Date:
20120621
Docket:
T-1931-11
Citation:
2012 FC 799
Ottawa, Ontario,
June 21, 2012
PRESENT: The
Honourable Madam Justice Simpson
BETWEEN:
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ULTIMA FOODS INC.,
DANONE INC. and
AGROPUR COOPÉRATIVE
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|
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Applicants
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and
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ATTORNEY GENERAL OF CANADA, MINISTER OF INTERNATIONAL TRADE
and AGRO-FARMA CANADA INC.
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Respondents
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PUBLIC VERSION OF CONFIDENTIAL
REASONS FOR JUDGMENT
AND JUDGMENT
TABLE OF CONTENTS
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Paragraph
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The
Applications
The
Motions
The
Parties
The
Background
Dairy
Industry Participants
Greek
Yogurt
Milk
Prices in the U.S.
Supply
Management
- Price
Controls
- Production
Controls
- Import
Controls
The
Guidelines
Danone’s
Permits (2009)
The
Chobani Application
Letters
to the Minister
Letter
dated May 26, 2011 from Pierre Nadeau
Letter
dated May 30, 2011 from Yves Leroux
Letter
dated May 30, 2011 from Louis Frenette
Letter
dated May 31, 2011 from Gerry Doutre
Letter
dated June 15, 2011 from Don Jarvis
A
summary of the Letters
Responses
from the Minister
The
Uniqueness of the Chobani Production Process
Material
before the Minister
Memoranda
for Action from the Deputy Minister of International Trade
Memoranda
from the Minister’s Policy Advisor
A
summary of the Information before the Minister
The Minister’s
Decision
The
Parties’ Positions
Ultima
and Agropur
Danone
The
Attorney General
Agro-Farma
The
Issues
1.
Was the
Minister’s Decision Reasonable
2.
Was there a
Breach of the Duty of Procedural Fairness?
3.
Do the
Applicants have Direct Standing?
4.
Should Certain
Affidavit Evidence be Struck?
5.
What should
be the Costs Award?
Judgment
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35
38
40
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44
46
47
49
50
56
57
68
71
72
73
78
80
83
86
87
97
100
119
121
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THE APPLICATION
[1]
In
two applications which were consolidated by order of
Mr. Justice Beaudry dated January 13, 2012 and heard as one [the
Application], the applicants seek judicial review of a decision of the Minister
of International Trade [the Minister] made on October 17, 2011 wherein he
issued supplemental import permits which allowed Agro-Farma Canada Inc.
[Agro-Farma] to import up to [omitted] kilograms of its Chobani brand
Greek-style yogurt [Chobani]. Of that amount, [omitted] kilograms was to be
used for test marketing in the Greater Toronto Area [GTA] during the
three-month period from November 7, 2011 to February 6, 2012 [the
Test Permit]. Thereafter, up to [omitted] kilograms was authorized for import
and sale in the GTA in the twelve-month period from February 7, 2012 to
February 6, 2013 [the Bridging Permit] on the condition that Agro-Farma
would invest [omitted] in production facilities in Ontario and create [omitted]
new jobs. Together, these import permits will be referred to as the “Chobani
Permits” and the grant of the Chobani Permits will be described as the
“Decision”.
THE MOTIONS
[2]
Two
motions were brought in the context of this Application. One was made by the
Attorney General of Canada and the Minister. It asks the Court to strike
portions of the applicants’ affidavit evidence. The second motion was brought
by all the respondents and it asks that the Application be struck out on the
basis that the applicants lack standing. These motions will be discussed after
the Application has been considered on its merits.
THE PARTIES
[3]
The
applicant Ultima Foods Inc. [Ultima] is a major dairy processor in Canada. It produces and markets “Yoplait” brand traditional yogurt. Traditional yogurt is
all yogurt which is not Greek-style yogurt [Greek Yogurt]. Ultima’s subsidiary,
Olympic Dairy Products Ltd, produces two brands of Greek Yogurt.
[4]
The
applicant Agropur coopérative [Agropur] is a dairy cooperative of 3,459 Quebec dairy farmers. It is a part owner of Ultima and is also one of the largest dairy
processors in Canada. Agropur manufactures traditional yogurt under the brand
name “Island Farms”. Agropur was added as an applicant in this proceeding by
order of Madam Justice Bédard dated February 2, 2012.
[5]
The
applicant Danone Inc. [Danone] is the leading traditional yogurt producer in Canada. Since 2010, Danone has also sold Oikos and Oikos Organic Greek Yogurt, which is
co-packed in Ontario by Gay
Lea Foods Co-Operative Ltd. Danone is currently adding equipment worth $21
million to produce Oikos at its plant in Boucherville, Québec.
[6]
Ultima,
Agropur and Danone will be referred to collectively as the “Applicants”.
[7]
The
respondent Agro-Farma is the Canadian affiliate of an American
dairy processor. The American company began to produce Chobani in 2007 and it
took Chobani only four years to become the “top selling” yogurt in the U.S.
Agro-Farma has been marketing Chobani in the GTA since November 7, 2011 pursuant
to the Chobani Permits. Agro-Farma was added as a respondent in this proceeding
as part of the consolidation order made by Mr. Justice Beaudry on
January 13, 2012.
[8]
The
Minister of Foreign Affairs has discretionary authority to issue supplemental
import permits for goods listed on the Import Control List, CRC,
c 604 pursuant to subsection 8.3(3) of the Export and Import Permits
Act, RSC 1985, c E-19 [the EIPA] and Order in Council 1983-3832, C
Gaz 1983 II. In practice, however, this power is exercised by the Minister on
behalf of the Minister of Foreign Affairs.
THE BACKGROUND
Dairy Industry Participants
[9]
The
Canadian Dairy Commission [CDC] is a Crown corporation which administers the supply
management system for milk [Supply Management]. The CDC is responsible for
establishing the price for industrial milk and for setting the national milk production
quota in consultation with provincial milk marketing boards.
[10]
The
Dairy Farmers of Ontario [DFO] is the Ontario milk marketing agency. All
Ontario dairy farmers are required to sell their milk to the DFO, which in turn
markets the milk to the dairy processing industry (including yogurt
manufacturers such as the Applicants) on the farmers’ behalf: see DFO Milk
General Regulation, 04/12 (Milk Act, RSO 1990), s 3. The DFO is
owned, operated and financed by approximately 4,200 Ontario dairy farm
families.
[11]
Agriculture
and Agri-Food Canada [AAFC] is the federal government department which provides
information, research and technology and which establishes policies and
programs to achieve, among other things, a competitive and innovative sector
for agriculture, agri-food and agri-based products.
[12]
The
Ontario Ministry of Agriculture, Food and Rural Affairs [OMAFRA] is
responsible, through the Ontario Farm Products Marketing Commission, for Supply
Management in Ontario and has delegated certain powers in this regard to the
DFO pursuant to the Ontario Milk Act, RSO 1990, c M-12.
Greek
Yogurt
[13]
Greek
Yogurt is a style of yogurt with a thicker consistency, lower carbohydrate
content and higher protein content than traditional yogurt. The special
attributes of Greek Yogurt are achieved by adjusting the amount of liquid whey,
either by removing it or by rebalancing the ingredients. The production of
Greek Yogurt requires three times more industrial milk than is used in the
production of traditional yogurt.
[14]
Five
dairy processors currently market Greek Yogurt in Canada. They are Liberté,
Parmalat, Danone, Olympic and Skotidakis.
[15]
Agro-Farma
submits that Chobani is a “premium” Greek Yogurt because it is firmer than
other Greek Yogurts, boasts superior whey retention without the use of added
stabilizers and has a longer shelf-life than other Greek Yogurts. According to
Agro-Farma, Chobani also differs in that it is manufactured using a unique
process and because it can be produced using skim milk.
[16]
Chobani
is more expensive than other Greek Yogurts. It is rarely discounted in the United States and Agro-Farma says that, in Canada, it intends to adopt similar retail pricing.
Milk
Prices in the U.S.
[17]
The
U.S. does not have the Supply Management system used in Canada. Instead, the government pays direct subsidies to dairy farmers to support their
incomes. As a result, milk prices in the U.S. are substantially lower than
those in Canada. For example, the type of milk used in yogurt production is 79
percent more expensive in Quebec than in New York State.
Supply
Management
[18]
Canada’s
dairy industry is subject to Supply Management. Its dual objectives are
established by section 8 of the Canadian Dairy Commission Act, RSC 1985,
c C-15 [the CDC Act]. It reads:
8. The objects of the Commission
are to provide efficient producers of milk and cream with the opportunity of
obtaining a fair return for their labour and investment and to provide
consumers of dairy products with a continuous and adequate supply of dairy
products of high quality.
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8. La Commission a pour mission,
d’une part, de permettre aux producteurs de lait et de crème dont
l’entreprise est efficace d’obtenir une juste rétribution de leur travail et
de leur investissement et, d’autre part, d’assurer aux consommateurs un
approvisionnement continu et suffisant de produits laitiers de qualité.
|
[19]
Supply
Management achieves these objectives through control mechanisms: (i) on
domestic pricing, (ii) on the volume of milk produced, and (iii) on the
volume of imported dairy products. The CDC is responsible for the first two
control mechanisms and the third is governed by the EIPA. All three mechanisms
must be in place for Supply Management to operate effectively. I will deal with
them in turn.
(i) Price Controls
[20]
The
CDC establishes target prices for industrial milk in consultation with
provincial dairy marketing boards. The target prices reflect the cost of
production, consumer demand, and competition from other products, amongst other
factors. Prices are based on the milk’s end-use and are not subject to negotiation
with producers or processors.
(ii)
Production
Controls
[21]
The
CDC implements its target prices by limiting domestic milk production through
its National Milk Marketing Plan, which establishes a national production
target or “Market Sharing Quota” [MSQ] for industrial milk. This target is
constantly monitored and periodically adjusted to reflect changes in demand.
The MSQ is divided among the provinces. They then allocate quota shares to
local producers based on provincial priorities. Dairy producers in Ontario, Quebec, New Brunswick, Prince Edward Island and Nova Scotia have agreed to pool
milk revenues and to harmonize certain aspects of milk production [the Pooling
Agreement]. Processors, such as the Applicants, purchase industrial milk
through provincial marketing boards.
(iii) Import Controls
[22]
Section
5 of the EIPA authorizes the creation of the Import Control List. The
section states, in part:
5. (1) The Governor in Council
may establish a list of goods, to be called an Import Control List, including
therein any article the import of which the Governor in Council deems it
necessary to control for any of the following purposes:
...
(d) to
implement an action taken under the Agricultural Marketing Programs Act
or the Canadian Dairy Commission Act, with the object or effect of
supporting the price of the article;
(e) to
implement an intergovernmental arrangement or commitment; or …
|
5. (1) Le gouverneur en
conseil peut dresser la liste des marchandises d’importation contrôlée
comprenant les articles dont, à son avis, il est nécessaire de contrôler
l’importation pour l’une des fins suivantes :
…
d)
mettre à exécution toute mesure d’application de la Loi sur les programmes
de commercialisation agricole ou de la Loi sur la Commission
canadienne du lait dont l’objet ou l’effet est de soutenir le prix de
l’article;
e)
mettre en oeuvre un accord ou un engagement intergouvernemental; …
|
[23]
Yogurt was first placed on the Import Control List
in 1988 pursuant to paragraph 5(1)(d) of the EIPA. As well, when the list was
amended in December of 1994, yogurt was also listed pursuant to paragraph
5(1)(e) of the EIPA to implement Canada’s commitments under the World Trade
Organization Agreement on Agriculture, Apr 15, 1994, Marrakesh
Agreement Establishing the World Trade Organization, Annex 1A, 1867 UNTS
410 [the WTO Agreement]: see SOR/95-32, s 158.
[24]
I
now turn to the issue of exemptions from the Import Control List. Subsection
8.3(3) of the EIPA gives the Minister the authority to issue supplemental
import permits [the Permits] for goods for which the Minister has determined an
“import access quantity”. This subsection was the basis for the issuance of the
Chobani Permits. It reads as follows:
8.3
(3)
Notwithstanding subsection 8(1) and subsections (1) and (2) of this section,
where goods have been included on the Import Control List and the Minister
has determined an import access quantity for the goods pursuant to subsection
6.2(1), the Minister may issue
(a)
a permit to import those goods in a supplemental quantity to any resident of Canada who applies for the permit, or
(b) generally to all residents
of Canada a general permit to import those goods in a supplemental quantity,
subject to such terms and conditions as are described in the permit or in the
regulations.
|
8.3 (3) Malgré le
paragraphe 8(1) et les paragraphes (1) et (2), en cas d’inscription de
marchandises sur la liste des marchandises d’importation contrôlée, s’il a
déterminé la quantité de marchandises bénéficiant du régime d’accès en
application du paragraphe 6.2(1), le ministre peut délivrer à tout résident
du Canada qui en fait la demande une licence pour l’importation des
marchandises en quantité additionnelle ou aux résidents du Canada une licence
de portée générale autorisant leur importation en quantité additionnelle,
sous réserve des conditions prévues dans la licence ou les règlements.
|
|
[25]
I
note in passing that subsection 8.3(3) provides no guidance to the Minister
about when Permits should be issued. The same can be said of the Import
Permit Regulations, SOR/79-5, which only specify the information that is to
be included in an application for a Permit.
[26]
The
“import access quantity” referred to in subsection 8.3(3) is also called the
tariff rate quota [the TRQ]. The Minister has set a TRQ for yogurt pursuant to
subsection 6.2(1) of the EIPA. This volume can be imported duty free by
Canadian residents who receive allocations. While there are no legislative
criteria for determining the overall quantity of the TRQ, the Minister is
required by subsection 6(b) of the Import Allocation Regulations,
SOR/95-36 to consider the potential impact on the applicable Canadian
agro-industrial sector when he allocates the TRQ to Canadian residents.
[27]
Yogurt
imported above the TRQ of 332,000 kilograms is described as “over access
commitment” yogurt and is subject to a duty of 237.5 percent. This prohibitive
duty effectively blocks yogurt imports.
[28]
The
Applicants base two submissions on the TRQ. First, they object to the volume of
yogurt which Agro-Farma is entitled to import under the Chobani Permits
([omitted] kilograms) saying that, although it is described as a supplementary
amount in relation to the TRQ, it far exceeds the TRQ of 332,000 kilograms.
However, in my view, the TRQ volume has no bearing in the present case because
it was established for an entirely different purpose in the context of the WTO
Agreement.
[29]
The
Applicants also say that the TRQ is relevant because, when it is allocated, the
Minister must consider the impact on the relevant agro-industrial sector. The
Applicants say that, if this is a requirement associated with importing the
relatively small TRQ volume of yogurt, it should, by analogy, have been treated
as a requirement when the larger volumes under the Chobani Permits were being
considered. The Applicants say that the Chobani Permits destroy their ability
to compete, impede investment and will cause job losses. They say that if these
consequences had been considered, the Chobani Permits would have been refused.
[30]
The
difficulty with this submission is that the requirement to consider the impact
on the agro-industrial sector is only triggered when the Minister is deciding
whether to issue an import allocation or whether to consent to a transfer under
paragraph 6.2(2)(b) of the EIPA. It does not apply when he sets the overall TRQ
volume under subsection 6.2(1). The reality is that there are no legislative or
regulatory requirements associated with establishing volumes for the TRQ or for
Permits. For these reasons, there is no basis for the analogy suggested by the
Applicants.
The
Guidelines
[31]
The
Minister has published a series of “Notices to Importers” outlining the
criteria he will consider in exercising his discretionary power to issue
Permits under subsection 8.3(3) of the EIPA. Notice to Importers No. 783 dated
November 2, 2010 [the Guidelines] deals with dairy products and is the version
which is relevant to this Application.
[32]
The
Guidelines show that the Minister may issue Permits for products (such as Greek
Yogurt) that are already produced in Canada if a “unique” production process is
used and if investment is planned. The Guidelines require an applicant to
provide information about the minimum capital investment and job creation
associated with the development of Canadian production facilities. This means
that, as a matter of policy, the Minister has decided that criteria unrelated
to Supply Management may be considered when applications for Permits are
evaluated.
[33]
The
relevant portion of the Guidelines reads as follows:
5.4 To
import dairy products for the purpose of test marketing.
An authorization for
supplementary imports may be issued to facilitate test marketing in the
Canadian market of new products that are, for example, unique or are produced
with unique processes and require a substantial capital investment for their
production.
[…]
c) Applications made on
company letterhead should contain the following information:
i.
A description of the product and related production
processes, indicating the unique features of same;
ii.
A description of a proposed test marketing program,
identifying test market areas, market channels, timing, promotion plans and
marketing costs, product quantities required for the proposed test marketing
program, and an analysis showing the minimum test market results required to
decide in favour of the capital investment in Canadian production facilities;
and
iii.
A detailed outline of the resulting minimum capital
investment and job creation; proposed financing required to produce the
product (e.g., facilities, equipment, production capacity); and the time
required to bring such facilities on line from the time a DFAIT decision to
approve a test marketing program is made.
d) Companies are required
to commence production in Canada as soon as is feasible after the successful
completion of the test marketing program.
[…]
f) Once these quantities
or the period have been exhausted, a further authorization for supplementary
imports may be issued only for the same product, in quantities sufficient to
continue serving the test marketing areas during a period reasonably required
for the construction of the domestic production facilities. Once such
facilities have been established, no further authorization for supplementary
imports will be issued for either the test marketed product or for required
raw materials. An applicant may submit only one test marketing
application for a given product.
[…]
|
5.4 Importation
de produits laitiers pour commercialisation à titre expérimental
Une autorisation d’importation
supplémentaire peut être accordée afin de faciliter la commercialisation à
titre expérimental de nouveaux produits sur le marché canadien, qui
sont, par exemple, uniques en leur genre ou produits au moyen de procédés
uniques et dont la production nécessite un investissement en capital considérable.
[…]
c) Les demandes doivent
être présentées sur le papier à en-tête de l’entreprise et comprendre les
renseignements suivants :
i.
une description du produit et des procédés de production
afférents ainsi que les caractéristiques uniques de ces derniers;
ii.
une description du programme de commercialisation à titre
expérimental proposé qui définit les marchés-tests, les circuits de
commercialisation, le calendrier, les plans de promotion, les coûts de
commercialisation, les quantités de produits nécessaires pour réaliser le
programme proposé et une analyse indiquant les résultats minimums qui doivent
être obtenus auprès des marchés-tests pour approuver l’investissement en
capital;
iii.
un plan détaillé de la création d’emplois et de
l’investissement en capital minimums, le financement proposé pour la
production du produit, c.-à-d. les installations, l’équipement, la capacité
de production et le temps qu’il faut pour rendre ces installations
fonctionnelles à partir du moment où le MAECI approuve le programme de
commercialisation à titre expérimental.
d) Après avoir réussi le
programme de commercialisation à titre expérimental, les entreprises sont
tenues de commencer la production au Canada dès que possible.
[…]
f) Une fois que les
quantités sont épuisées ou que la période est écoulée, une autre autorisation
d’importation supplémentaire peut être accordée pour le même produit
seulement, en quantités suffisantes pour continuer de servir les
marchés-tests pour une période raisonnable nécessaire à la construction des
installations de production nationales. Une fois ces installations
construites, aucune autre autorisation d’importation supplémentaire ne sera
accordée pour le produit faisant l’objet d’une commercialisation à titre
expérimental ou pour les matières premières requises. Un demandeur ne
peut présenter qu’une seule demande de commercialisation à titre expérimental
pour un produit en particulier.
[…]
|
[34]
As
discussed below, although the Applicants acknowledge that the Guidelines are
not binding on the Minister, they criticize him for granting the Chobani
Permits in part because they say Chobani is not produced using a unique process
as required by the Guidelines.
Danone’s
Permits (2009)
[35]
“DanActive”
is a beverage which Danone produced in the U.S. in 2006. At that time, the
Canada Border Services Agency [the CBSA] issued an advance ruling that
classified DanActive as a “beverage containing milk” rather than as “yogurt”.
This meant that Danone could import DanActive into Canada without having to pay
prohibitive duties. Given this ruling, importation began.
[36]
However,
in 2008, after Danone had committed to the construction of a Canadian plant to
produce DanActive, the CBSA issued a ruling reclassifying DanActive as “yogurt”.
As a result of this ruling, imports of DanActive became subject to prohibitive
duties.
[37]
In
response to the reclassification, litigation was commenced but it was
discontinued when the Minister issued Permits allowing Danone to import an [omitted]
quantity of DanActive over a twenty-month period [the Danone Permits]. The
evidence shows that [omitted] kilograms
of DanActive were imported under the Danone Permits.
THE CHOBANI
APPLICATION
[38]
On
April 29, 2011, Agro-Farma applied for a Test Permit to import Chobani
duty-free and sell it in the GTA for three months for “test marketing”
purposes. At the end of the test phase, if successful, Agro-Farma proposed to
invest [omitted] million in a manufacturing plant in Ontario and create [omitted]
new jobs. It also asked for a Bridging Permit for twelve months so that it
could continue to supply the GTA while its manufacturing plant was under
construction. Agro-Farma originally asked for permits to import a total of
[omitted] kilograms of yogurt, but later increased its request under both
permits to [omitted] kilograms. The Permits meant that for fifteen months
Agro-Farma could produce Chobani for the GTA using low cost U.S. milk.
[39]
Agro-Farma
submitted the final revision of its application in June of 2011 [the Chobani
Application]. It did not include a description of Chobani’s production process
because Agro-Farma, in common with the Applicants, treats its production
process as a trade secret. However, as will be discussed below, the alleged uniqueness
of the production process was the subject of an oral briefing by Agro-Farma
representatives.
LETTERS TO THE MINISTER
[40]
Applications
for Permits are normally confidential. However, the Applicants and other
stakeholders somehow learned about the Chobani Application and wrote to the
Minister in May and June of 2011. Below is an overview of that correspondence.
It is significant that these letters were all before the Minister when he made
the Decision.
Letter
to the Minister dated May 26, 2011 from Pierre Nadeau, President of the
Conseil des Industriels Laitiers du Québec Inc.
[41]
This
letter did not refer specifically to the Chobani Application but opposed any
request for Permits for Greek Yogurt from the U.S. on the basis that (i) five
brands of Greek Yogurt with fat content from 0 to 10 percent and in organic and
kosher formats are already produced in Canada and (ii) the Permits would confer
an unjustified competitive advantage given much less expensive U.S. milk. The
letter concluded by saying that if Greek Yogurt was to be imported, existing
businesses and Canadian employment would be jeopardized, and there would be a
significant impact on investment in dairy processing.
Letter
to the Minister dated May 30, 2011 from Yves Leroux of Government &
Industry Relations, Parmalat Canada
[42]
Parmalat
made it clear that it knew that an application had been made for Permits to
import Greek Yogurt from the U.S. but it did not mention Chobani. Parmalat
noted that there are five brands of Greek Yogurt in Canada, and that the market
is growing and quite competitive. The letter highlighted the competitive
advantage that would be enjoyed by the importer and noted that the importer’s
sales would “cannibalize” Canadian processors’ Greek Yogurt sales. The letter
also expressed serious concerns about the negative impact on jobs and investment
in the Canadian yogurt processing sector.
Letter
to the Minister dated May 30, 2011 from Louis Frenette, President and CEO
of Danone
[43]
At
the date of the letter, Danone had not yet started to produce Greek Yogurt.
Nevertheless, it wrote the Minister saying that it understood that Agro-Farma
“may have” requested a Test Permit. Danone’s letter also alleged that the
product was not new and listed the Canadian brands of Greek Yogurt. Danone said
that there was ample capacity to meet present and future demand. Danone asked
the Minister to consult with all stakeholders before reaching a decision.
Letter
to the Minister dated May 31, 2011 from Gerry Doutre, President and CEO of
Ultima
[44]
Ultima
said it “understood” that Permits were being sought for Chobani and that it
“wish[ed] to express [its] total opposition to such a proposal”. Ultima also
expressed its view that there is “nothing new or unique about Greek style
yogurt or the way it is made”. With this comment, Ultima was the only party to
raise with the Minister the question of the uniqueness of Agro-Farma’s
production process. Ultima listed the Canadian brands of Greek Yogurt and the
flavours associated with each brand.
[45]
Ultima
also said that Permits would allow a U.S. competitor to use the massive price
differential between Canadian and U.S. milk to gain market share at the expense
of Canadian processors. Ultima ended its letter asking for a meeting with the
Minister.
Letter to the Minister dated
June 15, 2011 from Don Jarvis, President and CEO of the Dairy Processors
Association of Canada
[46]
This
letter discloses that DPAC thought test marketing had already started. It
described Canadian brands of Greek Yogurt and indicated that, in future,
“DPAC/ATLC will be requesting a meeting with your officials to review this
situation”.
A Summary of the Letters
[47]
In
my view, these letters taken together, informed the Minister that:
(i)
Greek
Yogurt is not a new product in Canada;
(ii)
Greek
Yogurt imports under the Chobani Permits would harm:
(a)
Processors’
competitive positions;
(b)
Employment
at processing plants;
(c)
Investment
in processing facilities.
(iii)
The
market for yogurt in Canada is competitive and growing;
(iv)
Sales
of Chobani would “cannibalize” Canadian processors’ sales of Greek Yogurt; and
(v)
Chobani
is not made using a unique process.
[48]
Since
the letters say that Greek Yogurt is not a new product and is not manufactured
with a unique process, the Minister would have understood that the authors were
saying that the Permits should not issue because the Guidelines did not apply.
Responses
from the Minister
[49]
The
Minister replied to Mr. Doutre of Ultima on July 6, 2011, refusing his
request for a meeting but assuring him that “the position of Ultima, as
outlined in [its] correspondence, along with the views of other stakeholders
will be carefully considered should we receive requests for supplementary
import quota for Greek Yogurt for test marketing purposes” [my emphasis].
The Minister replied to Mr. Jarvis of DPAC by letter dated September 21,
2011 repeating the same language. The Applicants submit, and I agree, that these
letters [the Minister’s Letters] indicate that the Minister had not received the
Chobani Application when, in fact, it had been received. Later in these reasons
I will consider whether the Minister’s Letters breached a duty of fairness owed
to the Applicants.
THE UNIQUENESS OF THE CHOBANI
PRODUCTION PROCESS
[50]
As
mentioned above, the Chobani Application said nothing about the uniqueness of the
Chobani production process. Accordingly, DFAIT scheduled a meeting with
Agro-Farma on June 3, 2011 to discuss the process.
[51]
The
day before the meeting, Gaëtan Paquette of the CDC wrote an email to
Katharine Funtek of DFAIT and others, which objected to the Chobani
Permits mainly on the basis that Greek Yogurt was not a new product in Canada. The email said in part:
The CDC looks forward to hearing from Agro-Farma
about the novelness of its product and its manufacturing process at the meeting
tomorrow.
As you know, the CDC has expressed its objection to
the request for a supplementary permit (either for market development or
bridging) by Agro-Farma mainly on the basis that from what we know of their
products and those already existing in the market there is not sufficient
difference in Chabani’s [sic] products to justify granting a market advantage
to this company.
[…]
That being said, the CDC will be interested in
hearing what Agro-Farma can provide as information and will review its position
in this matter if we feel it is appropriate to do so based on the information
provided.
[52]
Officials
from DFAIT, AAFC, the CDC and Agro-Farma met on June 3, 2011 to discuss the
Chobani manufacturing process. Agro-Farma educated those present about its production
process but, since the process is a trade secret, no documentation was
provided.
[53]
At
the conclusion of the meeting, the representatives of DFAIT and AAFC were
satisfied that the process met the requirement in the Guidelines for a unique
process. As well, Mark Lalonde of the CDC said he was “favourably
impressed” with Agro-Farma’s presentation and with the uniqueness of the
Chobani manufacturing process.
[54]
Notwithstanding
Mark Lalonde’s remarks, Gaëtan Paquette sent DFAIT an email on June 23,
2011, which stated that Agro-Farma’s products were not “suffisamment
innovateurs” (i.e. Greek Yogurt was not sufficiently innovative) and that it
was impossible to verify the production process. The CDC acknowledged that,
because processors keep their manufacturing processes confidential, it is hard
to know whether Chobani’s process is unique. However, the CDC said that
Skotidakis had advised the CDC that it had been in discussions about co-packing
Chobani and therefore knew that Chobani’s process was “semblable” (i.e.
similar) to the one used by Skotidakis. The CDC also said that it expected that
the “cannibalization” rate would be 100 percent. Cannibalization occurs when
sales of a new product (i.e. Chobani) are made at the expense of existing
products (Canadian traditional and Greek Yogurt).
[55]
In
spite of these comments, the CDC gave unqualified support for Agro-Farma’s Test
Permit. Regarding the Bridging Permit, the CDC was of the view that it should
not issue until the Minister was sure that Agro-Farma would actually invest in
a manufacturing plant. It is noteworthy that the CDC’s only concern about the
Bridging Permit was timing. It never suggested that it should be denied because
it would harm Supply Management.
THE Material before the Minister
[56]
The
documents which were before the Minister when he reached the Decision are
in a brief certified under Rule 318 of the Federal Courts Rules,
SOR/98-106 [the Record]. They include the Guidelines; two Memoranda for Action
[the MFAs] dated August 19 and September 1, 2011 from Louis Lévesque, the
Deputy Minister of International Trade [the Deputy Minister]; two Memoranda
dated August 18 and 26, 2011 from Lise-Ann Jackson, a policy advisor to the
Minister [the Memos]; and the correspondence from Canadian dairy processors and
industry stakeholders described above.
Memoranda
for Action from the Deputy Minister of International Trade
[57]
With
the exception of the volume of Chobani that Agro-Farma wanted to import under
the Permits, the two MFAs are identical. When read together, they show that
Agro-Farma initially asked for [omitted] kilograms, then [omitted] kilograms
and finally [omitted] kilograms for the Test Permit. For the Bridging Permit,
Agro-Farma first asked for [omitted] kilograms and then increased its request
to [omitted] kilograms.
[58]
The
MFA provided the Minister with information about import controls on yogurt, including
the TRQ. It also advised him about Agro-Farma’s test marketing proposal and the
planned [omitted] investment and the creation of [omitted] jobs. The
Deputy Minister recommended Permits for the original volumes Agro-Farma
requested. He feared that the higher volumes might allow Agro-Farma to improperly
expand sales of Chobani into markets outside the GTA.
[59]
The
Deputy Minister also expressed the view that Chobani “is produced with a
unique, customized manufacturing process that does not presently exist in Canada”. He noted that DFAIT and AAFC had both agreed that Chobani’s manufacturing process
met the policy requirements for test marketing. (In other words, it satisfied
the requirement in the Guidelines for a unique process.) Further, he advised
the Minister that the CDC took the position that the manufacturing process was
not “sufficiently unique”. However, my review of CDC’s email of June 23,
2011 shows that the Deputy Minister misread the email and gave the Minister an
incorrect view of the CDC’s position. When the CDC spoke of insufficient
uniqueness in the email, it was speaking of the product (i.e. Chobani) not the
manufacturing process. Finally, the MFA shows the Minister that the CDC
supported only the Test Permit. This was also inaccurate because, as noted
earlier, CDC’s only objection to the Bridging Permit was one of timing.
[60]
Turning
to AAFC, the Deputy Minister conveyed its opinion that the Canadian yogurt
market is growing at 6 percent per year and would bear the introduction of
Chobani with “minimal effect on competitors”. As well, and importantly, the
Minister was advised that AAFC expected Agro-Farma’s production of Chobani in Ontario would increase Canadian milk requirements by 80 million litres by the fourth year
of the project.
[61]
The
Deputy Minister also told the Minister that OMAFRA and the DFO had contacted
the Minister’s office to express their support for the proposal. Significantly,
the Minister was also advised that they had assured Agro-Farma that it would
have access to the milk it needed to manufacture Chobani in Ontario.
[62]
The
Deputy Minister also noted that although the Dairy Farmers of Canada, a
national organization representing Canadian dairy farmers, was aware of the
Application for the Permits, it had not contacted the Minister’s office. This
fact was presumably included to suggest to the Minister that Dairy Farmers of
Canada did not object to the Chobani Permits.
[63]
The
Deputy Minister’s MFA dealt with the possibility of denying the Permits and, in
that context, outlined the position of competing dairy processors, including
the Applicants, who, as described above, wrote letters opposing Permits for
Greek Yogurt. He said:
[The processors] claim that the market is already
well served by other similar Greek-style yogurt products made in Canada. They further argue that, if approved, supplemental import permits would allow
Chobani to capture market share and brand recognition in Canada during the test marketing and bridging phases.
Although this was a very brief
précis of the processors’ views, the brevity is understandable given that their
letters were included in the Record.
[64]
The
Deputy Minister also cautioned the Minister against denying the Permits. He was
concerned that such a rejection might “send negative signals to foreign investors”
and jeopardize Agro-Farma’s proposed investment.
[65]
Regarding
the Danone Permits, the Deputy Minister explained that the volumes being
considered for Agro-Farma were much smaller than the volumes Danone had been
allowed for DanActive. Further, the Danone Permits had been granted for a
longer period than those proposed for Agro-Farma. Finally, Danone had been
given more generous and lengthy Permits even though its investment and job
creation figures were less than those proposed by Agro-Farma. The Deputy
Minister was clearly indicating that the Chobani Permits were not out of line
with the Danone Permits.
[66]
The
Guidelines and a summary of yogurt consumption data for the GTA were appended
to the MFA.
[67]
The
Deputy Minister concluded by recommending (i) the issuance of a three month
Test Permit for the GTA allowing the importation of [omitted] kilograms of
Chobani for that purpose and (ii) the issuance of a Bridging Permit for
[omitted] kilograms of Chobani for sale in the GTA for a period not to exceed one
year while Agro-Farma constructed its manufacturing facility.
Memoranda
from the Minister’s Policy Advisor
[68]
In
contrast to the recommendation of the Deputy Minister, Lise‑Ann Jackson
recommended the approval of Permits for the largest volumes sought by Agro-Farma.
She feared that the lower volumes would not provide Agro-Farma with sufficient
incentive to carry through with its proposed investment. However, she suggested
that the Minister require Agro-Farma to provide further information about the investment
before granting the Bridging Permit. In my view, this suggestion was made to
address the CDC’s concern that the Bridging Permit not issue until the
commitment to invest was better understood.
[69]
Ms. Jackson
also highlighted the fact that yogurt processing in Canada is “predominately”
Quebec-based and observed that Agro-Farma’s proposed production facility would
be located in Ontario, thereby offering “broader-based economic benefits”.
[70]
Ms. Jackson
reiterated the Deputy Minister’s observation that the Danone Permits had
involved higher volumes despite a lower level of investment and job creation.
A
Summary of the Information before the Minister
[71]
In
my view, in addition to the information in the letters from processors and
stakeholders described above, the MFAs and the Memos taken together, informed
the Minister of:
(i)
The
existence of import controls on yogurt and the TRQ of 332,000 kilograms;
(ii)
The
Guidelines;
(iii)
The
fact that AAFC and DFAIT had concluded that Chobani’s production process was
unique and (wrongly) that the CDC was concerned that the process was not
sufficiently unique;
(iv)
The
fact that the CDC approved the Test Permit;
(v)
The
level of Agro-Farma’s proposed capital investment and resulting job creation;
(vi)
The
limitations on the volume, duration and geographic scope of the Permits;
(vii)
AAFC’s
projection for growth in the Canadian yogurt market (6 percent) and its opinion
that this growth would absorb any impact Chobani might have on competitors;
(viii)
The
projected increase in the overall consumption of milk as a result of the
project at the end of four years (80 million litres);
(ix)
OMAFRA
and DFO’s guarantee that Agro-Farma would have access to the milk it required
to manufacture Chobani;
(x)
The
concentration of yogurt processing in Quebec and the possibility of expanding
the sector in Ontario;
(xi)
Competitors’
opposition to Agro-Farma’s application on the basis that the Chobani Permits
could allow it to capture market share while benefiting from cheaper
milk, and that existing processors were already serving the market well and making
new investments;
(xii)
A
comparison of the Chobani Application and the Danone Permits showing that the
latter had involved a longer period and greater volumes with less investment
and job creation.
THE MINISTER’S DECISION
[72]
By letter
dated October 17, 2011, the Minister granted Agro-Farma the Test Permit and
Bridging Permit for the largest volumes requested. The Test Permit was to be
valid for three months from November 7, 2011 to February 6, 2012, while the
Bridging Permit was to be valid for one year from February 7, 2012 to February
6, 2013, or until Agro-Farma’s manufacturing plant is operational. The Bridging
Permit was conditional on Agro-Farma’s commitment to build a manufacturing
plant in Ontario by February of 2013.
The Parties’ positions
Ultima and
Agropur
[73]
Counsel
for Ultima and Agropur said in submissions that the Chobani Permits are
“dangerous” because they are “bad” for Supply Management. They are said to be
“bad” in the sense that they were issued primarily to encourage investment and
job creation without adequate regard for the fact that sales of Chobani would
be made at the expense of sales of domestic yogurt. According to Ultima and Agropur,
if the Decision serves as a precedent and the Minister is entitled to make
decisions based on irrelevant objectives (such as investment and jobs) while
ignoring the harmful impact on Canadian competitors, Supply Management will
“hang by a thread”.
[74]
Ultima
and Agropur say that processors’ sales will be harmed by the Chobani Permits and
that there will therefore be a reduced demand for Canadian milk. This, in turn,
will reduce farmers’ incomes. Ultima and Agropur say that Permits which harm
processors operate to the detriment of and undermine the very statutory scheme
which gives the Minister the discretion to issue the Permits.
[75]
Ultima
and Agropur also say in paragraphs 87 and 81 of their Memorandum of Fact and
Law that the Minister’s discretion to issue Permits should only be exercised in
a way that supports Supply Management and that the “issuance of a supplemental
permit for a purpose or effect that runs counter to the supply management
system is ultra vires [of] the EIPA.”
[76]
The
alleged harm to Canadian processors is of two kinds: lost sales and the
inability to benefit from what is effectively a subsidy to a competitor.
Regarding lost sales, the evidence was that the CDC estimated that under the
Chobani Permits, Agro-Farma’s sales of Chobani in the GTA would result in
cannibalization at a rate of 100 percent. Agro-Farma, on the other hand,
estimated a cannibalization rate of approximately 50 percent.
[77]
Regarding
the subsidy, Ultima and Agropur say that the Chobani Permits mean that, for 15
months, Agro-Farma will be selling Chobani made with much less expensive U.S. milk. This means that, even allowing for the cost of importing Chobani from the U.S., Agro-Farma’s sales of Chobani will be more profitable than sales made by Canadian
processors because the latter are required to use more expensive Canadian milk.
Danone
[78]
Danone’s
position is that the Minister must exercise his authority to issue Permits to
support Supply Management. Danone says that import restrictions are a
fundamental aspect of Supply Management because they protect prices by
preventing an oversupply of cheaper U.S. dairy products which would take sales
away from products made with higher priced Canadian milk.
[79]
Danone
also says it is wrong to take a discretionary power granted in the context of Supply
Management and use it to achieve completely unrelated objectives – including foreign
investment, increased employment and a rebalancing of the processing sector as
between Ontario and Quebec.
The
Attorney General
[80]
The
Attorney General takes a different view. In his Memorandum of Fact and Law, he
says that the objectives of Supply Management and the impact of Permits on the
Canadian dairy industry are factors which the Minister would ordinarily
consider but, having done so, he is entitled to consider other policy
objectives including job creation and foreign investment. In other words, the
Minister is not limited to granting Permits only when they support Supply Management.
[81]
In
submissions, counsel indicated that the Attorney General acknowledges that
there is no such thing as entirely unfettered discretion and that the Minister
needs to consider the objectives of Supply Management. However he noted that
the protection of processors from competition is not a stated objective of Supply
Management and that, in any event, the Applicants have adduced no evidence of
actual financial harm or loss of market share even though Chobani has been sold
in the GTA since November 7, 2011. Further, there is no evidence that Supply
Management has been injured in any way.
[82]
Finally,
the Attorney General says that the Minister knew that demand for milk would
increase by 80 million litres after four years and that this fact together with
the prospect of a significant investment in the manufacturing sector were the
primary reasons for the Decision.
Agro-Farma
[83]
In
paragraph 85 of its Memorandum of Fact and Law, Agro-Farma says that the
Minister’s discretion should be exercised “in furtherance of” (a) the objects
of the CDC and (b) the general objects of the Minister, which include providing
policy direction in most areas involving market access and trade policy.
[84]
In
submissions, Agro-Farma said that all Permits will “upset” Supply Management
unless the rate of cannibalization is zero. Agro-Farma also said that Permits
are inherently discriminatory, because they may give the Permit holder a cost
advantage over Canadian companies with higher input costs. However, since the Permits
are authorized by the EIPA they are not problematic simply because they are
discriminatory.
[85]
Accordingly,
Agro-Farma says that neither the upset to Supply Management nor the
discriminatory effect of the Chobani Permits mean that the Decision was
unreasonable.
THE ISSUES
[86]
The
issues can be described as follows:
1.
Was
the Minister’s decision reasonable?
2.
Was
there a duty of procedural fairness and was it breached?
3.
Do
the Applicants have direct standing and does Danone have public interest standing?
4.
Should
certain affidavit evidence be struck?
5.
What
should be the costs award?
Issue
1 Was the Minister’s Decision Reasonable?
[87]
All the parties
agree that there is no such thing as completely unfettered discretion. However,
in my view, the power to issue the Permits in this case is a discretionary
power that is situated very close to the unfettered end of the spectrum. I say
this because Parliament has given the Minister no criteria for the exercise of
his discretion to issue Permits.
[88]
I am not
persuaded by the Applicants’ submission that the Minister may only grant Permits
which “support” Supply Management. I think it inevitable that, in the short
term, Permits for dairy products manufactured with less expensive U.S. milk will cause some disruption to Supply Management. I have reached this conclusion
because, if imports are prohibited in order to support Supply Management and if
importing is later allowed, the support, which was achieved by the prohibition,
will normally be reduced to some degree. Accordingly, the Applicants’
submission is not reasonable because if Permits could only issue in Support of
Supply Management, they would never issue.
[89]
The
disruption to processors’ businesses as a result of Permits may be, as alleged
in this case, both short and long term. In the short term, processors’ sales
may decline and, as a consequence, their milk purchases from dairy farmers may
be reduced. It may also be that processors will be required to lay off
employees and reduce or defer their investments in new plants and/or equipment.
As well, in the longer term processors may be prejudiced in their attempts to
gain future market share.
[90]
However, it
will not necessarily be the case that disruptions to processors’ businesses
will have a negative impact on Supply Management. For example, in the
circumstances of this case, the market for yogurt is growing. Danone says that
if Chobani captures market share as a result of the Permits, Danone will lose
the opportunity to gain the future market share it presently anticipates. This,
in my view, is a change in the competitive landscape that has no impact on
Supply Management.
[91]
I am of the view that, in order for the Minister’s exercise
of discretion to be reasonable, the Minister must consider the impact of a
Permit on Supply Management; any decision to issue a Permit that harms Supply
Management in the long term will be unreasonable. Such harm would be contrary
to the objectives of the statutory scheme within which the Minister must exercise
his discretion, as reflected in paragraph 5(1)(d) of the EIPA. It will be for
the Minister to determine in each application for a Permit whether Supply
Management will be harmed in the long term. This will depend, inter alia,
on the geographic scope and the duration of the Permits and on the market
conditions for the relevant products.
[92]
There is no case law which directly addresses the facts of
this case in which the Decision was made to support Supply Management in the
long term but was also made to support investment in manufacturing and which
the Minister’s intention to consider such an extraneous matter was mentioned in
the Guidelines. However, I have concluded that, as there are significant
benefits to Supply Management in the long term, the Minister may consider other
government objectives and policies when deciding whether to issue Permits.
[93]
In Dunsmuir
v New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 at para 47, the Supreme Court
of Canada said:
In
judicial review, reasonableness is concerned mostly with the existence of
justification, transparency and intelligibility within the decision-making
process. But it is also concerned with whether the decision falls within
a range of possible, acceptable outcomes which are defensible in respect of the
facts and law.
[94]
I have
concluded that the Decision is reasonable because the evidence before the
Minister suggested that the Chobani Permits would not harm Supply Management in
the long term: the volumes at issue were below those granted under the Danone Permits,
sales were restricted to the GTA and imports were only possible for fifteen
months. As well, the evidence before the Minister suggested that, in spite of the
disruption to Supply Management caused by the short term cannibalization of
domestic yogurt sales and the resulting possibility of reduced demand for milk,
the longer term prospects for Supply Management were excellent because the
demand for milk would increase by 80 million liters by end of four years.
[95]
It is
noteworthy that the CDC did not oppose the granting of the Permits. It approved
the Test Permit and the only issue it raised in respect of the Bridging Permit
was the timing of its approval. Further, the CDC did not suggest that Supply
Management would be harmed – it simply noted the inevitable disruption that
would be caused when processors faced competition from imported yogurt. Lastly,
the CDC did not say that the Minister would fail to respect his Guidelines if
the Permits were issued. It simply expressed concern that it could not determine
whether Chobani’s process was unique. However, the evidence before the Minister
showed that officials from DFAIT and AAFC had concluded that Chobani’s
production process was unique and that the Guidelines were being respected.
[96]
For all these
reasons, to use the language from Dunsmuir, I am satisfied that the
Decision falls well within the range of possible acceptable outcomes and that
it is defensible on the facts and the law.
Issue
2 Was
there a Breach of the Duty of Procedural Fairness?
[97]
The Applicants
say that if the Minister had confirmed that the Chobani Application had been
made, they would have made further submissions dealing with the uniqueness of
the process for manufacturing Chobani. They also say that, having heard from
supporters of the Chobani Permits, the Minister was bound to hear from those
opposed. Finally, they say that their views were not adequately described in
the MFAs sent to the Minister.
[98]
In my view, the
starting point on this issue is the fact that the Permit application process
has historically always been private and confidential. For this reason, I have
concluded that the Minister’s Letters, which were misleading, can be excused by
the fact that, although he knew that some information about an application for
Permits for Greek Yogurt had been leaked to some processors, he was unsure of
the extent of the disclosure and did not want to be responsible for breaching
the confidentiality of the Chobani Application by providing further information
to the public.
[99]
I find there
was no duty to hear the Applicants’ views for two reasons. First, the
Minister’s broad discretion to issue Permits that suggests there is, at best,
only a minimal duty of fairness. Second, given the confidential nature of the Chobani
Application process, the Applicants would not, in the normal course, have had
any opportunity to make submissions to the Minister. This means, in my view,
that the minimal duty of fairness would not have included the right to make
representations.
Issue
3 Do
the Applicants have Direct Standing and does Danone have Public Interest
Standing?
[100] The
Respondents have moved to strike the consolidated Application alleging that it
is plain and obvious that the Applicants cannot succeed because they do not
have standing pursuant to subsection 18.1(1) of the Federal Courts Act,
RSC 1985, c F-7.
[101] Subsection
18.1(1) of the Federal Courts Act reads:
18.1
(1) An application for judicial review may be made by the Attorney General of
Canada or by anyone directly affected by the matter in respect of
which relief is sought.
[my emphasis]
|
18.1 (1) Une demande de contrôle
judiciaire peut être présentée par le procureur général du Canada ou par
quiconque est directement touché par l’objet de la demande.
[je souligne]
|
[102] An
applicant for judicial review will be ‘directly affected’ by a decision within
the meaning of subsection 18.1(1) where the decision affects the applicant’s
legal rights or obligations, or directly prejudices the applicant: Rothmans
of Pall Mall Canada Ltd v Canada (Minister of National Revenue), [1976] 2
FC 500 at para 13 (FCA); Canwest Mediaworks Inc v Canada (Minister of
Health), 2007 FC 752, 388 FTR 190 at para 13.
[103] The Applicants
have not persuaded me that the Decision to grant the Chobani Permits directly
affects their legal rights or obligations in any way. The Applicants are not parties
to the Permits. As well, they are not prevented from marketing Greek Yogurt in Canada, or from applying for Permits. Finally, their existing milk quotas remain unchanged.
[104] Turning
to the issue of direct prejudice, even though the Applicants compiled much of
their evidence in support of this Application after the completion of the
Chobani three-month test marketing period, the Applicants have put forward no
evidence attesting to any loss in market share or revenues during that period.
[105] Roland Murray, Vice
President, Finance, and Interim President of Danone, stated in his affidavit
that the Chobani Permits would adversely affect Danone in four ways:
(i) Danone will experience
a “permanent financial loss” in 2012 of $6,687,360;
(ii) Danone’s $23 million
dollar investment in its Oikos Greek yogurt brand would be put at risk (this
amount includes the $21 million being invested in equipment);
(iii) The goodwill associated with the
Oikos brand would be put in jeopardy; and
(iv) Danone will be forced to compete
with a subsidized competitor in an effort to obtain an adequate allocation of
Canadian milk.
[106] Gerry Doutre,
President and CEO of Ultima, stated that Ultima will suffer harm because it
“will be forced to compete with an imported product that enjoys a massive
competitive advantage”.
[107] Dominique Benoit,
Vice President, Institutional Affairs of Agropur, also anticipated both short
and long term harm to its members. In the short term, he argued that increased
sales of American-produced yogurt would decrease sales of Canadian yogurt due
to cannibalization. Because 70 percent of yogurt is processed in Quebec, cannibalization would disproportionately affect Quebec processors. Moreover, any
decrease in revenues to Ontario farmers is shared with Quebec farmers pursuant
to the Pooling Agreement. In the long term, Mr. Benoit speculated that the
Chobani project might disrupt the political balance in the allocation of milk.
An increased demand for milk in Ontario would mean either that existing Ontario processors would have access to less milk, or that the distribution of milk
production quota between provinces would have to be renegotiated.
[108] I am not persuaded
that the Applicants will experience direct prejudice as a result of the Chobani
Permits. Roland Murray of Danone admitted on cross examination that
the $6,687,360 estimated financial loss to Danone is the profit that Danone
would, hypothetically, earn if it could also access less expensive U.S. milk to produce its yogurt. In other words, as noted by counsel for the Attorney
General, this is the amount that Danone would gain if it had Permits. In my
view, this so-called “loss” to Danone is fanciful and does not amount to direct
prejudice.
[109] The record also
discloses that, contrary to their submissions, the Applicants expected to
compete successfully in the growing market for Greek Yogurt in Canada. Roland Murray stated in cross-examination that he expected yogurt consumption
in Canada to grow and he agreed that Greek Yogurt is an expanding market
segment. Mr. Murray also said that he was “very confident” that Danone’s
Greek Yogurt would sell well in 2012. He also stated the following in his
cross-examination:
Mr. Armstrong [counsel for Agro-Farma]: You do not
believe that you are going to lose market share because Chobani comes here on a
test market, do you?
Mr. Murray: We will not gain the market share that
we would like to have.
I am not saying that we will lose, but the fact that you [Chobani] are in, that
means you will pick up some market share that we will not get it.
[110] Finally, Mr. Murray
admitted in cross-examination that Danone’s construction of expanded facilities
in Quebec is underway and is projected to be completed by September of 2012.
Approximately $21 million of the total investment of $23 million is directed
toward the purchase of new equipment to allow Danone to produce and package
Oikos Greek Yogurt in its existing facility in Boucherville, Quebec.
[111] It is clear from this
evidence that the Applicants were concerned about the competitive disadvantage
they would suffer as the result of the Chobani Permits, but nevertheless
positive about the prospects for sales of their own brands of Greek Yogurt. As
noted by counsel for the Attorney General, if the Applicants were concerned about
direct harm to their businesses, one would expect to see internal documents as
evidence of projected lost sales, lost market share, harm to their reputation,
and/or concerns about the inability to obtain an adequate allocation of
Canadian milk. In the absence of such evidence, and given the evidence to the
contrary, as discussed above, I conclude that the Chobani Permits will not cause
the Applicants direct prejudice. At most, there may be a short period of
disruption in which the Applicants must compete to develop market share as the
market for Greek Yogurt expands.
[112] I also observe that
Mr. Benoit’s concerns about the impact of the Chobani Permits on the allocation
of milk production quota within Ontario or between the provinces are
speculative at this juncture. The evidence before the Minister was that
Agro-Farma had been guaranteed access to an adequate supply of Ontario milk for the production of Chobani. That evidence has not been called into
question.
[113] The
Applicants have also said that they are directly affected by the Decision
because it threatens the Supply Management system in which they are
participants,
relying
on Friends of the Canadian Wheat Board et al v Canada (Attorney General),
2011 FCA 101;
and Moresby
Explorers Ltd v Canada (Attorney General), 2006 FCA 144.
[114] However, the evidence
is that the production of Chobani in Canada will result in higher incomes for
dairy farmers. AAFC advised the Minister that Chobani production would increase
Canadian milk consumption by 80 million liters by the fourth year. Increased
consumption of milk for yogurt processing translates into higher revenues for Ontario milk farmers. These gains are then shared with farmers from Quebec and the Maritime provinces pursuant to the Pooling Agreement. Any loss in revenues for Canadian
farmers resulting from Chobani’s use of U.S. milk would therefore be limited to
the short term, that is, the fifteen-month period under the Permits.
[115] The prejudice
alleged by the Applicants stems from the fact that the Permits allow a new
processor into the market. This means that existing processors will have to
compete for shares of the expanding market with the newcomer and that their
market share gains in future may not be as high as they would have otherwise
been if Agro-Farma had not been issued the Permits. There is no evidence that
the change in the competitive environment has any bearing on Supply Management.
[116] For
all these reasons, I have concluded that none of the Applicants have direct
standing.
[117] Danone put forth
an alternative argument claiming public interest standing. An applicant
for public interest standing must satisfy a conjunctive three-part test,
demonstrating that: (i) there is a serious question raised; (ii) the applicant
has a genuine or direct interest in the outcome of the litigation; and (iii)
there is no other reasonable or effective way to bring the issue before the
Court: Canadian Council of Churches v Canada, [1992] 1 S.C.R. 236.
[118]
In
my view, Danone cannot satisfy the third branch of the test. The CDC or groups
of dairy farmers are well suited to apply for judicial review.
Issue
4 Should
Certain Affidavit Evidence be Struck?
[119]
The Attorney
General of Canada and the Minister moved to strike (i) portions of affidavit
evidence and related exhibits filed by the Applicants on the basis that it
included irrelevant opinion evidence and new evidence which was not before the
Minister when he made the Decision, and (ii) paragraphs 62 and 86 of the
Memorandum of Fact and Law filed by Ultima and Agropur which are alleged to refer
to documents which were not properly adduced as exhibits to an affidavit [the
Motion].
[120]
The Motion
was not argued during the hearing because all parties decided that the two days
available for the hearing should be spent on the merits of the Application.
Accordingly, it was agreed that, if I felt that I needed to refer to portions
of the contested evidence, I would give the parties notice so that argument
could be directed to the admissibility of that evidence. I gave such notice in
a Direction dated June 6, 2012 and have been advised that there is no
opposition to my use of the contested evidence pursuant to the notice. However,
the affidavits at issue remain in the Court’s record so the Motion will be
adjourned sine die so that, if so advised, the moving parties may make
the Motion returnable before the Court of Appeal.
Issue
5 What
should be the Costs Award?
[121]
Costs are
awarded to the Respondents. However, the scale remains under reserve and, if
necessary, the registry may be contacted and I will arrange to hear submissions
by teleconference dealing with the scale of costs. Thereafter, I will ask the
Respondents to submit bills of cost and, if lump sum amounts cannot be agreed,
I will hear submissions by teleconference and fix lump sum awards.
JUDGMENT
THIS
COURT’S JUDGMENT is that these applications are dismissed with
costs to the Respondents because the Applicants lack standing and, in the
alternative, because the Decision is reasonable. The scale and amount of costs
remain under reserve pursuant to paragraph 121 of the Reasons.
“Sandra J. Simpson”
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-1931-11
STYLE
OF CAUSE: Ultima
Foods Inc.. et al v
Attorney
General of Canada et al
PLACE OF HEARING: Montreal, Quebec
DATE OF HEARING: April
24, 2012
REASONS FOR JUDGMENT: SIMPSON J.
DATED: June
21, 2012
APPEARANCES:
Peter Kirby
René Cadieux
|
FOR THE APPLICANT
|
Simon Potter
Brenda Swick
|
FOR THE APPLICANT
|
Alexander Pless
Michelle Kellam
Geneviève Bourbonnais
|
FOR THE RESPONDENT
|
Robert Armstrong
Scott Kugler
Paul Seaman
|
FOR THE RESPONDENT
|
SOLICITORS OF RECORD:
Fasken Martineau DuMoulin LLP
Montreal, Quebec
|
FOR THE APPLICANT
|
McCarthy Tetrault
Montreal, Quebec
|
FOR THE APPLICANT
|
Myles J. Kirvan
Deputy-Attorney General of Canada
|
FOR THE RESPONDENT
|
Gowlings
Toronto, Ontario
|
FOR THE RESPONDENT
|