ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 5521/12
DATE: 2013/11/19

BETWEEN:

Cami International Poultry Incorporated
Plaintiff

– and –

Chicken Farmers of Ontario, The Association of Ontario Chicken Processors, Cargill Limited, Maple Leaf Foods Inc., Maple Lodge Farms Ltd., Pinty’s Delicious Foods Inc., Riverview Poultry Limited, and T&R Sargent Farms Ltd.

Defendants

Ronald F. Caza and Alyssa Tomkins, for the Plaintiff

Geoffrey P. Spurr, for the Defendant Chicken Farmers of Ontario

Herman Turkstra, for the Defendants The Association of Ontario Chicken Processors, Cargill Limited, Maple Leaf Foods Inc., Maple Lodge Farms Ltd., Pinty’s Delicious Foods Inc., Riverview Poultry Limited, and T&R Sargent Farms Ltd.

• and -

L’Association des Abattoirs Avicoles du Québec Inc.
Intervenor

Antoine Aylwin, for the Intervenor

HEARD at Welland, Ontario:

October 15, 16 & 17, 2013

THE HONOURABLE JUSTICE J. R. HENDERSON

d e c i s i o n o n m o t i o n

INTRODUCTION

[1] This is a motion brought by the Association of Ontario Chicken Processors (“AOCP”) and Cargill Limited, Maple Leaf Foods Inc., Maple Lodge Farms Ltd., Pinty’s Delicious Foods Inc., Riverview Poultry Limited and T&R Sargent Farms Ltd. (collectively called “the Defendant Processors”) to strike out certain parts of the Statement of Claim, primarily with respect to the Plaintiff’s claim for monetary damages.

[2] This motion is brought pursuant to Rule 21.01(1)(b), which reads as follows:

21.01 (1) A party may move before a judge,

(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,

and the judge may make an order or grant judgment accordingly.

[3] No evidence is admissible on a Rule 21 motion, and the Defendants have not yet delivered their pleadings. All Defendants and the Intervenor support the motion.

THE BACKGROUND

[4] The AOCP is an industry association whose members are Ontario chicken processors. All of the Defendant Processors are Ontario chicken processors who are members of the AOCP.

[5] The Plaintiff (“Cami”) is also an Ontario chicken processor carrying on business in Welland, Ontario. However, Cami is one of a small number of Ontario chicken processors who are not members of the AOCP.

[6] The Chicken Farmers of Ontario (“CFO”) is a marketing board created by a regulation authorized by the Farm Products Marketing Act, R.S.O. 1990, C. F.9 (“FPMA”). Another regulation, known as Ontario Regulation 402 (Chicken-Marketing), gives the CFO broad powers for the purpose of regulating the production and marketing of chicken in Ontario.

[7] Pursuant to these regulations, the CFO has created a mandatory quota system for the production and processing of chicken in Ontario. Under this system the CFO determines a specific amount of live chicken (in kilograms) that may be purchased from Ontario producers by each Ontario chicken processor during each period (usually eight weeks). That is, each Ontario chicken processor is only permitted to purchase live chicken from Ontario producers in an amount that is allocated to them by CFO.

[8] In order to implement this system, the CFO determines a “calculated base” for each Ontario chicken processor. This calculated base is similar to a quota, and represents the total amount of live chicken in kilograms that each Ontario chicken processor is permitted to purchase from Ontario producers for processing during any period. In this way, the CFO controls the supply of processed chicken that will be available for sale in Ontario.

[9] As an Ontario chicken processor, Cami’s business is regulated by the CFO system. Accordingly, Cami has historically purchased live chicken for processing from Ontario chicken producers in accordance with its calculated base.

[10] In addition, Cami pleads that between 2007 and 2012 Cami also purchased live chicken for processing from Quebec chicken producers. Cami pleads that by purchasing live chicken from Quebec producers it was able to supplement its allocated supply of live chicken from Ontario producers. Cami alleges that it developed a significant business by carrying on its operation this way.

[11] Cami alleges that the interprovincial trade in live chicken between Ontario and Quebec was a free market, unregulated, and competitive. That is, although Cami’s ability to purchase live chicken from Ontario producers was limited by the calculated base allocated to it by the CFO, Cami’s ability to purchase live chicken from Quebec producers was not limited.

[12] Cami alleges that the AOCP and the Defendant Processors agreed or conspired to attempt to extinguish Cami’s ability to purchase live chicken from Quebec producers. Consequently, the AOCP and the CFO along with their Quebec counterparts, Les Eleveurs de Volaille du Quebec (“EVQ”) and “L’Association des Abattoirs Avicoles du Québec Inc. (“AAAQ”), entered into a written agreement dated January 26, 2011, referred to in the pleadings as “The Arrangement”.

[13] One of the stated purposes of The Arrangement was “…to provide particulars of the manner in which CFO and EVQ will alter their respective processor allocation systems so that contracting between producers and processors in Ontario and Quebec will occur subject to substantially similar rules …”

[14] In accordance with The Arrangement, the CFO and the EVQ each passed similar regulations (“the Impugned Provisions”) that purported to regulate the interprovincial trade in live chicken between Ontario and Quebec. That is, the free market interprovincial trade in live chicken was brought into the existing regulated systems in each of the two provinces.

[15] In Ontario, the net effect of the Impugned Provisions was that the CFO controlled, by the use of a calculated base, the ability of each Ontario chicken processor to purchase live chicken from any chicken producer in Ontario or Quebec. The total available amount of live chicken, whether it was produced by an Ontario or a Quebec producer, was reallocated to each Ontario chicken processor as part of each processor’s new calculated base.

[16] As a result, Cami’s ability to purchase live chicken from Quebec producers is now controlled by the CFO. Cami may still in fact purchase live chicken from Quebec producers, but the total amount of chicken purchased by Cami, whether from Ontario or Quebec, is limited by its calculated base as determined by the CFO.

[17] Cami alleges that it has suffered monetary damages because the business it had developed by purchasing live chicken from Quebec producers has been extinguished by The Arrangement and the Impugned Provisions.

[18] Further, Cami alleges that its allocation of live chicken as determined by its new calculated base is not sufficient to compensate Cami for the loss of its interprovincial chicken business. Cami alleges that prior to the Impugned Provisions its share of the interprovincial trade in live chicken exceeded 800,000 kilograms per period, but after the Impugned Provisions were passed its share was reduced to approximately 250,000 kilograms per period.

[19] In summary, Cami alleges that the Defendants collectively took Cami’s business that was based on purchasing live chicken from Quebec producers, brought that business into the Ontario regulatory system, and then divided the business up primarily between the members of the AOCP.

THE IMPUGNED PARTS OF THE STATEMENT OF CLAIM

[20] For the purposes of this motion, it is helpful to categorize Cami’s claims as set out in the pleadings. First, Cami claims a declaration that the Impugned Provisions passed by the CFO to implement The Arrangement are ultra vires. This claim is not the subject of this Rule 21 motion. The Defendants acknowledge that this claim is properly pleaded, and the merits of this claim will be determined at some point in the future.

[21] Second, Cami claims damages against the CFO for expropriation without compensation, intentional interference with economic relations, and misfeasance in public office. In this motion the Moving Parties request that the parts of the Statement of Claim that relate to expropriation without compensation and intentional interference with economic relations be struck. The claim of misfeasance in public office is not the subject of this motion.

[22] Third, Cami claims damages against the AOCP and the Defendant Processors for intentional interference with economic relations, conspiracy, and conduct that is contrary to s.45 of the Competition Act, R.S.C. 1985 c.C-34. In this motion the Moving Parties request that the parts of the Statement of Claim that relate to all of these claims be struck.

[23] Fourth, Cami makes a claim for punitive damages and for the loss of reputation and goodwill against all Defendants. The Moving Parties request that these claims be struck.

[24] In addition, as part of this motion, the Moving Parties request that the reference in the Statement of Claim to the Agreement on Internal Trade be struck because it is not properly identified in the pleadings.

THE LAW REGARDING RULE 21 MOTIONS

[25] On a Rule 21 motion, the motions judge must assume that the facts contained in the pleadings are correct. Then, the motions judge must determine whether, based on those facts, the claims set out in the pleadings have a chance of success. Only if the claims have no chance of success will those parts of the pleadings be struck.

[26] The leading authority on Rule 21 motions is the case of Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959. At page 979 of that decision, Wilson, J. endorsed the “plain and obvious test” as described by Estey, J. in the case of Attorney General of Canada v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 S.C.R. 735, at p. 740 as follows:

As I have said, all the facts pleaded in the statement of claim must be deemed to have been proven. On a motion such as this a court should, of course, dismiss the action or strike out any claim made by the plaintiff only in plain and obvious cases and where the court is satisfied that “the case is beyond doubt”.

[27] The governing principles relating to Rule 21 motions are nicely summarized by Conway J. in the case of 1597203 Ontario Ltd. v. Ontario, 2007 21966 (ON SC), [2007] O.J. No. 2349 at para. 12 as follows:

(a) The facts in the pleading are to be taken as proven and true unless they are patently ridiculous or incapable of proof.

(b) It must be “plain and obvious” that the pleading is unfounded or contains no reasonable cause of action in order for the motion to succeed.

(c) The threshold for sustaining a pleading is not high – a “germ” or “scintilla” of a cause of action will be sufficient.

(d) The pleading will only be struck if the allegations do not give rise to a recognized cause of action or if the claim fails to plead the necessary elements of an otherwise recognized cause of action.

(e) No evidence is to be admitted on the motion.

(f) The pleading is to be read generously.

(g) The novelty of the claim does not prevent a plaintiff from proceeding with its case.

(h) The court’s role at the motion is not to determine the strength of the case or the likelihood of success.

EXPROPRIATION WITHOUT COMPENSATION

[28] Expropriation occurs if the Crown or a public authority acquires an interest in property from the owner of that property. In such circumstances, there is a presumption that the Crown will pay for the property. Thus, the claim of expropriation without compensation has two elements. First, property must be taken from the owner, and second, that property must be acquired by the Crown for its use or destruction. See the decision of Estey, J. in The Queen (B.C.) v. Tener, 1985 76 (SCC), [1985] 1 S.C.R. 533 at page 556, and the decisions in A&L Investments Ltd., 1997 3115 (ON CA), 36 O.R. (3d) 127 (OCA) at paras. 23 to 28, and Sanders v. British Columbia (Milk Board), [1991] B.C.J. No. 236 (BCCA) at p. 6.

[29] In this case the Moving Parties submit that the Statement of Claim is confusing as to what property was taken from Cami. The Moving Parties also submit that if the property that was taken was calculated base, Cami’s claim cannot succeed because calculated base is analogous to quota, and there is case law that has determined that quota is not property. Further, the Moving Parties submit that if something was taken from Cami, it was not acquired by the Crown.

[30] I accept that there is confusion in the Statement of Claim as to what was taken. In paragraphs 1(b)(i) and 1(c)(i) Cami makes a claim for “$7,288,242 or the value of the expropriated calculated base”. This clearly suggests that the property that was taken was Cami’s calculated base. However, paragraphs 1(b)(iv) and 1(c)(iv) refer to “loss of the use of physical assets and investments in the plant”, and paragraphs 1(b)(v) and 1(c)(v) refer to “loss of reputation and goodwill”.

[31] I find that paragraphs 35 to 69 of the Statement of Claim contain pleadings in support of Cami’s claim for the loss of its interprovincial business and the loss of goodwill. For example, paragraph 35 states in part, “The defendants subsequently negotiated and implemented The Arrangement, thereby illegally acquiring a significant portion of Cami Poultry’s processing business …”

[32] Further, paragraph 66 reads in part, “At the time the Impugned Provisions were enacted, Cami Poultry possessed valuable goodwill in terms of the suppliers and customers who it had acquired and cultivated over the years.” Paragraph 67 continues, “A significant portion of that asset was completely extinguished upon the enactment of the Impugned Provisions …” Paragraph 69 reads, “The reallocation had the effect of depriving Cami Poultry of much of its goodwill as a going concern and rendering its physical assets virtually useless.”

[33] In my view, paragraphs 35 to 69 of the Statement of Claim adequately describe Cami’s allegations that it had invested money and assets into its interprovincial business; that its business was extinguished by the Impugned Provisions; and that it has suffered damages as a result of the loss of its business and the goodwill associated with its business. Thus, I find that the material facts in support of the claims made in paragraphs 1(b)(iv) and (v) and 1(c)(iv) and (v) are properly pleaded.

[34] The confusion is the reference to “expropriated calculated base” in paragraphs 1(b)(i) and 1(c)(i). Paragraphs 70 to 76 of the Statement of Claim appear to be pleadings that are intended to support that claim. However, it is clear from the pleadings that there was no calculated base allocated to any Ontario chicken processor, including Cami, with respect to the interprovincial chicken market, prior to the Impugned Provisions. Therefore, even if I were to accept that calculated base is property, Cami had no calculated base in respect of the interprovincial business that Cami alleges was lost. Thus, the claim for expropriated calculated base cannot succeed.

[35] As an aside, I note that Cami may allege that it received inadequate compensation for the loss of its interprovincial business, but that is an issue of damages that would flow from Cami’s claim for lost business or lost goodwill. Inadequate compensation for lost business or lost goodwill does not provide a foundation for a claim for expropriated calculated base.

[36] For these reasons I will strike out the parts of paragraphs 1(b)(i) and 1(c)(i) that refer to “the value of the expropriated calculated base”, as well as all of paragraphs 70 to 76. It may be that Cami believes that some parts of paragraphs 70 to 76 are important regarding its claims for lost business or lost goodwill, and Cami may wish to replace paragraphs 1(b)(i) and 1(c)(i) with revised damages claims. Therefore, Cami will be given leave to amend its Statement of Claim in this respect within 30 days.

[37] The Moving Parties’ submission that calculated base is not property will remain an unresolved issue. I accept that the landmark decision is the case of National Trust Co. v. Bouckhuyt (1987), 1987 4098 (ON CA), 61 O.R. (2d) 640, in which the Ontario Court of Appeal determined that a tobacco quota was not personal property within the meaning of the Personal Property Security Act. There is an interesting argument as to whether the National Trust case should be restricted to its facts, as summarized at paras. 25 to 35 in Saulnier v. Royal Bank of Canada, 2008 SCC 58. As interesting as this argument may be, it is not necessary for me to decide that issue on this motion. I have determined that Cami’s claim for expropriated calculated base cannot succeed as pleaded. Therefore, I will make no finding as to whether calculated base can constitute property.

[38] The remaining issue under this topic is the Moving Parties’ submission that the Crown has not acquired for itself any of the property that was taken from Cami. Clearly, if the allegation is that Cami’s business and goodwill was taken, the CFO has not directly acquired that business and goodwill for itself.

[39] In response, Cami submits that this element of expropriation without compensation is satisfied because the CFO took Cami’s business and divided it up between the other chicken processors. That is, Cami submits that the CFO does not have to acquire Cami’s business for itself, but the CFO’s conversion of Cami’s business for a purpose beneficial to the CFO will satisfy this element of the cause of action.

[40] In that respect, Cami relies upon the case of Manitoba Fisheries Ltd. v. The Queen, [1979] 1 S.C.R. 10, a case which decided that the elimination of the plaintiff’s fish exporting business by a statute that gave a Crown corporation a monopoly in the field could constitute expropriation without compensation. Further, Cami relies upon the Tener case, aforementioned, a case which decided that the elimination of the plaintiff’s ability to use its mining rights in a provincial park in order for the state to create a better park could constitute expropriation without compensation.

[41] Although Cami’s case on this element may require a favourable extension of the existing case law, I cannot find that it has no chance of success. There is at least a germ or a scintilla of a chance that Cami may succeed on the expropriation without compensation claim.

[42] In summary, the only portions of the Statement of Claim that I will strike with respect to the expropriation without compensation claim are the parts of paragraphs 1(b)(i) and 1(c)(i) that refer to “the value of the expropriated calculated base”, as well as all of paragraphs 70 to 76, with leave to amend as indicated.

THE COMPETITION ACT

[43] In the Statement of Claim, Cami alleges that the AOCP and the Defendant Processors have acted in contravention of s.45(1) (a), (b), and (c) of the Competition Act, which reads as follows:

45. (1) Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges

a) to fix, maintain, increase or control the price for the supply of the product;

b) to allocate sales, territories, customers or markets for the production or supply of the product; or

c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.

[44] Section 36 of the Competition Act permits any person to bring a civil action if that person has suffered loss or damage as a result of conduct that is contrary to Part VI (which includes s. 45) of the Act. Cami relies upon this section in support of its claims against the AOCP and the Defendant Processors.

[45] The Moving Parties submit that this claim cannot succeed because the written agreement referred to as “The Arrangement” contains no terms that would be in contravention of the Competition Act. Further, the Moving Parties submit that The Arrangement is ineffective and of no value because the CFO has complete control by statute of the chicken processing market. That is, only the CFO can fix prices or control markets, and thus any agreement by Cami’s competitors to do so would have no effect.

[46] Regarding the first point raised by the Moving Parties, that The Arrangement contains no anti-competition terms, I note that on a Rule 21 motion I am to assume that all facts in the pleadings are correct. In the present case, Cami pleads that the Defendant Processors are competitors of Cami, and that the Defendant Processors intentionally entered into negotiations and made an agreement with the goal of lessening or eliminating competition for a product, namely live chicken. In my view, those pleaded facts are all of the facts necessary to support a civil action based on conduct that is contrary to s.45 of the Competition Act.

[47] The fact that a written agreement exists is evidence that could assist Cami or the Defendants depending upon how that agreement is interpreted. But, the interpretation of any written agreement must necessarily be made in the context of all the surrounding circumstances, and is not an exercise that should ordinarily be undertaken on a Rule 21 motion. This is a matter for argument that should be made after pleadings have been exchanged, productions have been made, and examinations have taken place.

[48] Regarding the second point raised by the Moving Parties, the allegation that any agreement is ineffective given the control that the CFO has over the market, I note that it is the agreement, not the validity of the agreement, which constitutes an offence under s.45. If the agreement cannot be put into effect that does not mean that there has been no breach of s.45. Therefore, whether The Arrangement in this case can only be put into effect through the actions of the CFO is not determinative.

[49] Lastly, the Moving Parties raise what has been called the regulated conduct defence. That is, the AOCP and the Defendant Processors submit that they are not in breach of s.45 of the Competition Act if they are simply acting in accordance with statutory regulations.

[50] I do not accept Cami’s submissions that this defence is only available in the context of a criminal prosecution. In my view, an aggrieved party cannot bring a successful civil action based on a breach of s.45 of the Competition Act if the accused party has a complete defence to a prosecution under s. 45. In such a case there would be no misconduct on which to base the civil action. Thus, if the regulated conduct defence provides a complete defence to a prosecution under s. 45, then a civil action under s. 36 cannot succeed.

[51] However, I agree that the regulated conduct defence is a defence that must be pleaded by the Defendants. The onus is on the Defendants to plead and prove that this defence applies. Thus, I agree with the comments made by van Rensburg, J. in the case of Fournier Leasing Co. v. Mercedes-Benz Canada Inc., 2012 ONSC 2752, at para. 53 as follows:

Ordinarily, a court will not strike a pleading of a cause of action simply because a defendant may be able to establish a particular defence: See, for example, Mansoor Electronics Ltd. v. BCE Mobile Communications Inc., [1995] F.C.J. No. 1208 (Fed. T.D.), where Richard J. refused to strike a claim under the Competition Act on the basis that the regulated conduct defence should be pleaded in the Statement of Defence and the court should consider its application on such facts as might be proven at trial (at para. 23).

[52] Further, as was discussed in the Fournier case, the regulated conduct defence involves an analysis of the activities of the individuals involved. Simply because an industry is regulated does not mean that all anti-competition practices are authorized within that industry. This issue should be the subject of proper pleadings, productions, and discoveries. Therefore, a claim based on a breach of the Competition Act should not ordinarily be struck out on the ground that the regulated conduct defence may apply.

[53] Still further, I note that in the present action Cami challenges the validity of the very regulations that would form the basis for the regulated conduct defence. If the Impugned Provisions are not valid, then those provisions would not regulate the conduct of the Defendant Processors. Thus, the merits of this defence cannot be assessed at this point in the action.

[54] In summary, based on the facts as pleaded, I find that Cami has a chance of success on its claim for damages as a result of an alleged breach of s.45 of the Competition Act. No part of the Statement of Claim will be struck with respect to this claim.

THE CONSIPIRACY CLAIM

[55] This is a claim against the AOCP and the Defendant Processors. This claim should only be struck if the claim under the Competition Act were struck. Therefore, no part of the Statement of Claim will be struck regarding this claim.

INTENTIONAL INTERFERENCE WITH ECONOMIC RELATIONS

[56] This is a claim against the CFO, the AOCP, and the Defendant Processors. This claim is closely related to the Competition Act claim. No part of the Statement of Claim will be struck regarding this claim.

LOSS OF GOODWILL CLAIM

[57] The Moving Parties submit that Cami has not pleaded material facts in support of this claim. In this decision I have dealt with the loss of goodwill claim under the heading “Expropriation without Compensation”. In my view, this claim has been adequately pleaded.

PUNITIVE DAMAGES

[58] Cami requests punitive damages against the CFO, the AOCP, and the Defendant Processors. Paragraph 113 of the Statement of Claim reads as follows, “The Plaintiff further pleads that the Defendants’ conduct in committing the acts described in the Statement of Claim was arbitrary, malicious, oppressive and/or highhanded. Accordingly, the acts of the Defendants merit an award of punitive damages.”

[59] The Moving Parties submit that the specific acts that are alleged to attract punitive damages have not been identified in the pleadings. However, in my view, the first 112 paragraphs of the Statement of Claim describe the alleged misconduct of the Defendants, and it is not necessary to repeat every act contained therein in reference to a claim for punitive damages. This type of pleading for punitive damages is a routine pleading, particularly in a claim involving an intentional tort.

[60] Therefore, the claim for punitive damages will not be struck.

AGREEMENT ON INTERNAL TRADE

[61] Paragraph 115 of the Statement of Claim simply states that Cami relies upon the Agreement on Internal Trade. The Moving Parties are troubled because this document has not been identified, and its applicability has not been pleaded.

[62] I agree that a pleading that references an unidentified document is inadequate. Therefore, the reference to this document in paragraph 115 of the Statement of Claim will be struck, with leave to amend within 30 days.

CONCLUSION

[63] In summary, the parts of paragraphs 1(b)(i) and 1(c)(i) in the Statement of Claim that refer to “the value of the expropriated calculated base”, and all of paragraphs 70 to 76, are hereby struck.

[64] Further, the reference to the Agreement on Internal Trade in paragraph 115 of the Statement of Claim is hereby struck.

[65] Cami is granted leave to amend the Statement of Claim within 30 days.

Released: November 19, 2013

2013 ONSC 7142

COURT FILE NO.: 5521/12

DATE: 2013/11/19

B E T W E E N:

Cami International Poultry Incorporated
Plaintiff

– and –

Chicken Farmers of Ontario, The Association of Ontario Chicken Processors, Cargill Limited, Maple Leaf Foods Inc., Maple Lodge Farms Ltd., Pinty’s Delicious Foods Inc., Riverview Poultry Limited, and T&R Sargent Farms Ltd.

Defendants

• and -

L’Association des Abattoirs Avicoles du Québec Inc.

Intervenor

DECISION ON MOTION

Henderson, J.

Released: November 19, 2013