February 2006

Disclaimer: Agrilaw is a syndicated column produced by the full service London law firm of Cohen Highley LLP.  Paul G. Vogel, a partner in the firm, practises in the area of commercial litigation and environmental law.   Agrilaw is intended to provide information to farmers on subjects of interest and importance. The opinions expressed are not intended as legal advice.  Before acting on any information contained in AgriLaw, readers should obtain legal advice with respect to their own particular circumstances.

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Provincial supply management programs for regulated farm products control the production and marketing of these products in Ontario, inter-provincially and for export. Such programs empower provincial marketing boards to require that farmers be assigned quota before production of regulated products for any purpose. Do provincial marketing boards have the power to stop farmers from producing regulated products without quota where the product being produced is for sale directly to the United States?

The Ontario Divisional Court recently considered an appeal by Chicken Farms of Ontario (CFO), the provincial marketing board responsible for controlling and regulating the production and marketing of chicken in Ontario, from the decision of a Superior Court judge refusing CFO’s request for an injunction to restrain the respondent chicken farmers from producing chicken without quota for export to the United States. In his decision, the Superior Court judge had denied CFO’s request for an injunction on the basis that there was no public interest issue involved and that, while CFO could eventually be compensated in damages if successful in the proceeding, issue of an injunction would effectively destroy the business of the respondent chicken farmers. On appeal, the Divisional Court overturned this decision and granted the injunction on the basis that there was an important public law element in the case which required enforcement of the regulatory scheme.

In coming to this conclusion the appellate court considered that the fact that the respondent chicken farmers did not own quota and produced only for export was irrelevant to CFO’s regulatory authority to control their production. The court stated:

“CFO is empowered … to regulate the marketing of chicken in inter-provincial and export trade with respect to persons situated in the Province of Ontario. Regulations made by CFO pursuant to its (statutory) authority require that persons engaging in the marketing of chicken in inter-provincial and export trade must do so on a quota basis and persons are prohibited from being so engaged in the absence of being fixed and allotted a quota for that purpose by CFO."

“… Ontario Producers are permitted to enter into contracts to sell chickens to out-of-province processors. Producers marketing chicken in inter-provincial or export trade must also meet the terms of CFO’s inter-provincial and export regulation …"

“… CFO is obliged to ensure that its producers do not collectively exceed their quotas so that Ontario chicken is not marketed in excess of the provincial allocation …”

The respondent chicken farmers contested CFO’s request for an injunction to restrain their chicken exports on the basis that CFO and the national marketing board were conducting a “domestic cartel” which they were attempting to expand beyond the Canadian market, their regulatory powers and contrary to Canada’s NAFTA trade obligations which prevent the imposition of restrictions on the export of goods destined for the United States. The court did not agree and concluded:

“The case before us is not as the respondents submit, a matter of CFO seeking to extend its “cartel” to chicken farmers who produce for the international trade; rather it is the respondents seeking to evade a constitutionally valid scheme which provides for limiting the total production of chicken with Ontario, without regard to the intentions of individual farmers as to where it will be sold, in order to create an orderly market in the product … the constitutionally valid imposition of controls upon the production of a product, without reference to where it might be sold, seems unlikely to meet the test of restriction upon the export of goods.”

With respect to the public interest at issue, the court considered the harm to the regulatory system if individuals are able to knowingly and deliberately ignore it. The court held:

“Such harm is irreparable as no one can measure in dollars the impact of continued defiance of the law. In the present case, no evidence was provided to show that there was any public interest to be served by not applying the scheme to the activities of the respondents. Only their private interests are so served. CFO has shown that it, as guardian of the public interest in maintaining the integrity of the scheme which it (administers), will suffer irreparable harm if the injunction is not granted.”

The courts have held that supply management programs for regulated farm products are constitutionally valid and they will protect the right of provincial marketing boards to control and regulate the production and marketing of these products. Even producers without quota whose production is destined for export will be subject to such regulatory control.