BIG FALLS AGRICULTURE LTD. Applicant And: DAIRY FARMERS OF NEWFOUNDLAND v. LABRADOR, 2022 NLSC 161

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Big Falls Agriculture Ltd. v. Newfoundland and Labrador (Dairy Farmers) , 2022 NLSC 161 Date : November 8, 2022 Docket : 202101G5087 Between: BIG FALLS AGRICULTURE LTD. Applicant And: DAIRY FARMERS OF NEWFOUNDLAND AND LABRADOR First Respondent And: FARM INDUSTRY REVIEW BOARD Second Respondent Before: Justice Alexander MacDonald On Judicial Review From: Decisions of the Dairy Farmers of Newfoundland and Labrador dated July 28, 2021 and the Farm Industry Review Board, dated August 30, 2021. Place of Hearing: St.

John’s, Newfoundland and Labrador Date of Hearing: September 15, 2022 Appearances: Paul D. Dicks, K.C. and Megan S. Reynolds Appearing on behalf of the Applicant

John F. E. Drover Appearing on behalf of the First Respondent Andrew J. Wadden, K.C. Appearing on behalf of the Second Respondent Authorities Cited: CASES CONSIDERED: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65; Canada Post Corp. v. CanadianUnion of Postal Workers, 2019 SCC 67; Rizzo & Rizzo Shoes Ltd., Re, (SCC), [1998] 1 S.C.R. 27 STATUTES CONSIDERED: Natural Products Marketing Act, R.S.N.L. 1990, c. N-2; Milk Scheme, 1998, N.L.R. 68/98; MilkRegulations, 1998, N.L.R. 69/98 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch.

D REASONS FOR JUDGMENT MacDonald J.: INTRODUCTION 1. Francine Murphy is a farmer in Cormack. Since June 2018, she operates her farm through her company, Big FallsAgricultural Ltd. (“Big Falls”). Her partner, Glynn Pike, helps her. 2. They raise beef for sale in the local market on about 200 acres of cleared land. 3. Big Falls wants to diversify. It wants to expand into the dairy business. John Connors, a retiring dairy farmer, sold Big Fallsboth his milk quota (“Quota Transfer”) and his dairy cows. Big Falls moved the cows to its farm. It had intended to produce the quotafrom there.[1] 4.

Big Falls completed the purchase of the cows but not the Quota Transfer. The Quota Transfer requires the approval of theDairy Farmers of Newfoundland and Labrador (“DFNL”). Big Falls asked for this approval on July 26, 2021. 5. On July 28 2021, the DFNL denied Big Falls’ request. It did so because the DFNL established a “Quota Exchange toprovide all dairy producers with fair and equitable access to acquire additional milk quota within the province.”[2] The DFNL said that“in order for any quota to leave an existing registered facility the quota must be sold on the [Quota Exchange]”.[3] [Emphasis inoriginal.] 6.

Big Falls appealed this decision to the Farm Industry Review Board (“FIRB”). The FIRB denied its appeal. 7. All parties agree that I should consider only the DFNL and not the FIRB decision. If I conclude that the DFNL decisionsatisfies the appropriate legal test, I should dismiss this Application. All agree that if I uphold the DFNL decision, the FIRB decision ismoot. 8. All agree that if I conclude that the DFNL decision does not satisfy the appropriate legal test, I should quash the decision ofthe DFNL. I should not refer the matter back to the FIRB.

I should then either refer the matter back to the DFNL with direction, orapprove the Quota Transfer. 9. I am to decide: Issue 1: What standard of review should I apply to this Application? Issue 2: Did the DFNL unreasonably fail to consider the applicable legislation? Issue 3: Did the DFNL incorrectly or unreasonably exceed its jurisdiction? Issue 4: Were the DFNL members in a conflict of interest?

10. I find that the DFNL decision was reasonable. I dismiss the Application. I will now explain why I made these decisions. I firstwill consider what standard of review I should apply to this Application. Issue 1: What standard of review should I apply to this Application? 11. The Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, gives meguidance in this case. The court says that I am to presume that the standard of review in this case is reasonableness. 12. That presumption can be rebutted if: (

a) the legislature provides, as it does in many statutory appeals, that there is a different standard of review; (

b) that the issues concern constitutional questions; (

c) that the issues concern general questions of law of central importance to the legal system as a whole; or (

d) the issues concern questions related to the jurisdictional boundaries between two or more administered bodies. (Paragraph 17) 13. I find that: (

a) there is nothing in the enabling legislation to show that the legislature intended to impose a different standard of review; (

b) this case does not involve constitutional questions; (

c) this case does not involve questions that are of central importance to the legal system. Although the case involves oursociety’s attitude to free versus regulated markets in agricultural goods, that question is a political one; and (

d) this case does not involve a dispute between the FIRB and the DFNL as to the boundaries of their jurisdiction. 14. The Supreme Court of Canada, at paragraph 25 of Vavilov, instructs that the presumption of reasonableness “applies to theadministrative decision maker’s

interpretation of its enabling statute”. Therefore, the standard of review with respect to the issues in thisApplication is reasonableness. Big Falls bears the burden to show that the DFNL’s decision is unreasonable. 15. “Reasonable” in this context does not mean that the decision is moderate or “good enough” judged by some notionally correctdecision. Rather, it conveys the primary meaning of the word, being internally logical and rational, based on reason. 16.

As the Supreme Court of Canada said in Vavilov at paragraph 85, “a reasonable decision is one that is based on an internallycoherent and rational chain of analysis and that is justified in relation to the facts and law that constrain the decision maker. Thereasonableness standard requires that a reviewing court defer to such a decision.” 17. The facts include the evidence in the record before the DFNL, and if applicable, the parties’ submissions. The most importantaspect of legal context is often the governing statutory scheme, but other considerations can include related statutes and principles ofstatutory

interpretation. 18. Thus, a court decision will often depend on its

interpretation of the relevant statutory or regulatory provisions. 19. The Supreme Court of Canada in Canada Post Corp. v. Canadian Union of Postal Workers, 2019 SCC 67, said in paragraph42 that where the meaning of a statutory provision is in dispute, the DFNL’s “interpretation of a statutory provision must be consistentwith the text, context and purpose of the provision (Vavilov, at para. 120)”. 20. It continued and said, “Because those who draft statutes expect that the statute's meaning will be discerned by looking to thetext, context and purpose, a reasonable

interpretation must have regard to these elements — whether it is the court or an administrativedecision maker tasked with the interpretative exercise (Vavilov, at para. 118)”. 21. It continued and said, “In addition to being harmonious with the text, context and purpose, a reasonable

interpretation shouldconform to any interpretative constraints in the governing statutory scheme, as well as interpretative rules arising from other sources oflaw.” 22. With that guidance, I now turn to whether DFNL reasonably interpreted its enabling legislation and whether it unreasonablyexceeded its jurisdiction. Issues 2 and 3: Did the DFNL unreasonably fail to consider the applicable legislation and did the DFNL unreasonably exceed itsjurisdiction? 23. I find that DFNL reasonably interpreted its enabling legislation and did not exceed its jurisdiction. I will now explain why Imade this decision. 24.

I must read the enabling legislation in its entire context. I must read it in its grammatical and ordinary sense harmoniously withthe scheme of the legislation, the object of the legislation, and the intention of the legislature (Rizzo & Rizzo Shoes Ltd., Re, (SCC), [1998] 1 S.C.R. 27 at para. 21). 25. The Government of Newfoundland and Labrador (“Province”) under the authority of

section 11 of the Natural ProductsMarketing Act, R.S.N.L. 1990, c. N-2 (“Act”) enacted the Milk Scheme, 1998, N.L.R. 68/98 (“Milk Scheme”).

26 .

Section 3 of the Milk Scheme provides that, “The purpose and intent of this Scheme is to provide for the promotion, control and regulation of the production and marketing of milk within the province, including the prohibition of the production and marketing of milk.” 27 . The Milk Scheme applies to those who are involved with milk products before a consumer purchases them.

Section 3 of the Milk Scheme provide that it applies to all producers, retailers, processors, distributors, dairy operators and any other person engaged in the production and marketing of milk. It applies to a person engaged in buying milk for the purpose of resale to the public through a food services premise. 28 .

Section 10 of the Milk Scheme provides that no one will produce or process milk in Newfoundland and Labrador unless they hold a valid DFNL licence. Under

section 11, a producer will not sell and a processor will not buy milk at a price less than DFNL’s regulated one. 29 . Section 4(1) of the Milk Scheme creates the DFNL. Subsection 3 provides that six of the seven directors of the DFNL “shall be registered producers”. Registered producers elect these six directors. 30 . A “registered producer” is a “processor” of milk who holds a valid DFNL licence. The producer is a person engaged in the collection or manufacture of milk for marketing purposes. 31 . The Province, through the DFNL, under section 9(2) of the Act , in turn enacted the Milk Regulations, 1998 , N.L.R. 69/98 (“ Milk Regulations ”). 32 .

Section 8 of the Milk Scheme gives the DFNL broad powers. It may (a) “provide for the production or marketing of milk on a quota basis with provision made for new entrants into production as the provincial quota increases” (subparagraph k); (b) “ fix and allot, or refuse to fix and allot to producers, quotas for the production or marketing of milk on the basis that it considers proper” (subparagraph l) (emphasis added); (c) “cancel, reduce, or refuse to increase a quota fixed and allocated to a producer for the production or marketing of milk that the DFNL considers proper” (subparagraph m); and (

d) make those orders and regulations and the taking of that action that may be necessary to enforce the provisions of the [ Milk Scheme ] (subparagraph t). 33 . Under

section 12(

m) of the Act , the Province in the Milk Scheme can give the DFNL the power to provide for: (

a) the production or marketing of milk on a quota basis on the basis that the DFNL considers appropriate ; (

b) fixing and allocating quotas for milk production on the basis that the DFNL considers appropriate ; and (

c) the refusing to fix or allocate a quota for a reason the DFNL considers appropriate. 34 . The DFNL implemented these powers and under

section 12 (

m) of the Act enacted the Milk Regulations . Section 17(1) of the Milk Regulations provides that registered producers shall not sell, transfer, lease, assign or otherwise deal with a milk quota without the prior written approval of the DFNL. 35 . Under section 17(3), the DFNL will not approve a transfer unless the transferee agrees to maintain a separate dairy, including land, one or more buildings and equipment. The transferee must have cows with a minimum milk quota of 500 litres per day.

Under section 17(4), the DFNL can approve a transfer if the cows do not have the minimum quota if it finds that the transfer is in the best interests of the parties, the DFNL and the dairy industry. 36 . Thus, the legislature has created the DFNL, a committee of registered producers, who have broad power to regulate key parts of their own business. 37 . In 2018, The DFNL exercised its control over milk quotas. It adopted, pursuant to

section 8(

l) of the Milk Scheme , the “DFNL Quota Exchange Administrative Guidelines” (“Quota Exchange”). 38 . It thereby created a mechanism to “allot … quotas for the production or marketing of milk on the basis that it considers proper” ( Milk Scheme ,

section 8(l). It thereby also gave guidance on when it would approve sales of milk quotas under

section 17 of the Milk Regulations. 39 . Anyone wishing to sell a milk quota must sell it through the Quota Exchange: “All Registered producers, including New Entrants , are eligible to be active participants” [4] in the Quota Exchange. [Emphasis added.] 40 . Someone who wants to sell a milk quota must submit an offer to sell it on the prescribed form. Buyers may then offer to buy some or the entire quota. Importantly, the DFNL caps the price for milk quotas at $950 per litre. [5] 41 . If more than one producer offers to buy the milk quota, the high bidders will share the quota equally.

Thus, existing producers have significant influence over who buys the offered quota because they know if they bid the maximum price, they can guarantee they will acquire at least some of the milk quota. 42 . Big Falls’ counsel say that the DFNL sought input on the operation of quota exchanges in New Brunswick and Prince Edward Island. In those provinces, regulators do not require a buyer of a whole farm to transfer the quota through the quota exchanges [6] . Thus,

says counsel, DFNL’s decision to apply the Quota Exchange to Big Falls when it purchased all of Mr. Connors’ cows and quota, is inconsistent with the operation of the quota exchanges in those provinces. 43 . I find that there is no evidence that this is true. No one told me when DFNL obtained this input. No one gave me copies of these quota exchanges. Thus, I cannot know if the DFNL, when it interpreted the Quota Exchange, applied a different test to similar provisions in other provinces. 44 . The DFNL was initially unsure about the effective date of the Quota Exchange.

The committee formally adopted the Quota Exchange at its 2018 annual semiannual general meeting. 45 . Shortly after that, the DFNL asked the FIRB, a Crown agent created under

section 3 of Act , to implement the Quota Exchange through amendment of the Milk Regulations . The FIRB acts under the auspices of the Department of Fisheries and Land Resources. 46 . In September 2019, the FIRB approved the Quota Exchange. It said the Quota Exchange was “a positive step for the industry”. [7] It said the Province would implement the Quota Exchange by regulation. [8] 47 . However, in June 2020, the FIRB concluded, “implementation of the [Quota Exchange] program will not require regulatory changes”. It continued and said, “The [Quota Exchange] program would be considered part of managing the quota under

section 8(l)” of the Milk Scheme. [9] 48 . Big Falls’ counsel suggested that the DFNL adopted the Quota Exchange on the same day it denied the Quota Transfer. I can find no evidence that this is so. It is apparent that the Crown and the DFNL considered the Quota Exchange effective no later than June 2020, over a year before Big Falls applied for approval of the Quota Transfer. 49 . The Milk Regulations also has a process to allow new entrants, like Big Falls, to enter the industry.

Under section 16(1) of the Milk Regulations, new entrants can apply for milk quotas provided they “ intend to establish at new and separate dairy operation” that includes land, one or more buildings, equipment and “a daily milk quota of not fewer than 1200 litres” (emphasis added). 50 . Despite this “intention”, a producer must have a minimum milk quota of 500 litres per day. Thus, the new entrant must intend to operate a farm with a 1200 litres per day quota, but they cannot operate a farm unless they have actually acquired a 500 litres per day quota. 51 . A new entrant can obtain 500 litres per day in two ways.

The first is that the new entrant can apply under

section 16.1 of the Milk Regulations for a quota “available to new entrants in a year”. 52 . The DFNL decides how much milk quota it will make available to new entrants in any year. It approves the number of successful new entrants. 53 . Big Falls says that sections 16 and 17(3) of the Milk Regulations and 8(

k) of the Milk Scheme show that the legislature mandated the importance of allowing room for new entrants into the dairy business. I agree, but a reasonable

interpretation of these provisions is that the DFNL must accommodate new entrants if it increases quotas. 54 .

Section 10 of the Milk Regulations supports this conclusion as it provides that the DFNL will allocate a portion of “an increase in quota” to entrants. Furthermore, section 17(3) of the Milk Regulations reflects an intent to avoid consolidation of dairy farms rather than quotas. I refer to this difference in paragraph 58 below. 55 . The second way is for a new entrant to buy the milk quota on the Quota Exchange. 56 . Both are difficult options. DFNL counsel says the DFNL has not issued a new entrant quota under

section 16.1 of the Milk Regulations for many years. Thus, a new entrant will be unable to acquire the required minimum milk quota of 500 litres per day through this mechanism. 57 . A new entrant also faces challenges in acquiring 500 litres per day though the Quota Exchange. Existing producers can thwart new entrants if enough of them bid the maximum price of $950 per litre. 58 .

The existing producers’ economic advantage is ameliorated somewhat because a successful purchaser still must meet the requirements of section 17(3) of the Milk Regulations that provides the purchaser must still maintain a separate dairy. 59 . The Province, through this supply side management arrangement, allows milk producers, through the mechanism of the DFNL, to limit competitive market forces in the Newfoundland and Labrador milk industry. 60 . The Province allows DFNL to set the price for milk products. It allows it to restrict production to those who have milk quotas.

It allows it to limit the price of milk quotas. It allows it to control who can acquire the milk quotas and how they do so. It allows it to control new entrant quotas. 61 . Big Falls, under the statutory scheme, does not have an unfettered right to participate in a competitive open market for milk quotas. Big Falls does not object to the anticompetitive nature of the milk production business. It seeks to participate in that business and only objects to the DFNL’s restrictions on quota transfers. 62 . The legislature has the authority to restrict competition in the milk industry.

It restricts competition in other fields. The sale of liquor is a notable example. 63 . Big Falls says that the DFNL has no authority to adopt the Quota Exchange. It says the Province should have enacted it by amendment to the Milk Scheme . Alternatively, the DFNL should have enacted it by amendment to the Milk Regulations.

64 . I disagree. The DFNL, under the Milk Scheme and the Act , has the power to create the Quota Exchange. The creation of this exchange is within its power to “fix and allot, or refuse to fix and allot to producers, quotas for the production or marketing of milk on the basis that it considers ‘proper’” or “appropriate” (section 8(

l) of the Milk Scheme and

section 12 (

m) of the Act ). [Emphasis added.] 65 . The Quota Exchange provides both new entrants and existing producers guidance on the exercise of DFNL’s exercise of its powers under subsections 8(k), (

l) and (

m) of the Milk Scheme. It provides both with a limited market mechanism to acquire a quota. 66 . This

interpretation is consistent with the legislative intent to limit competition and free market forces in the milk industry. The legislature demonstrated this legislative intent in the provisions of the Act , the Milk Scheme and the Milk Regulations . 67 . Thus, the DFNL’s

interpretation of the statutory scheme is reasonable. It did not exceed its jurisdiction. DFNL’s reasons are “internally coherent and rational chain of analysis and that is justified in relation to the facts and law that constrain” the DFNL ( Vavilov at para. 85 ). DFNL’s “interpretation of a statutory provision” is consistent with the text, context and purpose of its enabling legislations ( Canada Post at para. 42). 68 . Big Falls asked the DFNL to approve the Quota Transfer. When it did so, it met the requirements of section 16(1) of the Milk Regulations . It operated an appropriate separate farm.

It intended to acquire a milk quota of at least 1200 litres per day. 69 . However, Big Falls did not meet the requirements of

section 12 of the Milk Regulations . It does not actually have a quota of 500 litres per day, as it did not acquire rights to the Quota Transfer through the Quota Exchange. The DFNL rejected Big Falls’ application for this express reason. 70 . Thus, the DFNL’s decision is reasonable. I now turn to whether the DFNL members are in a conflict of interest. Issue 4: Were the DFNL members in a conflict of interest? 71 . I find that the DFNL was not in a conflict of interest when it made its decision. I will now explain why I made this decision. 72 .

The DFNL members, while performing their duties that restrict competition in the milk industry, may be in a conflict of interest. The legislature permits the DFNL to set milk and limit quota prices even though both these decisions directly affect their business interests. However, as the legislature created the DFNL as a committee of milk producers, it expressly contemplates and allows for this possibility. 73 . However, Section 16(1) of the Act provides that a member shall not benefit from a “contract or work with the DFNL.” Its decision to reject the Quota Transfer does not give the members a benefit.

It merely requires buyers of quotas to do so through the Quota Exchange. Any benefit that might subsequently accrue to them through the operation of the Quota Exchange is speculative and not relevant to this Application. Other Matters 74 . Although those who believe in competitive milk markets may disagree on the outcome of this case, the courts do not make public policy about the regulation of the milk industry in Canada. This is the legislature’s responsibility. 75 . As the parties asked that I not rule on the FIRB appeal process, I will not do so. DISPOSITION 76 .

I therefore find the decision of the DFNL reasonable. I dismiss Big Falls’ application. As the DFNL and the FIRB were successful in this Application, Big Falls shall pay its costs on a Column 3 basis pursuant to the Scale of Costs in the Appendix to Rule 55 of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch.

D . _____________________________ Alexander MacDonald Justice [1] Applicant’s Memorandum of Fact and Law, filed January 28, 2022, at para. 55, Quota Transfer - 1585 fluid quota, 202 non-saleable quota, and 699 industrial quota. [2] Record of Proceedings for DFNL, Tab 5, DFNL Letter, July 28, 2021, at second paragraph. [4] Record of Proceedings for DFNL, Tab 3, DFNL Quota Exchange Administrative Guidelines, at page 1. [5] Ibid. at page 2, para. 3.1. [7] Record of Proceedings for DFNL, Tab 15, DFNL Letter, September 12, 2019, second paragraph.

[8] Ibid. at third paragraph. [9] Record of Proceedings for DFNL, Tab 17, DFNL Letter, June 3, 2020, second paragraph.