Bank of Montreal v. Minister of Agriculture of Canada, docket T-1500-95

     T-1500-95

     IN THE MATTER of the Farm Improvement and Marketing

     Cooperative Loans Act, R.S.C. 1985 (3rd Supp.), c. 25, as

     amended (the "FIMCLA") and the Farm Improvement and

     Marketing Cooperative Loans and Fees Regulations,

     SOR/88-51, as amended (the "FIMCLA Regulation")

     AND IN THE MATTER of an application by Bank of Montreal

     for judicial review against the Respondents

     AND IN THE MATTER of the Federal Court Act,

     R.S.C. 1985, c. F-7, as amended

BETWEEN:

     BANK OF MONTREAL

     Applicant

     - and -

     THE MINISTER OF AGRICULTURE OF CANADA and

     THE ATTORNEY GENERAL OF CANADA

     Respondents

     REASONS FOR ORDER

JEROME A.C.J.:

     This application by the Bank of Montreal for mandamus came on for hearing at Toronto, Ontario on December 10 and 11, 1996. The applicant seeks an Order compelling the Minister of Agriculture of Canada to exercise his jurisdiction pursuant to the Farm Improvement and Marketing Cooperative Loans Act, R.S.C. 1985 (3rd Supp.), c. 25, as amended ("FIMCLA") and forthwith pay to the Bank of Montreal the sum of $301,012.15 under a claim for loss dated December 20, 1994, submitted by the applicant to Agriculture Canada pursuant to a guarantee given by the Minister of Agriculture under the FIMCLA relating to a loan made by the Bank of Montreal to Eastern Ontario Vegetable Growers' Co-operative Inc. ("EOVG"). At the close of argument, I took the matter under reserve and indicated that these written reasons would follow.

BACKGROUND

     The objective of the FIMCLA is to increase the availability of loans to co-operative associations for the purpose of the improvement and development of farms and the processing, distribution or marketing of farm products. The purposes of the FIMCLA are achieved by ensuring that lenders who make loans to co-operative associations can obtain a guarantee from the Minister of Agriculture in the amount of ninety-five per cent of the loan.

     EOVG consisted of approximately one hundred thirty farmers in the Trenton, Ontario area who grew, primarily, peas and corn. It was incorporated to assist its members in the financing and marketing of their crops.

     The Bank of Montreal, EOVG's banker for a number of years, entered into a loan agreement with EOVG on June 30, 1989. The loan was used, in part, to finance the purchase of certain vegetable processing equipment. In August, 1989, the Bank of Montreal applied to and obtained from Agriculture Canada a guarantee pursuant to subsection 6(1) of the FIMCLA with respect to the loan. The vegetable processing equipment acquired by EOVG was leased to Produce Processors Limited, a company which processed vegetable products. In March, 1993, EOVG defaulted on its loan and was subsequently placed into receivership by the Bank of Montreal. On May 11, 1993, Coopers & Lybrand became the court-appointed receiver for EOVG.

     The receiver attempted to realize on the Bank of Montreal's security interest in the vegetable processing equipment. Following an involved and complex process, the receiver ultimately sold the equipment for $280,000.00 to Produce Processors Limited, which sale resulted in a loss to the applicant of $277,913.65. On December 20, 1994, the Bank of Montreal submitted a claim under the FIMCLA to Agriculture Canada for $301,012.15 (being $277,913.65 for principal and $23,098.50 for legal fees and disbursements). The Minister of Agriculture has refused to pay the claim.

STATUTORY FRAMEWORK

     The FIMCLA provides as follows:

6(1).      Subject to this Act and, in particular, to the conditions set out in subsection (2), the Minister is liable to pay to a lender ninety-five per cent of any loss sustained by it as a result of a loan made by it to a farm products marketing cooperative for any of the following purposes in relation to the processing, distribution or marketing in Canada of the products of farming:

(a) the purchase of land;

(b) the purchase or construction of any building or structure;

(c) the repair or alteration of, or making of additions to, any building or structure;

(d) the purchase or repair of machinery or apparatus; or

(e) the consolidation or refinancing of the debts of the cooperative incurred for such purpose described in any of paragraphs (a) to (d) as is prescribed.

11.      The Minister is not liable under this Act to make any payment to a lender in respect of any loss sustained by it as a result of a loan where, after the loan is made, the farmer or farm products marketing cooperative and the lender enter into an arrangement or agreement, whether or not it alters or revises the terms or conditions of that loan, that might increase the risk that the loan will not be repaid according to its terms, unless the Minister approves the arrangement or agreement before it is entered into.

12(1).      The Minister is not liable under this Act to make any payment to a lender in respect of any loss sustained by it as a result of a loan unless

(a) the lender has complied with the regulations made pursuant to this Act; and

(b) the lender has, at such time as is prescribed, paid to the Minister a fee of one-half of one per cent of the amount of the loan or such other fee as is prescribed or calculated in the manner prescribed.

Section 10 of the Farm Improvement and Marketing Cooperatives Loans and Fees Regulations states in part:

10(1).      A claim for any loss sustained by a lender as a result of a loan shall not be made to the Minister until the loan has been in default for at least 3 months and no more than 18 months.

(2).      The Minister may authorize the lender to submit his claim for loss after the time limit set out in subsection (1) if the lender has requested an extension of time from the Minister before the expiration of that time limit.

(3).      A claim for any loss sustained by a lender as a result of a loan shall be submitted to the Minister in the form approved by the Minister, together with a copy of the borrower's application form and such other documentation as the Minister may request.

(4).      The claim shall be paid 60 days after the Minister approves the claim referred to in subsection (3).

SUBMISSIONS OF THE PARTIES

     The applicant submits that the Minister of Agriculture has unreasonably and inexcusably delayed in approving and paying its claim for loss and that this is an appropriate case for the Court to make an Order for mandamus.

     The respondents submit that the application should be dismissed. The respondents state that the applicant is not entitled to the relief sought because: the applicant's claim is statute barred and it would be contrary to section 12 of the FIMCLA for the Minister to make the payment; as set out in section 11 of the FIMCLA, the Minister is not liable to make payment where the Bank of Montreal and the receiver (acting as the farm products marketing cooperative) have without the Minister's prior approval and contrary to the Minister's directions entered into an Arrangement or Agreement which assured that the loan would not be repaid in accordance with its terms; and the applicant failed to provide the Court with the best evidence available. In the alternative, the respondents seek an Order pursuant to section 18.4 of the Federal Court Act directing a trial of the issues raised in this application.

    

     The applicant submits that its claim for loss was not filed out of time, and that no agreement under section 11 was present as no such agreement can be shown to have existed between the parties set out in the statutory provision and that, in any event, no increased risk of default could be shown. The applicant further states that there is no issue with regard to the evidence which it presented.

ANALYSIS

     The Federal Court of Appeal in Apotex Inc. v. Canada (Attorney General), [1994] 1 F.C. 742 (C.A.) affirmed (1994) 176 N.R. 1 (S.C.C.), set out the principal requirements which must be satisfied before mandamus will issue:

1.      There must be a public legal duty to act;

2.      The duty must be owed to the applicant;

3.      There is a clear right to performance of that duty, in particular:

a. the applicant has satisfied all conditions precedent giving rise to the

duty;

b. there was (i) a prior demand for performance of the duty; (ii) a reasonable time to comply with the demand unless refused outright; and (iii) a subsequent refusal which can be either expressed or implied, e.g. unreasonable delay;

4.      Where the duty sought to be enforced is discretionary, the following rules apply:

a. in exercising a discretion, the decision-maker must not act in a manner which can be characterized as "unfair", "oppressive" or demonstrate "flagrant impropriety" or "bad faith";

b. mandamus is unavailable if the decision-maker's discretion is characterized as being "unqualified", "absolute", "permissive" or "unfettered";

c. in the exercise of a "fettered" discretion, the decision-maker must act upon "relevant", as opposed to "irrelevant", considerations;

d. mandamus is unavailable to compel the exercise of a "fettered discretion" in a particular way; and

e. mandamus is only available when the decision-maker's discretion is "spent"; i.e., the applicant has a vested right to the performance of the duty.

5.      No other adequate remedy is available to the applicant;

6.      The order sought will be of some practical value or effect;

7.      The court in the exercise of its discretion finds no equitable bar to the relief sought; and

8.      On a "balance of convenience" an order in the nature of mandamus should issue.

     Nothing about this case is simple. The facts will depend on the Court's interpretation of a number of technical documents and, of course, on the credibility and reliability of oral testimony. In turn, the law involves resolution of difficult questions requiring the examination and extent of the Minister's duty under the statute which has been rendered even more complex because of the receivership of those who were to be the beneficiaries of this loan guarantee programme. It would be inappropriate to attempt to resolve these kinds of issues on the basis of documentary evidence by motion. The application for mandamus is therefore dismissed with costs in the cause.

     Hopefully, however, the steps taken by the parties up to this point should not be wasted. Once the parties have read these reasons, I am prepared to meet with them at their request to discuss directions for transforming this into an appropriate kind of hearing and to expedite the process.     

O T T A W A

March 7, 1997                      "James A. Jerome"

                             A.C.J.