Kocsis v. Chicken Farmers of Ontario, 2018 ONAFRAAT 5

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 Courriel: AFRAAT@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

AMENDED

APPEAL:

Kocsis v CFO (RE)

Kocsis v CFO

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

February 14, 2018

DATE OF DECISION:

March 27, 2018

001CFO17

NEUTRAL CITATION:

2018ONAFRAAT05

IN THE MATTER 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 Gabe Kocsis of Jordan, Ontario, from the decision of the Chicken Farmers of Ontario.

Before:

John O’Kane, Vice-Chair, Sarah Judd, Member and Fred Stulp, Member

Appearances:

Gabe Kocsis, Appellant

Geoff Spurr, Counsel for Chicken Farmers of Ontario

Everett Benjamins, Board Chairman, Witness for the Chicken Farmers of Ontario

AMENDED DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario, on Wednesday, February 14, 2018. Gabe Kocsis (the “Appellant”) appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the “Tribunal”) from a decision of the Chicken Farmers of Ontario (“CFO”).

Overview

Gabe Kocsis is a chicken producer.

The Farm Products Marketing Act (the “Act”) and Regulation 402 give the Chicken Farmers of Ontario (the “Board”) the authority to regulate the production and marketing of chicken in Ontario. The Act also authorized Regulation 402, which established the Ontario Chicken Plan (the “Plan”), which includes the method by which members of the Chicken Board should be elected or, in certain circumstances, appointed.

The members of the Chicken Board are producer-members who are elected from districts in which they reside. After the members of the Board are elected, each district must elect producer-representatives to the District Chicken Producers’ Committee (the “Committee”).

Mr. Kocsis was an elected producer-representative to the Committee (a District Committee Representative or “DCR”) for his local district, as well as chair of this committee.

At the time that Mr. Kocsis was a DCR, CFO suspended all dealings with him in his capacity as a DCR after he refused to sign a Code of Business Conduct Agreement and Confidentiality Agreement.

Mr. Kocsis appealed to the Tribunal under the Ministry of Agriculture, Food and Rural Affairs Act on the basis that the Board had no legal authority to suspend dealings with him as a DCR for not signing the agreements. As well, Mr. Kocsis argued that CFO did not have the legal authority to impose additional requirements on DCRs to stand for election or to stay in office.

For the reasons explained hereafter, the Tribunal denies Mr. Kocsis’ requests and dismisses the appeal.

Preliminary Matter

On February 5, 2018, just a week before this appeal hearing, the Tribunal considered Mr. Kocsis’ teleconference motion for an order requiring the Board to provide a lengthy list of materials that included Board minutes, recording secretary notes, all versions of the Code of Business Conduct and Confidentiality Agreements for the past ten years, all correspondence with Mr. Kocsis, listings of DCR activities, events, agendas, and the contents of the Board electronic portal established for DCRs.

After the motion hearing the Tribunal dismissed Mr. Kocsis’ request, with written reasons to follow.

Mr. Kocsis argued that he believed the requested disclosure was relevant to the appeal issues.

Relevance is determined from reviewing the pleadings, in this case, Mr. Kocsis’ appeal notice. As conceded by Mr. Kocsis, the central issue on appeal has always been the Board’s legal authority to enact the impugned by-laws.

The Tribunal concluded that the appeal does not challenge the Board’s process to enact the impugned by-laws nor does the appeal challenge the impugned by-laws as arbitrary or unreasonable. The sole issue on appeal is whether the Board had the legal authority to enact the impugned by-laws and the legal authority to suspend its dealings with Mr. Kocsis as a DCR.

None of the materials requested in Mr. Kocsis’ motion for disclosure are probative of the issue of the Board’s legal authority. Therefore, none of the materials requested in Mr. Kocsis’ disclosure motion are relevant and accordingly, need not be produced.

Background

The Appellant Gabe Kocsis appealed to the Tribunal under subsection 16 (1) of the Ministry of Agriculture and Rural Affairs Act. The appeal impugns the Board’s By-law 26 which created rules related to the nomination and election of DCRs to the Committee and challenged the Board’s authority to suspend its dealings with Gabe Kocsis as a DCR, for his alleged refusal to abide by those rules.

Legislative Regime

Chicken production and marketing in Ontario is controlled and regulated under the Act. This means that chicken farms producing chicken in Ontario must adhere to strict governance under the Act and subsequent regulations.

The Act creates a regime whereby the Province delegates regulatory authority in respect of defined farm products to local boards, subject to oversight by the Ontario Farm Products Commission (the “Commission”). The Act envisaged farm product-specific local boards and marketing plans created via regulation.

Under the Chicken Plan (Regulation 403), the province is divided into nine geographic districts, each district electing one producer member to the Board. Those nine Board members are deemed to be the shareholders and directors of the Board.

Under Regulation 421, the Board is required to file with the Commission its meeting agendas, copies of any direction, order, regulation, by-law or policy statement, reports of operations, financial statements, and appointments of agents. In addition, the Board is required to give the Commission access to all meeting minutes on request.

Under Subsections 9 (1) and (2) of the Plan, each district must have a committee of producer-members, and the members of the committee are elected after the election of the Board (these committee members are known as DCRs or committeemen).

The Plan also stipulates two requirements for a person to be elected as a DCR:

1. He or she must be a chicken producer (Sections 3 (a), (b), (c))

2. He or she must own property on which chickens are produced in the district from which he or she is elected.

Neither the Act nor the Plan grant any authority or powers to the committee or to DCRs. Neither the Act nor the Plan impose any duties on the committee or the DCRs.

The Act also grants authority to the Commission and local boards with respect to creating by-laws related to local board governance and affairs as follows:

3. (3.1) The Commission may make regulations prescribing by-laws for regulating the government of local boards and the conduct of their affairs, but any local board may make by-laws not inconsistent with this Act or the regulations made under this subsection or those made under the plan under which the local board is established as amended from time to time.

This subsection gives the Board in this case the authority to make by-laws for its organization and governance, so long as the by-laws are not inconsistent with the Act or Regulations.

The Board enacted By-Law 26, which has since been replaced by By-Law 28.

By-Law 26 (Section 4.02) required that at the time of nomination a prospective DCR was obliged to undertake in writing that if elected, he or she will immediately sign the Code of Business Conduct and Confidentiality Agreement. That section 4.02 created additional election nomination rules that were not set out in the Plan¹.

By-law 26 has since been replaced with By-Law 28, which does not require the prospective DCR to give the written undertaking to sign the Code of Business Conduct and Confidentiality Agreement. Instead, the replacement provision (Section 5.06) simply “requests” the prospective nominee to give the undertaking. Therefore, there is now no additional nomination rule; however, By-Law 28 does create consequences for elected DCRs who do not sign the Code of Business Conduct and Confidentiality Agreement. Those consequences are that the Board will consider the DCR a ‘non-participatory’ DCR (Section 5.07) and will not provide that non-participatory DCR with access to any confidential, personal, proprietary or sensitive information (Section 5.08).

The Issues

1. Does the Board have the legal authority to enact section 41 (k) of By-Law No. 27, which provides :

“Upon commencement of the term and annually thereafter, to sign and execute the District Committee Representatives Code of Business Conduct and District Committee Representatives Confidentiality Agreement and such other documents and commitments as are then required by this by-law or any successor by-law thereto.”?

2. Does the Board have the legal authority to enact section 5.06 of By-Law No. 28, which provides:

“At the time of acceptance of the nomination, the nominated farmer-member will be requested to give an undertaking in writing that if elected, he or she will forthwith complete a DCR Code of Business Conduct, a DCR Confidentiality Agreement and such other documents and commitments as are then required by CFO By-laws (the “required document”).”?

3. Does the Board have the legal authority to suspend its interactions and dealings with a DCR who does not sign the DCR Code of Business Conduct and DCR Confidentiality Agreement?

The Evidence

Gabe Kocsis, Appellant

Mr. Kocsis holds a license to produce chicken under the Act and resides in District 5. For ten years concluding with 2017, he was elected by farmers in his district to be one of four DCRs and also served as the Chair for the District 5 DCRs during that time. Before serving in that role, he served as a Board Director.

Mr. Kocsis filed evidence in the form of a report by John McMurchy dated September 10, 1992 (the “McMurchy Report”). The McMurchy Report contains a view about the role and responsibility of Committeemen (also known as DCRs). The McMurchy Report posits the view that DCRs play a consultative role between the Board and the local producers. The consultative role of DCRs flows in two directions: from the Board to the rank and file producers and from the rank and file producers to the Board.

In 2015, CFO requested that DCRs sign both a Code of Business Conduct and Confidentiality Agreement annually, outlined in the previous By-Law 26. Mr. Kocsis signed both agreements in 2015 but refused to sign them in 2016 and thereafter.

In 2016, CFO suspended its dealings with Mr. Kocsis in his capacity as a DCR for not signing the 2016 Code of Conduct and Confidentiality Agreement. This suspension arose after Mr. Kocsis had represented a fellow farmer against CFO, in his capacity as a lawyer.

The suspension resulted in Mr. Kocsis being denied access to DCR online material on a DCR portal maintained by the Board, being prevented from attending meetings with the Board and lunches with the Board as well as prevented him from submitting DCR expense claims.

In March 2017, Mr. Kocsis declined to be nominated as a DCR because it was his understanding that he would have to sign the agreements and not doing so would result in a similar suspension.

Mr. Kocsis argued that the Board had no legal authority to suspend him, or any legal authority to require his signature on the agreements.

Mr. Kocsis argues that under Regulation 403, the only requirements of DCRs is that they must be a chicken producer and reside in the district to which they are elected to represent. He argues that any additional requirements the Board imposed on DCRs would breach its legal and ethical obligations and be in contravention of the Plan.

Mr. Kocsis argued that DCRs have a consultative role only and that no legal powers have been given to DCRs under the Plan. Since DCRs have no legal authority, By-Law 26 is improper and CFO does not have the authority to impose requirements on DCRs to sign the Code of Business Conduct or Confidentiality Agreement, as the terms contained in these documents would conflict with DCRs’ consultative role. The consultative role of DCRs should allow them to assist fellow farmers, advocate for members, create discussion, disagree with board decisions, and appeal a decision to the Board and to the Tribunal. Producers have the right to elect whom they want as a DCR, and By-Law 26 prevents/impedes members from electing anyone who will not sign the agreements.

Mr. Kocsis also acknowledged that By-Law 26 has since been replaced by By-Law 28, which does not require DCRs to sign the agreements. However, he argued that a non-participatory DCR is restricted from his consultative role and that this is unfair to the members. Mr. Kocsis did admit that directors should be expected to consult DCRs. The relevance of this expectation will be discussed further on.

Everett Benjamins, Member, Board of Directors for CFO, Witness

Mr. Benjamins was elected to the Board to represent District 7, Wellington County. There are currently five DCRs acting in the district plus himself as the Board member.

Mr. Benjamins has served as a director for four years in district 5, plus a term as a director in district 7 in the late-1980s to mid-1990s. He has also served as the representative to Chicken Farmers of Canada.

Mr. Benjamins testified that during his time on the Board, he has witnessed significant changes in the behavior and governance of the Board; as well as the evolution of talent and succession of training. The Board now offers educational courses to members and Mr. Benjamins feels that there is a closer consultative relationship with DCRs now than there was in the past.

Due to this closeness in relationship and consultation between DCRs and the Board, the Board may discuss information with DCRs that is confidential in nature. Confidential information may be distributed to DCRs through mail or the electronic DCR portal. DCRs may be able to provide feedback to the Board on confidential decisions before they are made public.

Mr. Benjamins testified that signing the Code of Business Conduct and Confidentiality Agreement annually is considered to be part of governance best practices and the annual signing review reminds everyone of their responsibilities.

Mr. Benjamins also testified that DCRs who have signed the Confidentiality Agreement and Code of Business Conduct are still entitled to disagree with Board decisions. He suggested that the DCRs can respectfully disagree with Board decisions, but actively seeking to go against decisions would be inappropriate. However, DCRs still reserve the right to appeal to the Board or to the Tribunal when a disagreement arises.

The Findings and Analysis

For the reasons that follow, the Tribunal answers the three questions framed as issues in the affirmative, confirming that in each instance, the Board does have the legal authority to enact the impugned by-laws and suspend its dealings with a DCR who does not sign the DCR Code of Business Conduct and DCR Confidentiality Agreement.

Again, the questions before the Tribunal are not whether the impugned by-laws or the Confidentiality Agreement and Code of Business Conduct or the Board suspending its dealings with Mr. Kocsis are correct or reasonable or appropriate; but rather whether the Board had legal authority to enact the by-laws and act as it did.

Part of the analysis of the legal authority of the Board in this context includes considering what the Legislature intended when it established the Committee in the Plan. The Act and the Regulations are silent about the Committee’s powers and duties. That legislative silence can be contrasted with the very clear and express legislative listing of the powers and duties of the Board. The Tribunal is unable to accept Mr. Kocsis’ argument that legislative silence about the Committee should be interpreted to mean that the Board can exercise no control or authority over the Committee. The Tribunal concludes that such an interpretation would be absurd in the context of a highly regulated farm products regime such as this. The Committee is not established as a committee of the Legislature or a committee of the Commission but rather as a committee of the Board. The Legislative silence regarding the Committee’s powers and duties can only be interpreted as intention to leave the creation of the Committee’s powers and duties to the Board. The Tribunal accepts Mr. Kocsis’ argument that the Committee’s role is, at least in part, that of a consultative conduit between the Board (the regulator) and the producers (the regulated). How the Board makes use of that consultative conduit remains entirely up to the Board. The Tribunal accepts Mr. Benjamins’ evidence and finds as a fact that DCRs do, at times, receive confidential and sensitive information from the Board. Trusting that DCRs will keep such information confidential without appropriate controls (such as requiring DCRs to sign the Code of Business Conduct and Confidentiality Agreement) is not a sound practice.

The Act gives the Board the authority to make by-laws not inconsistent with the Act or its Regulations. That by-law making authority is very wide and necessarily includes the authority to amend or repeal by-laws.

The Board has exercised that by-law making authority to enact, among other by-laws, By-Law No. 27, which is a general governance and operations by-law that includes in sections 39 to 46, specific duties and responsibilities of DCRs, one such duty being the duty to sign the DCR Code of Business Conduct and Confidentiality Agreement every year.

The Tribunal accepts Mr. Benjamins’ evidence and finds as a fact that requiring DCRs to sign a Code of Business Conduct and Confidentiality Agreement on an annual basis is part of modern corporate governance best practices.

The Tribunal also finds as a fact and concludes that there is nothing in section 41(k) of By-Law No. 27 that is inconsistent with the Act or the Regulations.

The Board has also exercised that by-law making power to enact, among other by-laws, By-Law No. 28, which is a nominations and elections procedures by-law that includes at section 5, specific rules related to DCR nominations and elections. Section 5.06 creates a voluntary request that DCR nominees sign the Code of Business Conduct and Confidentiality Agreement. However, that section, when read together with sections 5.07 and 5.08, makes abundantly clear to any prospective DCR nominee and to all producer-members that there is an expectation that once elected; the DCR must sign the required documents before a DCR may receive any confidential, personal, proprietary or sensitive information.

As discussed above, it is for the Board to determine how it will use the DCRs (the consultative conduit). The information flowing from the Board through the DCRs to the producers is the Board’s information, and it is entirely reasonable and appropriate that the Board impose conditions and controls on that information. The Tribunal rejects Mr. Kocsis’ arguments that the Board has no authority to impose such conditions and controls over the information shared through the DCRs. The Tribunal accepts that if the Board released sensitive or confidential or proprietary information through the DCRs in the absence of such controls, the Board could be exposing itself to breaching its statutory and common law duties.

The Tribunal finds as a fact and concludes that there is nothing in section 5.06, 5.07 and 5.08 of By-Law No. 28 that is inconsistent with the Act or the Regulations.

The final issue to address is the consequences that flow from sections 5.07 and 5.08 of By-Law No. 28. Mr. Kocsis characterized those consequences as the Board suspending a DCR. The effect of those sections does not impact the election of any DCR. The effect of those sections does impact the effectiveness of a DCR as a conduit from the Board to the producers because the Board will not share information or access to information with any DCR who does not sign the Code of Business Conduct and the Confidentiality Agreement. However, as discussed above, that Act and the Plan do not create any powers or duties for DCRs and accordingly, treating DCRs as “non-participatory” in the circumstances set out in sections 5.07 and 5.08 is appropriate and within the Board’s by-law making authority and not inconsistent with the Act or Regulations.

Order of the Tribunal

The Tribunal hereby orders:

1. As indicated in the February 5, 2018 motion decision, the Applicant’s motion for disclosure is dismissed.

2. That the appeal is dismissed.

AMENDED - Dated at Collingwood, Ontario this 27th day of March, 2018.

Footnotes

1. 1By-Law No. 26, prior to its replacement late in 2017 contained in Section 4.02 additional requirements for prospective DCR nominees that are not contained in the Plan. Accordingly, had the Tribunal been required to rule on that provision, it would have found that the Board did not have the legal authority to impose those additional requirements on nominees. However, with the replacement of By-Law No. 26 with By-Law No. 28, that issue is now academic.