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:
Strik v Dairy Farmers of Ontario
Strik v DFO 2014 ONAFRAAT 5
STATUTE:
Ministry of Agriculture, Food and Rural Affairs Act
HEARING:
January 21, 2014
DATE OF DECISION:
February 18, 2014
2014-05
NEUTRAL CITATION:
2014 ONAFRAAT 5
Strik v Dairy Farmers of Ontario
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 Rene and Bianca Strik from the Dairy Farmers of Ontario (DFO) decision to deny their request to transfer quota.
Before:
Marthanne Robson, Vice-Chair
Cor Kapteyn, Vice-Chair
Jane Sadler Richards, Member
Appearances:
Rene Strik, Appellant
G. Edward Oldfield, Counsel for the Appellant
Graham Lloyd, General Counsel for the Respondent, Dairy Farmers of Ontario
George MacNaughton, Witness
DECISION OF THE TRIBUNAL
The appeal was heard in Guelph, Ontario, on Tuesday, January 21, 2014. Rene and Bianca Strik (the “Striks”) appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the “Tribunal”) from the decision of the Dairy Farmers of Ontario (the “DFO”) to deny their request to transfer quota.
Background
Rene and Bianca Strik are dairy farmers who emigrated from Holland to Canada in 2010. They owned and operated a dairy farm in Holland, and decided Canada offered a greater opportunity for them. They began their search for a farm in 2009 and visited Alberta, Saskatchewan and Ontario during the time they spent in Canada. In June 2010, a few days before the Striks were due to return to Holland after their second trip, they visited the farm they eventually purchased. Their original offer to purchase the farm included 105 kg of milk quota. However, when it came to finalizing the transaction, only 80 kg of quota were transferred as part of the sale of an ongoing operation. The reasons for this are outlined below.
The Striks submitted requests to the DFO in 2012 and 2013 to grant the transfer of the remaining 25 kg of quota from the seller of the farm to them, pursuant to their earlier agreement dated June 9, 2010 when the Striks first offered to purchase the farm operation. The Striks’s requests, including their request for reconsideration, were denied by the DFO and the Striks appealed to this Tribunal.
The Striks submitted to the Tribunal that their situation is a unique or extraordinary circumstance that warrants granting an exemption from the DFO policy to transfer quota. The seller retains the remaining 25 kg of quota and is willing to transfer the quota to the Striks if permission to do so is granted.
The DFO made other decisions leading up to this case: the decision to allow the seller of the farm to merge quota, and the decision to allow the seller to transfer quota as part of an ongoing operation.
The Parties to the Appeal
Rene and Bianca Strik, as appellants, and the Dairy Farmers of Ontario, as respondent, were parties to the appeal.
The Issue to be Determined
Are the Striks entitled to an exemption from the DFO policy, which would permit the transfer of the remaining 25 kg of quota from the seller of the farm operation to them, pursuant to the original offer to purchase?
The Evidence
Mr. Rene Strik and Mr. George McNaughton, Director of Regulatory Compliance and Director of Operations for the DFO, were the only two witnesses at the hearing before the Tribunal. Two people whose actions were critical in this case did not give evidence before the Tribunal: the seller of the property (Mr. Y) and the agent/broker who acted for the seller and the buyer in the transaction (Mr. V). Neither party to this appeal chose to call or subpoena Mr. Y or Mr. V to testify. No explanation was advanced as to why Mr. Y and Mr. V were not brought before the Tribunal.
The facts are not in dispute; it is more a case of who knew or didn't know what when. In 2004, Mr. Y purchased 25.5 kg of quota and began shipping milk from rented facilities. In December 2007, he purchased an ongoing operation with 74.34 kg of quota and began a multi-farm operation. DFO policies at the time would have allowed Mr. Y to merge quota on the two farms any time after December 2009 with payment of a transfer assessment. Mr. Y made three requests to the DFO to merge quota on the two farms without payment of a transfer assessment. All requests were denied.
In March 2009, Mr. Y listed his property for sale with a closing date of March 18, 2010 or later; 75.8 kg of quota were noted as being available but were not included with the listing. Mr. V was the listing agent/broker for Mr. Y.
In August 2009 and February 2010, the DFO changed quota policies.
In March 2010, Mr. Y made a further request to merge the two quotas. On April 20, 2010, Mr. McNaughton wrote to Mr. Y's lawyer to advise of the DFO decision to permit the merger of quota from the two farms, outlining the transfer assessment payable, the effective date of the merger (on or before August 1, 2010) and where to obtain the quota transfer forms. The letter contained no other conditions which might apply to the merger of quota. The DFO was not aware at the time of any intention of Mr. Y to sell his property.
In early June 2010, Mr. Strik was visiting Ontario with his wife and father, looking for a dairy farm to purchase. They had not found anything suitable. The Striks happened to drive by Mr. Y's property and Mr. Strik said to the agent, Mr. V, that he would be interested in a property like Mr. Y's. Although the property was not listed for sale at that time, Mr. Strik learned from Mr. V that Mr. Y was open to receiving offers.
On June 9, 2010, an agreement of purchase and sale between Mr. Y and the Striks was concluded, with the closing date no later October 1, 2010. The agreement included the transfer of 105 kg of milk quota and was conditional upon the DFO issuing an approval letter to transfer the quota.
On June 10, 2010, Mr. Y dated a DFO form "Intent to Transfer Quota as Part of an Ongoing Operation" for 105 kg of quota.
On June 20, 2010, the Striks released the sale conditions on their farm in Holland in response to pressure from the buyer. No other evidence was submitted to substantiate this. Mr. Strik testified that their farm in Holland was sold conditional upon finding a farm in Canada, medical tests and visa approval; however, no agreement was submitted to the Tribunal. A July 2, 2010 advertisement for a dispersal sale of the Strik farm in Holland was submitted to the Tribunal. They had also converted their euros to dollars in anticipation of the purchase of a farm in Canada. There would be a significant financial penalty if they did not proceed with that transaction.
On June 23, 2010, Mr. McNaughton wrote to Mr. Y to confirm the permission to merge the two quotas, and noted that "under August 1, 2009 policies, quota that is merged cannot be sold, merged, transferred or donated for two years from the effective date of the transfer. Therefore, no quota transaction will be allowed for the 25 kg of quota until August 1, 2012, with the exception that it can be sold on the quota exchange."
On June 23, 2010, Mr. Y wrote to Mr. McNaughton requesting permission to sell the entire merged quota as part of an ongoing operation. Mr. McNaughton testified this was the first time the DFO was advised the operation was for sale.
On July 10, 2010, the Striks countersigned Mr. Y’s DFO form "Intent to Transfer Quota as Part of an Ongoing Operation" for 105 kg of quota.
A few days before July 22, 2010, Mr. Strik learned there was a problem with the quantity of quota available. On that date, Mr. Strik wrote to Mr. McNaughton asking him to take into consideration their circumstances when making a recommendation to the Board about the transfer of Mr. Y's quota. Mr. Strik wrote again to Mr. McNaughton and the DFO in late July or early August, seeking reconsideration to approve the transfer of the entire amount of quota from Mr. Y.
On or about July 23, 2010, the DFO Quota Committee considered Mr. Y’s request of June 23, 2010 to sell the merged quota. By letter dated July 30, 2010, DFO advised Mr. Y that his request to sell the merged quota prior to August 1, 2012 was denied, but he was permitted to sell 80 kg of quota as part of an ongoing operation.
When Mr. Y found out he could not sell the merged quota, he verbally withdrew his request to merge the quota. This was confirmed by letter dated July 30, 2010 from Mr. McNaughton to Mr. Y.
On August 6, 2010, DFO received a second or revised "Intent to Transfer Quota as Part of an Ongoing Operation" for 79.85 kg of quota signed by Mr. Y dated June 10, 2010 and countersigned by the Striks on August 6, 2010. The Striks received an abatement of $800,000 on the purchase price of the farm, calculated for 25 kg less quota than originally anticipated. The original offer to purchase listed the price per kilo of quota at $30,000.
Mr. Strik testified that by the time they agreed to the lesser amount of quota, there was "no way back". They had the choice of buying Mr. Y’s farm and coming to Canada, or renting a house and hoping to find another farm. They had looked at other farms, even inquired of farms that might not be listed, but there was nothing to fit their needs or budget.
From the date of closing on November 1, 2010, the Striks have continued to buy quota every month, so that at the time of this hearing they held 86-87 kg of quota on this property. They decided to go ahead and build facilities to house 150 cows, which was their goal and ideal farm size. They did discuss building a smaller barn, but it would have saved only about 5 to 10% of the total cost.
Mr. Strik chose not to sue Mr. Y because "he is still my neighbour", and even if he did sue him, he might get money but he still would not have the quota.
The Striks spent over $2 million to rebuild the farm structures and residence, which were in very poor condition. Since November 2010, they have purchased approximately 8 kg of quota at a cost of $200,000, which was borrowed from the bank. In July 2013, they purchased another farm with 40 kg of quota for $3 million of borrowed money. Mr. Strik testified that this other farm was self-sustaining financially and did not require further investment.
Mr. McNaughton testified that DFO would have disclosed to Mr. Strik the quantity of quota available for transfer as part of an ongoing operation in June 2010, provided he had proper authorization from Mr. Y. Mr. Strik did not request this information from the DFO, relying instead on assurances from the agent Mr. V and other recently immigrated farmers in the area that DFO approval for quota transfer was a formality.
Mr. McNaughton explained the reasons why the DFO denied the Striks’s request for an exemption from the DFO policy related to quota transfer. The underlying rationale for the DFO quota policy is equitable access to quota. The DFO policy to restrict the resale of merged quota was put in place to prevent “flipping” quota. Merger of quota is no longer permitted. There is a premium for putting together a larger package of quota with the sale of an ongoing operation. There is no assessment on the sale of quota as an ongoing operation. Otherwise there is a transfer assessment of 15%. In this case, quota was sold for $30,000 per kilo; on the quota exchange the price of quota is currently capped at $25,000 per kilo, as it was in 2010.
Mr. McNaughton explained that most producers want to grow their business. If merger and immediate resale were permitted, it would make the quota exchange inoperable because transfers would largely become private transactions. DFO’s policy intent is to make as much quota as possible available for transfer through the exchange. This policy is also consistent with other provincial quota policies in Eastern Canada.
Mr. McNaughton acknowledged that there was no concern that the Striks’s intention was to flip their quota.
Analysis and Discussion
The Striks have asked for an exemption from DFO policy, which would allow the Striks to purchase the outstanding 25 kg of Mr. Y’s quota from Mr. Y, as agreed between Mr. Y and the Striks in the original offer of purchase and sale of Mr. Y’s ongoing operation.
The Striks argue that their situation is a unique or extraordinary circumstance that warrants granting an exemption from the DFO policy. The basis of their claim is that the quantity of quota available for sale and transfer was misrepresented by Mr. Y in the initial agreement of purchase and sale; however, for various reasons, the Striks could not back out of the deal. They had sold their farm and livestock in Holland and removed any conditions on that sale. They had converted their euros into dollars. They also had four small children and wanted to settle permanently rather than temporarily upon emigration.
Finally, the Striks argued that that the lesser amount of quota ultimately purchased with their farm had left them "cash-strapped" and obtaining the additional quota would relieve this circumstance.
The DFO argue that should the Tribunal order an exemption in this case it would interfere with the DFO's legislative jurisdiction to make policy citing Denby v. Ontario (Agriculture, Food and Rural Affairs Tribunal), 2006 CanLII 63736 (ON SCDC); Marlor Farms Inc. v. The Ontario Flue-Cured Tobacco Growers’ Marketing Board, 2010 ONSC 1573. The Tribunal disagrees. The DFO policy allows exemptions in certain circumstances. The legislation puts the Tribunal in the shoes of the Board on appeal and therefore, in keeping with the DFO policy, the Tribunal may allow exemptions in certain circumstances.
The DFO also argue that should the Tribunal allow an exemption in this case, it opens the door to exemptions in many other cases. The Tribunal disagrees. Previous Tribunal cases Ferme Martel Inc. v. Dairy Farmers of Ontario 2010 ONAFRAAT 6 and Baes v. Dairy Farmers of Ontario, 2011 ONAFRAAT 15 referred to an exemption in circumstances that must be unique, extraordinary or exceptional. In the Tribunal’s opinion, it should also consider whether the circumstances were outside the control of the party seeking the exemption.
It appears from the evidence in this case that Mr. Y wanted to merge the 25 kg and 80 kg quotas, and sell the entire amount of quota along with the farm to the Striks. In fact, on July 10, 2010, the Striks countersigned Mr. Y’s DFO form "Intent to Transfer Quota as Part of an Ongoing Operation" for 105 kg. At the time, there was a premium of $5,000 per kilo for quota transferred as part of an ongoing operation, as opposed to sale on the quota exchange. However, the DFO policy did not allow the sale of merged quota for a period of two years after merger. Therefore, Mr. Y could only sell the 80 kg quota in 2010 that was associated with his farm.
It is not unique or exceptional that the Striks were unable to purchase the quantity of quota that they wanted. Quota is in limited supply; according to Mr. McNaughton, 25% of producers in Ontario bid on the quota exchange almost monthly.
The Striks claim that they are cash-strapped as a result of this transaction, which included less quota than they desired. Yet they were able to invest over $2 million in farm structures, including a residence, on the home farm, and, since November 2010, they have purchased approximately 8 kg of quota at a cost of $200,000. The Striks also purchased a second $3 million farm three years after arriving in Canada.
The Striks did not submit any financial documents, bank statements, balance sheet, loan records, or tax returns, to substantiate their claim that they are cash-strapped. The Tribunal has no evidence of how much less money they earned, whether gross or net, compared to what they would have or could have earned with the total amount of quota.
It is not sufficient to advance the claim of being cash-strapped and provide absolutely no documentation to substantiate that claim. The Striks have failed to demonstrate an exceptional financial situation.
The Striks were immigrating to Canada with a young family, needing to liquidate their main holdings in Holland, find a new farm, set it up, and get settled. While challenging, these are not unique or exceptional circumstances, nor circumstances outside of their control.
It appears from the evidence that the Striks intended to buy 105 kg of quota but, in fact, only 80 kg were available for sale. A few days before July 22, 2010, Mr. Strik learned there was a problem with the quantity of quota available for sale and on August 6, 2010, the DFO received a second or revised "Intent to Transfer Quota as Part of an Ongoing Operation" for 79.85 kg of quota signed by Mr. Y and the Striks. The facts show that the Striks decided to go ahead with the transaction knowing fully what quota was available.
There was an opportunity to verify the exact amount of quota available, had the Striks done their due diligence by contacting the DFO. The Striks relied on the assurances of their agent, who was also acting for Mr. Y, and other immigrant farmers in the area, that there would be no problem with transferring quota. In fact, there was no problem with transferring quota; it was only the amount of quota that was at issue.
Mr. Strik testified that, under pressure from the buyer, he removed the conditions of sale on his farm in Holland on June 20, 2010, prior to receiving written confirmation of the DFO’s approval of the transfer of quota. No documentation was submitted to support this testimony.
While the actions of the Striks are understandable under the circumstances described, the decisions to proceed as they did were theirs to make; their decisions were not outside of their control.
Counsel for the Striks further argued that more than two years have passed since June 23, 2010, when the DFO wrote to Mr. Y to confirm the permission to merge the two quotas, and on that basis, the Striks should be entitled to have the additional quota. Counsel for the DFO submitted that granting an exemption on this basis would reward Mr. Y, after the fact, for proceeding as he did, and that would not be appropriate.
Decision and Order of the Tribunal
The Tribunal acknowledges the significant challenges experienced by the Striks and the stress and uncertainty that the circumstances created in their personal and business lives. However, the Tribunal finds that the circumstances described by the Striks were not unique, extraordinary or exceptional. Nor were the circumstances outside of their control.
The Striks went ahead with the purchase of the farm with full knowledge of the lower amount of quota associated with the farm. The Striks did not avail themselves of conditions in the agreements for the sale of their farm in Holland and the purchase of Mr. Y’s farm in Canada that would have allowed them to back out of either deal. They did not verify with the DFO the amount of quota available, nor did they wait for written confirmation from the DFO. They received an abatement on the purchase price of Mr. Y’s farm for the reduced amount of quota. They provided no written evidence to support their claim that they were “cash-strapped” and made at least $5 million dollars in investments after the conclusion of the sale. The Striks have not proven circumstances that warrant an exemption from the DFO policy. The Tribunal agrees with the DFO decision not to grant an exemption in these circumstances.
Based on the evidence presented and the reasons outlined, the appeal is denied.
Dated at Ottawa, Ontario this 18^th^ day of February, 2014