Many agricultural products are required to be sold through marketing boards. What liability may a registered producer incur for a tenant who sells produce to a purchaser other than a designated marketing agency?

The British Columbia Court of Appeal was recently required to consider this issue in connection with the sale by a tenant of mushrooms grown under authority of the landlord’s licence. In British Columbia, all persons producing or selling mushrooms must be registered with the British Columbia Mushroom Marketing Board. The landlord, a registered producer, leased its farm to another grower under terms of a lease which provided that the tenant would obey all conditions of the landlord’s licence and, in return, would be permitted to grow and sell mushrooms to the designated agency. An employee of the tenant attempted to "bootleg" mushrooms by selling mushrooms to a purchaser other than the designated agency. A lower court had refused to uphold a decision of the B.C. Marketing Board revoking the landowner’s licence and imposing a substantial monetary penalty on the grounds that there was no evidence that the landlord licensee had engaged in the prohibited conduct.

Upon an appeal from this lower court decision, the Court of Appeal considered the defence of the landlord licensee that it should not be held responsible for the bootlegging activities of the tenant’s employee of which the landlord had no knowledge and which the tenant denied. While the court determined that there is no restriction on a registered licensed producer permitting a tenant without a licence to grow and sell mushrooms, the court considered that the liability of the landlord in these circumstances is absolute and does not depend upon the landlord licensee having knowledge of the impugned conduct. However, the court held that, through application of the doctrine of delegation, the licensee landlord should have available to it any defence available to the unlicensed tenant.

In coming to this conclusion, the court stated:

"The doctrine of delegation was developed to prevent a licence holder from avoiding the knowledge component of an offence by delegating authority under the licence to another...the doctrine is applied if a licence holder delegates his duties under a licence to another to preclude him from relying on that delegation to avoid the responsibility implicit in the prohibition requiring knowledge...(The landlord’s) delegation of control was complete. If it is accepted that a licence holder is as responsible as its delegate...then the only issue is whether (the tenant) breached (the section prohibiting sale to an undesignated purchaser)...If an employee sells mushrooms to a non-designated purchaser against the instructions and without the knowledge of his employer, the employer would have a good defence to an absolute liability offence..."

Thus, landlord licensees bear responsibility for the conduct of their tenants. Where the regulatory offence charged includes an element of "permitting" the impugned conduct, Canadian courts have recognized a "due diligence" defence relieving a party of liability where the party can demonstrate absence of negligence. While such a defence is not available in the case of an absolute liability regulatory offence, licensed registrants and their tenants may successfully avoid liability for employee conduct contrary to their instructions and without their knowledge.