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. 1048547 Ontario Inc. v Dairy Farmers of Ontario

In 1048547 Ontario Inc. v Dairy Farmers of Ontario (Div Court, 2023) the Divisional Court sets out a useful background involving the Milk Act, and an appeal under the Ministry of Agriculture, Food and Rural Affairs Act (MAFRAA) to the Agriculture, Food and Rural Affairs Appeal Tribunal (AFRAAT) - here in a JR of AFRAAT milk-related decisions:
[3] The Applicant is a family-owned industrial milk processor in eastern Ontario, employing approximately 300 people. It produces a variety of milk products including feta cheese, cream cheese, dips, and yogurt.

[4] The Applicant uses cow milk produced in Ontario, which it blends with goat milk in its products. As such, the Applicant’s purchase and use of cow milk is subject to the supply-management regulatory scheme for milk production and marketing overseen by the Canadian Dairy Commission (the “CDC”) and the Ontario Farm Products Marketing Commission (the “Commission”). This system controls the production, marketing and pricing of milk to ensure a fair return for producers and a continuous and adequate supply of dairy products for consumers.

[5] In Ontario, cow milk regulation is governed by the Milk Act, R.S.O. 1990, c. M.12. The DFO is a marketing board which exercises delegated authority from the Commission under several provisions of the Milk Act. It was formerly known as the Ontario Milk Marketing Board: Milk and Farm-Separated Cream – Plan, R.R.O. 1990, Reg. 760, s. 4. The DFO has the exclusive power to buy milk from dairy farmers, to sell it to processors such as the Applicant, and to set the price at which the milk is sold. The DFO has a variable pricing structure for the sale of milk, depending on how the milk is used by processors, e.g., for yogurt, cheese or other products: DFO Milk General Regulation 10/17, a regulation under the Milk Act (the “DFO Regulation”).

[6] The DFO relies on milk processors to self-report monthly on how they use milk. The DFO issues monthly invoices following receipt of Milk Utilization Verification (“MUV”) declarations from purchasers/producers. Under s. 24 of the DFO Regulation, if a processor fails to complete an MUV declaration in any month, it shall be charged the highest price for milk purchased that month, which may be adjusted if there is compliance later. Ensuring accurate self-reporting is accomplished by the DFO through a range of regulatory tools, including the use of milk audits. The DFO has the authority 1) to require persons engaged in producing, processing or marketing of milk or milk products, including processors, to provide information to it, 2) to appoint persons to inspect the books, records and documents of persons engaged in marketing milk, and 3) to take such action and make such orders and issue such directions as are necessary to carry out the terms of the Act and regulations passed pursuant to it: Milk Act, s. 9; Milk and Farm-Separated Cream – Marketing, O. Reg. 354/95.

[7] As a medium to large processor, the Applicant purchases at least $20 million worth of cow milk annually from the DFO. Accordingly, price differentials can be significant.

[8] Following a series of audits of the Applicant relating to its purchase and use of milk between 2015 and 2017, the DFO concluded that it could not verify the Applicant’s MUV declarations that had determined the price it had paid for milk. On November 26, 2018, the DFO advised the Applicant that it would be issuing a new invoice for milk delivered between October 1, 2016 and July 31, 2017 at the highest price rate. This price adjustment required the Applicant to pay the DFO an additional $7.095 million. The DFO also indicated it would be charging for milk at the highest rate going forward (the “prospective order”), and sought an amount previously compromised between the parties in an earlier dispute, bringing the total amount in dispute to approximately $13 million.

[9] Pursuant to s. 16 of the Ministry of Agriculture, Food and Rural Affairs Act, 1990, c. M. 16, the Applicant appealed the DFO’s decision to the Tribunal.

[10] On April 26, 2022, following a lengthy de novo hearing, the Tribunal upheld the decision of the DFO. The Tribunal accepted the evidence that the DFO was unable to verify the uses of the milk purchased by the Applicant due to the Applicant’s inadequate record-keeping and therefore the DFO was justified in charging the Applicant at the highest price rate. The Tribunal rejected Skotidakis’ argument that there was no statutory authority requiring milk usage verifications to be “verifiable” based on the plain wording of s. 24(2) of the DFO Regulation. The Tribunal held that it lacked jurisdiction to deal with the amount previously compromised and the DFO abandoned its prospective order.

[11] For the reasons that follow, we see no basis to interfere with the Tribunal’s decisions.

[12] In our view, the Tribunal’s interpretation of s. 24(2) of the DFO Regulation requiring that MUV declarations be verifiable is reasonable. The Tribunal analyzed the scheme of the legislation and the provisions under review, and its interpretation was supported by evidence of how the regulatory scheme functions. It also concluded, reasonably, that the decision to charge a higher price for the milk purchased by the Applicant did not amount to a “penalty” and was supported by the plain reading of s. 24(2). The Tribunal’s acceptance of the uncontradicted evidence of the auditors—that the claimed usage of milk could not be verified and that it was impossible to accurately determine how milk was used—was also reasonable.

[13] Additionally, the Tribunal’s interlocutory decision to require the Applicant to post security for a portion of the extra amounts charged by the Respondent was also reasonable and in accordance with the legal test for interlocutory relief set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311.


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