Laplante Poultry Farms Ltd. v. Chicken Farmers of Ontario, 2014 ONAFRAAT 9

Agriculture, Food and Rural Affairs Appeal Tribunal

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

APPEAL: Laplante Poultry Farms Ltd. v Chicken Farmers of Ontario Laplante Poultry Farms Ltd. v CFO 2014 ONAFRAAT 9

STATUTE: Ministry of Agriculture, Food and Rural Affairs Act

HEARING: April 28 and 29, 2014

DATE OF DECISION: May 6, 2014

2014-09

NEUTRAL CITATION: 2014 ONAFRAAT 9

Laplante Poultry Farms Ltd. v Chicken 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 Laplante Poultry Farms Ltd. (LPF), Monkland, Ontario, from a decision of Chicken Farmers of Ontario dated December 18, 2013 declining LPF’s request for additional kilograms of calculated based.

Before: John O’Kane, Vice-Chair; Glenn Walker, Vice-Chair

Appearances: Robert Laplante – Laplante Poultry Farms Ltd., witness for appellant Benoit Duchesne – Counsel for appellant, Laplante Poultry Farms Ltd. Jack Chan – President Remy Poultry Ltd., witness for appellant Chris Horbasz – Chicken Farmers of Ontario (CFO), witness for CFO Geoff Spurr – Counsel for the respondent, CFO Arlen Sternberg – Counsel for respondent, Riverview Poultry Limited Louie Vassilakos – Riverview Poultry Limited – witness for Riverview Poultry Limited

DECISION OF THE TRIBUNAL

This appeal was heard in Cobourg, Ontario on April 28 and 29, 2014.

Appeal Overview

The appellant, Laplante Poultry Farms Ltd. (“LPF”), operates a chicken processing facility in Eastern Ontario.

Under the existing regulatory regime, chicken processors must have “calculated base” to purchase chicken supply from Ontario chicken farmers and the “calculated base” dictates how much chicken supply a processor can buy in the market.

LPF wants “calculated base” so it can buy and process more chicken.

LPF appealed to the Tribunal from the December 18th, 2013 decision of the Chicken Farmers of Ontario (“CFO”) denying LPF’s request for 286,553 kilograms of calculated base.

While section 16(1) of the Ministry of Agriculture, Food and Rural Affairs Act describes the proceeding before the Tribunal as an “appeal”, in practice, the proceeding is a hearing de novo and under subsection 16(11) the Tribunal “stands in the shoes” of the CFO and can make any decision that the CFO could make.

Because this proceeding is de novo, the Tribunal need not concern itself in these circumstances with any considerations of the appropriate standard of review of the CFO decision at first instance.

At the conclusion of the hearing the Tribunal reserved its decision.

As we will explain, the Tribunal dismisses LPF’s appeal.

Preliminary Matters

At the hearing start, Anna Toumanians, counsel for the Association of Ontario Chicken Processors (“AOCP”), indicated she was present as an observer but that during the hearing, she might apply for status to participate in the appeal hearing and at such time, might seek to adjourn the hearing. As its title suggests, AOCP is an organization representing the interests of chicken processors in Ontario. AOCP was concerned about LPF breaching certain commitments LPF had given to AOCP in a May 11th, 2012 agreement.

LPF opposed AOCP’s application while the respondents, CFO and Riverview Poultry Limited (“Riverview”), both supported AOCP’s application.

The Tribunal denied AOCP’s application because:

• AOCP had previously communicated in writing to the parties and the Tribunal that because of the issues on appeal, it was not seeking party or intervenor status.

• LPF confirmed that the relief sought in the appeal would not breach those commitments it gave to AOCP.

• The nature of the issues on appeal did not directly engage the interests of AOCP and therefore in these circumstances, AOCP did not have a sufficient interest to support an application for status.

• The nature of AOCP’s application for “occasional” player status at the hearing invited disruption to the hearing, delay in the hearing and surrender of the Tribunal’s control of its own process.

Issues to be Determined

LPF and the CFO and Riverview advanced competing characterizations of the issues on appeal.

The Tribunal reframed the appeal issues :

1. Should the Tribunal direct CFO to issue 286,553 kilograms of calculated base to LPF?

2. If yes, should the Tribunal direct CFO to correspondingly reduce Riverview’s calculated base by 286,553 kilograms?

As intimated in the appeal overview, the Tribunal answered the first question in the negative, rendering the second question academic.

Regulatory Background

Chicken production and marketing in Canada is comprehensively regulated through Federal-Provincial agreements, complementary and interlocking legislation at both the Federal and Provincial levels, regulatory bodies operating at both the Federal and Provincial levels and cooperating supervisory oversight agencies at both the Federal and Provincial levels. That system is colloquially referred to as “supply management” in that the regulatory control is on the supply of the commodity.

Supply management has been a feature of government policy (federal and provincial) for nearly fifty years.

In Ontario, the CFO is the regulatory body who exercises federal authority as delegated to it by the Federal agency and who also exercises provincial authority under Ontario Regulation 402 with broad regulatory powers regarding chicken production and processing.¹

Within the chicken production and marketing system, CFO regulates, among others, “processors” who are defined in the regulations as meaning a person who slaughters chicken and is the holder of a Class A licence issued by the Board and is a “licenced Ontario chicken processor”....²

Beginning May 28th, 2006, each processor in Ontario was set out on Schedule A to CFO Policy No. 171-2005 and each identified processor had a “calculated base”. While that Schedule A identified the nineteen Ontario “processors” as of that date, their “calculated base” remained confidential. “Calculated base” is a whole number expressed in kilograms that represented the processors share of the Ontario market, as determined by CFO.

Therefore, under the Ontario regulatory regime a “processor” as defined needed to have a Class A Licence issued by CFO and hold a “calculated base” granted by CFO. [emphasis added]

Over time, the list of “processors” on Schedule A of CFO Policy No. 171-2005 changed to reflect market transactions where processors bought and sold “calculated base”.

At no time was LPF a processor under CFO Policy No. 171-2005.

Effective April 16th, 2012, CFO enacted Policy No. 182-2012 that replaced Policy No. 171-2005 and each processor in Ontario with a “calculated base” was set out on Schedule C to the new Policy.

As of April 16th, 2012, LPF was not a processor under CFO Policy No. 182-2012.

LPF became a processor under CFO Policy No. 182-2012 on May 16th, 2012 when it was a Class A licence holder and was granted a calculated base of 156,449 kilograms by the CFO.

The impetus behind the revocation of CFO Policy No. 171-2005 and the enactment of CFO Policy No. 182-2012 was an Agreement (the “4P Agreement” or “IPM Agreement”) signed January 26th, 2011 between CFO and AOCP and their counterparts from the province of Quebec, respectively Les Éleveurs De Volailles Du Québec (“EVQ”) and L’Association Des Abattoirs Avicoles Du Québec (“AAAQ”).

That 4P Agreement sought to align the regulatory allocation processes in Ontario and Quebec regarding contracting between chicken producers and chicken processors. That “alignment”, or perhaps “re-alignment”, addressed an historical circumstance that had developed where about 6 million kilograms of live chicken produced in Ontario each year was being sold and trucked to Quebec for processing and about a similar 6 million kilograms of live chicken produced in Quebec was being sold and trucked to Ontario for processing.

That total amount of supply, which was not insignificant, was entering the market but outside the regulatory regime. Unregulated supply is the antithesis of the supply management system.

The re-alignment mechanism contemplated a primary and a secondary contracting phase in each quota period in each province. The timing of those phases was such that in the primary phase only Ontario producers could contract with Ontario processors for chicken supply and, similarly, only Quebec producers could contract with Quebec processors. After that primary phase was concluded, producers in each province could then contract with out of province processors.

The intended result of the 4P Agreement in Ontario was that significantly more Ontario chicken production would become available to Ontario chicken processors. Following from that intended result meant that each processor’s “calculated base”, expressed as a whole number in kilograms, would change.

Under section 2.02 of the 4P Agreement, CFO committed to “adjust each processor’s calculated base as described in Schedule A to CFO Supplemental Quota Policy 171-2005 to reflect the higher of qualifying amounts of each processor’s average live chicken supplies from Quebec measured over quota periods A-73 to A-87 or a processor’s pro rata share of the average amount of chicken produced in Quebec and processed in Ontario between quota periods A-73 and A-87.”

That section 2.02 of the 4P Agreement has been described variously as a “re-basing” or a “re-calibration” or “re-set” of “calculated base” among processors in Ontario. The quota periods A-73 to A-87 were a reference period to create a baseline of each processor’s Quebec chicken supply expressed as an average in kilograms over fifteen quota periods.

Evidence

The Laplante family of Robert Laplante, his mother and father own LPF.

The Laplante farming history dates to 1965 with the start of its dairy operations that grew to 200 milk cows by 1993 when a fire destroyed the dairy farm operation. After that significant loss, the Laplantes transitioned to chicken production around 1994 and expanded to an operation today producing about 40,000 chickens in each quota period. The Laplantes crop about 1,400 acres growing feed for the chicken farm. In 2005, the Laplantes created LPF as the corporate vehicle for their farm business operations. Besides chickens and feed, LPF also buys and sells commodity products that include ducks, geese and quail.

Beginning around 2007, LPF diversified and brokered live chicken on the inter-provincial market. LPF would source Quebec chicken production and arrange for an Ontario processor to buy that production. That began in Quota Period A-77 and continued for about a year with LPF acting as “middleman” or broker between Quebec chicken producers and Ontario chicken processors. After that first year and coinciding with Quota Period A-83, LPF sought to become a direct contracting party with Quebec producers whereby LPF would buy the chicken production and then make its own contact arrangements with Ontario processors.

Between 2007 and 2009, LPF was not a chicken processor in either Quebec or Ontario. LPF’s change from broker to buyer attracted the attention in Quebec of the AAAQ (an organization representing the interests of Quebec chicken processors) who mounted an unsuccessful challenge to LPF’s chicken buying before the Quebec administrative tribunal known as the “Regie”. While that challenge was advancing through the Quebec administrative justice system, the Quebec regulator, EVQ, amended its regulations to require that where Quebec producers sell chicken to a buyer outside Quebec, the buyer had to hold a processor licence issued by the national regulator Chicken Farmers of Canada (“CFC”).³ LPF then sought to judicially review that regulatory change in Quebec but was ultimately unsuccessful.

These Quebec regulatory events lead in part to LPF’s decision to begin processing chicken in Ontario. LPF researched the provincial market and determined there was no processor east of Toronto holding a Class A licence issued by the CFO. There were small custom processing facilities and in December 2009 LPF purchased a small custom processing operation in Sarsfield that LPF was satisfied had good potential for growth and expansion and the support of the local municipal government. LPF applied to the CFC for a processor licence that was issued to LPF on February 10th, 2010 but that CFC licence did not make LPF a “processor” as defined under CFO’s regulations and policies.

When LPF purchased the processing plant in December 2009, it had access to the Quebec production it had developed, first as a broker and latterly directly as a buyer.

However, coincidental with LPF buying the processing facility and taking steps to be a processor authorized to purchase Quebec chicken, the Federal and Provincial supervisory agencies were directing the Provincial regulators and industry in Ontario and Quebec to address the high volumes of chicken moving between provinces.

One example of LPF developing access to Quebec chicken production relevant to this appeal was an agreement drafted by Robert Laplante and made on December 31st, 2008 regarding about 300,000 kilograms of Quebec chicken production previously shipped to Ontario processor Remy Poultry Inc. (“Remy”).

The uncontradicted evidence was that under that December 31st, 2008 agreement, LPF paid $50,000 to Richard Glaude, another broker who had until that time brokered Quebec chicken production to Remy.

After that December 31st, 2008 agreement, LPF became a broker between Quebec chicken producers and Remy, until Remy ceased its processing operations around the middle of 2010.

Jack Chan, the President of Remy testified he had not signed the December 31st, 2008 agreement. He confirmed he was unable to read or understand that agreement, which was in French.

Chan confirmed that before December 31st, 2008, Richard Glaude had been Remy’s broker for Quebec chicken and that Glaude had received a commission on the Quebec chicken he sourced for Remy. Glaude was not an employee of Remy.

Chan testified that Glaude had some personal problems and wanted to transfer his broker role to LPF and Remy was agreeable with that. Chan understood LPF was paying $50,000 to Glaude to take over as Remy’s broker. He testified that Remy had no supply rights to purchase Quebec chicken production but, rather, those purchases were made with Quebec chicken farmers on a quota period by quota period basis. He explained the tenuous nature of those arrangements with Quebec producers in that if the chicken was not shipped to Remy for processing it was “too bad or cry” because Remy had no rights and no agreements with the Quebec producers. The only thing Remy had with Quebec producers was a “relationship”.

Riverview has been a chicken processor under the Ontario regulatory regime since 1993. It is a Class A licensed processor with a “calculated base”. Since becoming a processor, its “calculated base” has changed by acquisition of other processors and occasionally by “calculated base” adjustments made by CFO.

On April 21st, 2010, Riverview made an agreement with Remy to buy 529,690 kilograms of “calculated base” from Remy, which represented all Remy’s “calculated base”. The purchase price was approximately $6.375 million reflecting a price per kilogram of just over $12 and the sale transaction closed January 2nd, 2011. CFO approved that transfer of “calculated base” as required under the regulatory regime. Remy ceased to be a “processor” as early as mid-2010 or as late as December 31st, 2010.

As a Class A licensed processor with a “calculated base”, at the time of the Quebec-Ontario re-alignment called for under the 4P Agreement, Riverview was one of the Ontario processors entitled to have its “calculated base” “re-based”.

Because of that “re-basing” CFO granted Riverview approximately 1 million kilograms of “calculated base” which, effective the April 16th, 2012 enactment of CFO Policy No. 182-2012, altered Riverview’s “calculated base” from about 2.9 million kilograms to about 3.9 million kilograms.

The evidence of CFO was that as part of its re-basing considerations in relation to Riverview, it considered Remy’s average Quebec chicken supply purchased during the A-73 to A-87 reference period, which amounted to 287,492 kilograms.

Analysis and Findings

LPF asks for 286,553 kilograms of “calculated base”.

LPF wants that “calculated base” because it says it does not have sufficient supply to steadily keep its Sarsfield processing facility operational.

LPF says that because of not having additional “calculated base”, it cannot grow and expand its processing business and it is struggling to keep qualified staff.

LPF argued it had the “closest connection” to the Remy Quebec supply kilograms and under CFO Policy No. 182-2012, section 1.03, it should receive a “calculated base” of 286,553 kilograms.

Under the current regulatory system there are two ways to get “calculated base”.

The first way is going to the market and buying “calculated base” from a competitor or from a processor leaving the industry. The uncontradicted evidence was that in the current market “calculated base” trades at about $12-$13 per kilogram. To acquire 286,553 kilograms of “calculated base” would cost LPF around $3.5 million.

The second way is a grant of “calculated base” from CFO, such as in the “re-basing” that occurred under the “4P Agreement” effective April 16th, 2012 or one of CFO’s occasional adjustments of “calculated base”.

LPF seeks to receive 286,553 kilograms of “calculated base” in this appeal via that second way.

LPF framed the issues on this appeal as based in the contract LPF made on December 31st, 2008 regarding brokering the Remy supply from Quebec producers and as based in the contract Riverview made April 21st, 2010 to buy Remy’s calculated base.

LPF tried to make its case for “calculated base” on a theory of a higher or better entitlement than Riverview to be associated with Remy’s historical Quebec chicken purchases.

In the Tribunal’s view, LPF’s focus on those agreements was misplaced.

The Tribunal finds as a fact that the Quebec supply purchases by qualified “processors” were used by CFO to develop a baseline to inform CFO’s considerations as part of the re-basing agreed to between Ontario and Quebec in the “4P Agreement”.

The only evidence before the Tribunal about when Quebec supply purchases were relevant was as one part of CFO’s overall consideration during the “re-basing”. The Tribunal accepts that as a fact.

One difficulty for LPF’s appeal is that “re-basing” under the ”4P Agreement” was a point in time adjustment and the regulatory qualifications for that “re-basing” were a processor be (i) a Class A licensed processor, and (ii) holding a “calculated base” and at that point LPF was neither. Therefore, regardless of the December 31st, 2008 agreement or the April 21st, 2008 agreement, LPF could not qualify for that “re-basing”.

While LPF became a Class A licensed processor with a “calculated base” within about a month after re-basing became effective, the fact remains LPF was not qualified to receive “calculated base” during that re-basing.

That fact alone determines this appeal. That fact alone is fatal to LPF’s appeal.

LPF is the appellant and has the onus of proving to the Tribunal its entitlement to receive a “calculated base”. LPF has failed to discharge that onus.

In the Tribunal’s view, the issue is regulatory and the contract considerations are not determinative in this present context.

Although unnecessary in the Tribunal’s view, for the sake of completeness of our analysis, the following are our findings regarding the December 21st, 2008 agreement and the April 21st, 2008 agreement.

December 31st, 2008 Agreement

• Remy was not a party to the agreement
• Remy received no consideration under the agreement
• The parties to the agreement were LPF and Richard Glaude
• LPF paid $50,000 consideration to Richard Glaude to become Remy’s broker
• Remy approved LPF becoming its broker
• Remy transferred no goodwill to LPF
• Remy transferred no rights to LPF

April 21st, 2008 Agreement

• Conditional on CFO approval, which was received
• Riverview paid Remy $6.375 million
• Remy transferred 529,690 kilograms of “calculated base” to Riverview
• Remy transferred no goodwill in historic Quebec chicken purchases to Riverview
• Remy did not transfer to Riverview any rights to Quebec supply purchases

The Tribunal finds that LPF has not produced satisfactory evidence for us to conclude it had any regulatory or contractual “connection” to the Remy Quebec supply kilograms let alone the “closest connection”.

Order of the Tribunal

The Tribunal Orders:

1. The LPF appeal is dismissed.

Dated at Brampton, Ontario this 6th day of May, 2014.

Footnotes

1. 1Reasons for Judgment of Justice Kane, paragraphs 7-29 in Laplante Poultry Farms Limited v. Riverview poultry Limited and The Chicken Farmers of Ontario 2013 ONSC 5340
2. 2CFO Regulation No. 2070-2005, s.75
3. 3Règlement sur la production et la mise en marché du poulet, c.M-35.1, r.292, section 58.4, enacted pursuant to La Loi sur la mise en marché des produites agricoles, alimentaires et de pêche. L.R.Q. c.M-35.1