately five years after she finished University. The plan was between himself, his wife and his daughter and he would definitely have moved up the timing if he had understood the notice of April 28, 2010 properly.

Mr. Cunnington testified that the change in policy was not properly communicated at a level that dairy producers could understand. He indicated to the Tribunal that when he first read the notice dated April 28, 2010, he believed they had until January 2012 to transfer the quota to their daughter which fit within the five year time frame of his retirement plans. He learned subsequently that he had misunderstood the notice. However, to be consistent with his original understanding, on July 23, 2011 he wrote a letter to DFO asking for permission to transfer his quota holdings to his daughter. He understood that this would be considered at the meeting in August 2011; however, it was not dealt with by the DFO until November of 2011.

Under cross examination, Mr. Cunnington acknowledged that the letter of July 23, 2011, was his first written approach to DFO to transfer the quota. Mr. Cunnington also stated that he has never been a member of the Dairy Producer Committee and believed that he first became aware that there might be future changes to the parent child transfer of quota at the annual meeting. He acknowledged that he received the letter from DFO dated January 19, 2010 indicating that the Quota Transfer and Donation Policies were being reviewed, and he also testified that he had spoken with Mr. Ian Harrop, the Board member for the DFO for his region, at the annual meeting and understood that the timeline for changes to the policy would be forthcoming. Mr. Cunnington also agreed that he received the letter dated March 2, 2010 that announced Quota Policy Revisions were being implemented.

Upon further questioning, Mr. Cunnington indicated that he did not provide a sworn affidavit prior to July 31, 2010, as he believed there was no need for him to do this. He restated his belief that the transfer to his daughter was not a transaction as he was not conducting a business transaction and that the transfer was within the family. He strongly reiterated his position and belief that there was a difference between a transaction and a transfer. He also confirmed that he did not speak to anyone when he received the April 28, 2010 notice. He maintained throughout his testimony that he thought the deadline was January 1, 2012 to complete the transfer to his daughter and since it fit within his original five year planning timeline, he did not think it was an issue.

Mr. Cunnington testified that he spoke with Mr. Grant Brownridge, his DFO Field Representative, and that was the first time it was suggested to him that he may have misunderstood the notice of April 28, 2010. He also testified that he then called Mr. Harrop, the Board member for DFO for his Region, to discuss the intended transfer and Mr. Harrop advised that he should wait for a while and possibly there would be further changes to the policy. He further testified that, in his mind, it made sense to submit the application prior to January 1, 2012, even though he now understood it was after the Board’s intended date of July 31, 2010. He thought he was to be guided by the January 1, 2012 date, and therefore he felt that if he did not apply by that date, it would be difficult to defend his rationale.

When questioned as to why he did not provide any of these details in his letter, Mr. Cunnington explained that he had spoken to Mr. Harrop at length about the policy and Mr. Harrop had advised him that it was an exception he would need. He also testified that he faxed the letter to Mr. Harrop to review prior to submitting it to DFO.

Mr. Cunnington confirmed that the new Cheesmond dairy barn was completed in November of 2010 and an additional milking parlour was completed in October of 2011. His daughter Leanne Cheesmond had been living and working with her in-laws since her wedding in September of 2008.

He also confirmed that he knew that Tomas Cheesmond was not on the Cheesmond dairy producer licence, and that this was on the recommendation of Mr. Harrop, who also advised that the transfer to both Leanne and Tomas Cheesmond should be completed at the same time.

Under questioning, Mr. Cunnington acknowledged his understanding that under the current policy, he could still transfer the quota to his daughter if she had a separate facility not linked to the Cheesmond operation; however, he also advised that he would never ask her to live away from her husband to do this. Mr. Cunnington stated that this was not an option and had frankly never been an option.

Mr. Cunnington further explained that the delay by the Board to deal with his request in August of 2011 caused him harm because he had a plan that he wanted dealt with prior to the end of the year. He also testified that Mr. Harrop had advised him prior to submitting his letter of July 23, 2011 to DFO that he would have to go to the Tribunal to resolve this.

Ms. Leanne Cheesmond

Ms. Leanne Cheesmond confirmed that she had a BA in Biological Science with a major in plant technology and that she is currently enrolled in the advanced agricultural leadership program.

She testified that she was involved with her family’s dairy farm from a young age; however, it was when she was approximately 17 years of age that she realized she wanted to operate the dairy farm. She explained that the dairy barn was down the road from the family home and so she could not go there alone until she started driving, and she believed she was about 17 when she started doing the chores by herself.

Ms. Cheesmond further testified that from the moment she entered the Cheesmond family, she understood that it was a family operation – and an “all for one” situation. The family had operated a farm in England, and Tomas Cheesmond’s grandfather comes to Canada for three weeks every year to assist.

Ms. Cheesmond testified that when she married Tomas Cheesmond in 2008, the Cheesmond family bought a second farm and in 2009, they started to discuss succession planning. It was decided that a new barn would be built on Tomas and Leanne’s property, as they would one day take over the farm. Tomas Cheesmond’s grandfather came to Canada for two months so that the three generations could build the new barn together. The new barn is 65 feet by 230 feet; it is a steel structure, with a 30 foot pack barn and designed for 65 milking cows, with a six cow step up parlor. Ms. Cheesmond explained that a pack barn is a cow friendly method which allows the cows to roam free.

In addition, the new dairy barn at the Cheesmond family site can hold up to 150 kgs of quota and if her parents’ quota was added to the quota of the Cheesmond family, they would have approximately 57 kgs – well below the barn’s capacity. Ms. Cheesmond explained that the new barn is ready for additional cows on two days notice.

Ms. Cheesmond testified that she was also confused about the intended dates in the notice of April 28, 2010 from DFO. She further testified that she spoke to her father-in-law, Paul Cheesmond, about it, and that he also misunderstood the letter or he would have brought it to her attention. It was very clear to both families that by 2012, when Mr. Cunnington planned to retire, they would be combining or merging the two herds.

Ms. Cheesmond further testified that together with Tomas Cheesmond, she prepared and circulated a petition in February of 2012. Together they took the petition to various dairy farms in the area. She explained that they would approach the individual and if they understood the April 28, 2010 notice, they would thank them for their time; however, if they felt it was confusing or misleading, they would ask them to sign the petition. Everyone that they approached signed the petition and were very supportive of their situation and amazed that the transfer would not be allowed under current DFO policy.

Under cross examination, Ms. Cheesmond explained that the new barn was operational in November of 2010, and that a new parlour was added to the new barn in 2011. However, she emphasized that the new barn was completely functional in 2010.

In response to a question about finances, Ms. Cheesmond testified that the quota transaction was to be private or within the family, and that the decision to transfer the quota was made between 2008 and 2009. Mr. Cunnington advised at this point in the evidence that the quota transfer would be a gift to their daughter.

Respondent

Mr. David Murray

Mr. David Murray is the Vice Chair of the DFO Board, and is also the Board member for Region 10. He became a member of the Dairy Producer Committee in the mid 90s and he has been a dairy farmer for approximately 27 years. He and his wife own and milk 44 cows. In 2006, he joined the DFO Board. He explained that the Board meets to discuss policies and current situations, and to update processes.

Mr. Murray testified that Dairy Producer Committees acts as a liaison between the Board and dairy producers and that it is the Committee’s responsibility to hold information meetings and an area annual meeting. He stated that the local Dairy Producer Committees meet to discuss policy and to hold information sessions to share information. He stated that the Board is a governance board and its role is to direct and protect the industry on behalf of dairy farmers in the province.

Mr. Murray advised that there were a number of changes regarding parent to child transfers beginning in 2006 that were fairly major. Prior to 2006, the quota transferred quite freely between parents and children. The intent behind the change in 2009 was to actually harmonize the Ontario policy with the five Eastern provinces, or the P5 as they are known. However, soon after the change was implemented, it was brought to the Board’s attention that some producers were trying to circumvent the process by acquiring blocks of quota without going through the quota exchange. They were looking at innovative ways to get large blocks of quota because quota availability on the exchange is low.

Mr. Murray testified that the objective of the Board was to make sure that as much quota as possible went through the quota exchange and that the discussion at the Board to change the policy was not an easy one, particularly as it dealt with parent to child transfers. He testified that at first the Board considered allowing no quota transactions other than through the quota exchange, however, the Board decided to allow “within family transfers” or a transfer by the parent to child taking over a family operation on the existing farm. This type of “within” family transaction was considered a “sacred cow”. In addition, if a producer had more than one child, the DFO also allowed a one time transfer to another site that did not have quota.

In addition, Mr. Murray testified that they realized at the time of the policy change in 2010 that producers could have already had concrete transfer plans in place and that they would have to address these and grandfather them in. That is why they sent out the notice to producers asking them to provide proof of their plans.

Mr. Murray explained that the letter of January 19, 2010 to all milk producers suspended all quota transactions during the review of the policy. He further explained the purpose of the letter of March 2, 2010 to all Ontario milk producers was to advise that the objectives of the Board included fair and equitable access to quota by ensuring quota from two licences would not be merged. In addition, he testified that quota transfers from the parent’s original farm location and licence to a child, are restricted to a child who does not hold any quota and is starting at a dairy facility at which the parent was not issued a licence to produce and market milk in the last five years. He further testified that the changes in the policy were to prevent a “run around” and to ensure that parents could not take the quota back – it was to ensure there was a fresh start for the child. He also identified that the letter referred to specific requirements and an application form for a request to transfer quota to a child that would be forthcoming.

Mr. Murray also explained in his testimony that a notice was sent on April 28, 2010 advising of the deadline for filing requests for quota transactions under the August 1, 2009, quota policy. He indicated that plans needed to be in place and notification needed to take place by the end of July 31, 2010, and DFO needed to receive the final forms on or before January 1, 2012.

He testified that there was a lot of discussion with Dairy Producer Committees about quota policy changes and that the annual meetings were typically held in February, so he did not believe there were any additional meetings held to deal with this topic specifically. However, he further testified that there would have been a spring regional meeting in approximately the third week of March of 2010, but he could not be sure of the exact date. He advised that there would have been 12 spring regional meetings across the province during this time period.

During cross examination, Mr. Murray clarified that the 12 Board members each represent one of the 12 regions in the province and that Mr. Harrop is the Board member for Mr. Cunnington’s region and that he is actually the member for the Counties of Huron and Perth. In response to questioning, he also clarified that only the members of the Dairy Producer Committees would be at the regional meetings and that if Mr. Cunnington was not a member of the Dairy Producer Committee, he would not have received any further explanation until the notice at the end of April.

Mr. Murray also testified that the Board denied Mr. Cunnington’s request because it was outside the new 2010 DFO policy.

Mr. George MacNaughton

Mr. George MacNaughton worked for the DFO from 1981 until 1990 when he left to become an Account Manager for Scotia Bank. He returned to the DFO in 1991 as DFO Supervisor and has been Director of Production and Regulatory Compliance since 2005. His two primary responsibilities include administering the DFO Quota Policy and the P5 and P10 quota policy discussions. He explained that P5 includes the province of Ontario and the Eastern Provinces, and that P10 includes Ontario, the Eastern Provinces, the Western provinces and Newfoundland and Labrador. He is also the technical representative for DFO on the P5 committee.

Mr. MacNaughton testified that quota is defined as a measure of the market for dairy production in Canada and that Ontario receives 31% of the total supply of the dairy market for Canada. He also testified that there is a quota committee of the Board that reviews quota policies and four elected Board members are assigned to this committee. He acts as secretary to the quota policy review committee. He also indicated that anyone having intent to transfer quota would contact him.

He explained the family transfers of quota to the Tribunal panel. He stated that family transfers have taken place since 1975 and prior to November of 2006, quota transferred relatively freely and a bit too frequently between relatives. At the end of the chain of some of these transfers there was actually no family relationship, so the Board decided to restrict family transfers with the policy changes in 2006. He testified that it was agreed that producers should always have the ability to transfer on the same site and that producers should also be able to relocate and move their quota elsewhere. In addition, there could also be a onetime transfer to a child.

He stated that there were a number of complaints about the policy as dairy farmers wanted to help their children get started, but did not necessarily want to leave the industry themselves. Mr. MacNaughton testified that in August of 2009 the changes allowed a transfer, at most, once a year if a parent wanted to transfer quota to a child to help get them started. However, this quickly became a mechanism for mergers.

In addition, he testified that prior to the quota price cap in 2009 of $25,000 per kg, the total amount of the quota that was bid on was double the amount that was available on the exchange, whereas now with the price cap, the amount of quota that is bid on is 50 times the amount available on the exchange. Most new producers can only buy 3 kilos/year under the current system and what producers are looking for is how they can buy larger blocks of quota.

Mr. MacNaughton testified that because of the ability to merge quota, the Board was concerned that mergers would further dry up quota availability. Between January 14, 2010 and February 24, 2010, he went through a review with the Board and much of the discussion focused on whether a parent to child transfer would still be allowed or whether all transfers would have to go through the quota exchange. The objective, he testified, was to ensure that producers would have equitable access to quota; however, there remains sympathy for parent to child transfers. Mr. MacNaughton stated that the Board struggled to find a solution that is fair to all producers. He also testified that there is ongoing discussion on parent to child transfers.

Mr. MacNaughton also addressed the contents of the March 2, 2010, letter. He explained that it set out how quota could be transferred and that it covered generational farmers which is where a large number of quota transactions takes place. It also addressed non-related parties and allowed quota to transfer on the same farm site. He suggested that Mr. Cunnington could change the designated farm location and then transfer the quota to his daughter.

In his testimony, Mr. MacNaughton indicated that if there is not enough quota on the exchange, there will be a problem as all dairy operations in Ontario need to be treated fairly. Mr. MacNaughton testified that the new policy in 2010 “shut down the merger principle” permanently and also does not allow quota to be rented. He explained that if an individual does not wish to use their quota, they have to dispose of it by selling it. He indicated that the policy is quite strict and that there is only a 90 day grace period even if the quota holder has a health issue.

Mr. MacNaughton also testified that there is no difference between a transfer or a transaction to the DFO Board. He stated that any time quota moves from one party to another it is a quota transaction, whether it is on the exchange or not.

With regard to the new policy which became effective in 2010, Mr. MacNaughton acknowledged that the original letter of March 2, 2010 did say that the exact wording for the policy changes would be mailed in May of 2010 and this did not happen. He stated that a document was sent out sometime in June 2010 and took effect July 1, 2010. He also believes that the 2010 policy was available on the website but was not sure of the exact date, and that it was part of the Milk Producer Magazine that is sent to every dairy farmer in Ontario.

Mr. MacNaughton testified that 72 quota applications were received following the notice of policy change, but only 49 actually related to the policy change. During cross examination, he acknowledged that of the 49 applications, there was only one other application related to a parent to child transfer that would be similar to Mr. Cunnington’s request. This application dealt with a transfer of quota from a father to a son which was denied and then appealed. However, the application was then withdrawn.

In response to questions from the Tribunal, Mr. MacNaughton also acknowledged that several of the 49 applications received met the policies and were granted. However, he also indicated that no exceptions were made for any reasons whatsoever after July 31, 2010, as the applicants who applied after July 31, 2010 had been unable to show concrete plans in place prior to this date.

He further testified that Mr. Cunnington did not come to him directly at any time, but that he was aware that Mr. Cunnington had approached Mr. Harrop in the spring of 2011. Mr. MacNaughton stated that he did not find Mr. Cunnington’s situation unique or exceptional.

Mr. MacNaughton also indicated that Mr. Cunnington could transfer quota to his daughter Leanne Cheesmond at her current farm location, provided there was another separate dairy facility on the Cheesmond property. It would have to be a stand alone production facility that housed both the barn and milk house together. Mr. MacNaughton also testified that Mr. Cunnington could not sell his quota as an ongoing operation in a rented facility.

In responding to questions from the Tribunal about the materials submitted by both the DFO and Mr. Cunnington, Mr. MacNaughton explained that Mr. Paul Norris was the DFO Field Service Representative for up to 400 farms in the region where the Cheesmond family farmed, and that Mr. Grant Brownridge was the DFO Field Service Representative in the region for Mr. Cunnington’s farm. Mr. MacNaughton acknowledged that the email from Mr. Norris of November 24, 2011 confirmed that Mr. Norris was approached in 2009 by the Cheesmond family to determine if it was possible to transfer quota from them to their son, Tomas, and also for Mr. Cunnington to transfer quota to his daughter Leanne. At the time of the inquiry, Mr. Norris confirmed that it was possible to make both of the transfers and to amalgamate the two quotas.

Mr. MacNaughton also explained that it was the Field Service Representative’s responsibility to administer the provincial quality program under Ontario Regulation 761, and to conduct a farm inspection every two years for cleanliness, etc. In addition, the Field Service Representative would also inspect new barns prior to start up; however, there would not be any pre approval prior to construction.

In response to further questions from the Tribunal, Mr. MacNaughton acknowledged that the Field Service Representative should be aware of changes to the policy.

Analysis and Findings

The appellant requested the transfer of his entire quota holdings to his daughter, Ms. Leanne Cheesmond, who farms with her husband Tomas Cheesmond, and his parents, Paul and Elaine Cheesmond. It was suggested this request would require an exemption from the current quota transfer policy for two reasons: first, it will be a transfer to his daughter at a facility where there is already quota, albeit, not in her name or her husband, and secondly, it will effectively merge the quota as they would be operating out of the same facility. The Tribunal was advised by Mr. MacNaughton in his testimony that the transfer and merger that Mr. Cunnington proposed would have been allowed under the 2009 quota policy transfer rules and prior to the 2010 quota policy change.

It is evident from the testimony of the DFO witnesses, the notice of appeal, Mr. Cunnington’s July 25, 2011 letter to the Quota Committee, the August 2, 2011 response letter from Mr. MacNaughton to Mr. Cunnington, the October 18, 2011 excerpt from the October 2011 Quota Committee Report, and the November 7, 2011 DFO decision letter signed by Mr. MacNaughton that the request to transfer the quota was premised on Leanne Cheesmond farming together with her husband and his parents under one licence at one facility and that the request was denied by the DFO because of the effective merger that the transfer would result in.

It is clear that the Milk Act provides the DFO Board with the ability to make and the ability to change quota transfer policies that apply to the industry as a whole in the province of Ontario, and this is not in dispute in this appeal. The question for the Tribunal in this appeal is whether or not to permit Mr. Cunnington’s transfer request.

Counsel for DFO, Mr. Lloyd, argued that DFO’s legislative mandate was confirmed by the Divisional Court in Dairy Farmers of Ontario v. Denby et al., [2009] O.J. No. 4474 and that the policy now being challenged was amended on a rational basis after consultation, planning and review. According to Mr. Lloyd, it was and is a legitimate change and he argued that the crux of the case is really whether or not the notice was sufficient. Mr. Lloyd alleges that Mr. Cunnington’s claim that he made an error in reading the letter of April 28, 2010 because it was confusing is not reasonable and that the rest of the dairy farmers in Ontario understood it.

Mr. Cunnington maintains that he made an error in reading the notice of April 28, 2010, and believed that he had up to January 1, 2012, to submit the proper paperwork to transfer the quota to his daughter.

The Tribunal has carefully reviewed all of the evidence before it and does not agree with how the issues in the case were framed. The 2007 policy specifically allowed parent to child transfers on the condition that the child agreed to ship milk continuously for two years before merging the acquired quota. This effectively prohibited mergers. The 2009 policy removed the prohibition on mergers, but prohibited the recipient from linking their licensed dairy facility to the facility from which the quota was donated. The 2010 policy did not reinstate the prohibition of mergers found in the 2007 policy. A prohibition against linking the child’s facility to the parents’ facility is maintained, and a parent to child transfer is prohibited if the child holds quota, but there does not appear to be any prohibition against the transfer request before the Tribunal within the language of the 2010 Parent to Child Transfer policy.

The 2010 Parent to Child transfer states “a parent can transfer quota to a child who does not hold any quota on the condition that the child agrees to ship milk on a continuous basis for five years from the effective date of the transfer before being able to transfer the quota.”

Ms. Leanne Cheesmond does not hold any quota and has testified that she and Tomas Cheesmond also plan to take over the Cheesmond family dairy operation one day. The DFO did not dispute this and the Tribunal accepts this as evidence that she would continue to ship milk for five years before transferring the quota that her father, Mr. Cunnington, would like to transfer to her.

The 2010 policy also states “Children who hold quota or purchase quota as part of an on-going operation, or purchase quota on an exchange are not eligible to receive a quota transfer from a parent.”

The Tribunal heard that Ms. Leanne Cheesmond does not hold quota and has not purchased any quota. There was no dispute to this fact.

The 2010 policy next addresses:

“Producers who receive quota through a transfer are not permitted to link their licensed dairy facility to the licensed dairy facility from which the quota has transferred.”

This also would not prevent the transfer of quota from Mr. Cunnington to his daughter Leanne Cheesmond. The evidence by all parties was clear – Mr. Cunnington wanted to transfer the quota to his daughter at the Cheesmond farm – there was no intention to link Leanne Cheesmond’s licence to the “licensed dairy facility from which the quota was transferred.”

The 2010 policy does not prohibit a transfer when there is a link between the licensed facility that receives a parent to child transfer and any licensed facility other than the transferor’s.

No other policies were presented to the Tribunal. The only other documents relied upon were the letters of January 19 and March 2, 2010 and the notice of April 28, 2010. In addition, the DFO provided a further explanatory 2010 P5 Quota Policy Harmonization Update document at the hearing. While there is no doubt that both the 2010 P5 Quota Policy Harmonization Update document and the March 2, 2010 letter set out the objectives and intention of the DFO for the 2010 policy changes, and an intention to prevent mergers was stated in the Update and the letters, there is no such intention in the notice of April 28, 2010, and there is no prohibition against mergers in the 2010 Parent to Child Transfer policy. The Tribunal finds that intentions and objectives can not override the plain language of the policy in this case.

Even the DFO witnesses, both Mr. Murray and Mr. MacNaughton, stated that the actual policy would be captured in the language of the 2010 policy document, and that the exact wording was to follow the notice of April 28, 2010. As indicated above, the policy document that was presented to the Tribunal as evidence of the “exact wording” does not have any specifics about preventing mergers in its language.

Since none of the prohibitions in the actual 2010 policy apply to Mr. Cunnington’s request to transfer the quota to his daughter, there is no need to provide an exemption - the transfer and resulting merger should be allowed on the face of the wording of the policy.

Additionally, the Tribunal notes that it would be a rather odd result to disallow this transfer based on the stated intention or objective of a policy change, where that intention or objective has not been captured in the language of the policy itself, solely because Ms. Leanne Cheesmond has married the son of a dairy farmer.

And even if there is some other written policy of the DFO that was not presented at this hearing that would prohibit this transfer because of the effective merger that would result, the Tribunal would still allow the transfer by granting an exemption. In such a case, an exemption would be warranted because this proposed transfer was part of a concrete and longstanding family transfer succession plan and would otherwise be permitted if Ms. Cheesmond married someone other than a dairy farmer. In addition, the Cheesmond family’s investment in a new barn facility to accommodate an increased herd and additional quota, and the fact that it was built on the property of Tomas and Leanne Cheesmond confirms that both the Cheesmonds and the Cunningtons were planning to transfer their respective quota to their children and that it would be merged together as one.

Further, the DFO was aware of or should have been aware of the family transfer plans of both the Cunnington family and the Cheesmond family through the Field Representatives and their regular visits or as a result of the inspection prior to occupancy of the Cheesmond’s new barn.

In addition, as noted above, Mr. Cunnington testified that he found the notice confusing and made an error in reading the notice of April 28, 2010. It appears that he was not alone, as more than 40 dairy farmers and 20 agribusiness individuals also signed a petition indicating that they did not understand the notice of April 28, 2010. Also, Mr. MacNaughton also testified that the exact wording of the revised policy was to be mailed to all producers in early May, that it was not sent until sometime in June and that he was unable to identify the date that it was actually sent. A policy change that has a major impact on dairy farmers like Mr. Cunnington should also be properly communicated in a timely fashion. The Tribunal finds that the lack of the actual policy wording in the notice of April 28, 2010 and the delay in providing this information most certainly caused additional confusion and uncertainty amongst producers.

Both Mr. MacNaughton and Mr. Murray testified that there was a need to address the policy for parent to child transfers due to the fact that some producers were doing a “run around” and “in-family” transfers were resulting in a series of transfers that effectively moved the quota to facilities not held by a family relation. The other issue that DFO was trying to prevent with the policy change was a transfer back to the parent. Neither of these concerns are at issue in the transfer request before the Tribunal, as it is a straight forward request, from parent to child.

The DFO identified that their objective in changing the policy was to ensure equitable access to quota for all producers and to “effectively shut down mergers”. However, the evidence before the Tribunal would suggest that there would be no actual “flood gate” argument presented by allowing this appeal. Mr. MacNaughton testified that there was only one other similar transfer request that required an exemption to the policy and that it was from a father to a son. Allowing this appeal would not defeat the policy intention of the DFO to shut down mergers because of the circumstances of a recipient of a parent to child transfer having married a dairy farmer are not likely to arise frequently.

Order of the Tribunal

The Tribunal hereby orders that within 60 days of this decision becoming final within the meaning of Section 18(3) of the Ministry of Agriculture, Food and Rural Affairs Act, the quota of the Cunningtons shall be transferred to their daughter Leanne Cheesmond, who farms with her husband Tomas Cheesmond, at the same location as her in-laws, Paul and Elaine Cheesmond. This transfer shall effectively merge the transferred quota with the quota of the ongoing Cheesmond operation. The DFO shall do all things necessary to give effect to the merging of the Cunnington and Cheesmond quota under one licence.

Dated at Amherstburg, Ontario this 26th day of June, 2012

Amended decision dated at Amherstburg, Ontario, this 15th day of August, 2012.