Date:
20130812
Docket:
T-1525-12
Citation:
2013 FC 857
Ottawa, Ontario,
August 12, 2013
PRESENT: The
Honourable Mr. Justice Manson
BETWEEN:
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RIVER ROAD HUTTERIAN BRETHREN
AND RIVER ROAD EQUIPMENT CO LTD
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Applicants
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and
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ATTORNEY GENERAL OF CANADA REPRESENTING THE MINISTER OF AGRICULTURE AND AGRI-FOOD CANADA
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Respondent
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REASONS FOR JUDGMENT
AND JUDGMENT
[1]
This
is an application pursuant to section 18.1 of the Federal Courts Act,
RSC 1985, c F-7 for judicial review of the decision of the Administration of
the AgriInvest Program, Farm Income Program Directorate, Agriculture and Agri-Food
Canada, to combine the Applicants, River Road Hutterian Brethren [River Road]
and River Road Equipment Co [River Road Equipment] such that they are treated
as a single entity for application of the prescribed Allowable Net Sales [ANS]
cap, pursuant to clause 5.13 of the Growing Forward Agreement and clause 4.5 of
the AgriInvest Program Guidelines.
[2]
By
combining the two entities, the benefits of the program are thereby restricted
and the two Applicants only receive the benefit of a single tax entity.
I. Issues
[3]
The
issues raised in the present application are as follows:
a) Are
the combining provisions set out in the Growing Forward Agreement and the
Guidelines subject to judicial review?
b) Are
the combining provisions set out in clause 4.5 of the AgriInvest Program
Guidelines based on purposes irrelevant or extraneous to the AgriInvest Agreement?
c) Was
the decision to combine the Applicants for purposes of eligibility in
AgriInvest fair and reasonable?
II. Standard of review
[4]
The
parties are agreed that the standard of review is reasonableness, Dunsmuir v
New Brunswick, 2008 SCC 9.
III. Background
[5]
The
Applicants consist of a colony of Hutterite farmers based in Milk River, Alberta and their related equipment company [the Colony]. The Colony consists of 87
individuals including 52 members and 22 family units. The Applicants also
represent 151 other Hutterite colonies, which are similarly-sized and have the
same two-tiered corporate structure. The Applicants are separate taxable
entities, but their farming operations take place on the same land-base.
[6]
Pursuant
to the Farm Income Protection Act, SC 1991, c 22, the Minister of
Agriculture and Agri-Food Canada entered into the Agreement with the provinces
and territories on July 10, 2008. Broadly speaking, the purpose of the
Agreement is to provide income protection for farmers. The Agreement created
several programs, including the two programs in issue, AgriInvest and
AgriStability, which offer different forms of income protection for farmers.
[7]
AgriStability
is a program designed to protect farmers against drops in income by providing
financial assistance for annual losses which are greater than a set percentage
of an established historical reference income. The maximum allowable
contribution under this program for one participant is $3 million.
[8]
AgriInvest
is a matching contribution program where farmers can contribute 1.5% (as of
2013 this has been decreased to 1%) of their ANS to a savings account. These
contributions are then matched by the Minister. The program caps the amount of
ANS at $1.5 million, resulting in a contribution limit by the Minister of
$22,500 for each participant in the program.
[9]
Participant
eligibility for these programs is chiefly defined in clause 2.1.1 of Annex A of
the Agreement. Participants are eligible to participate in either or both
programs if they “…have reported farm income for the purposes of the Income Tax
Act.”
[9]
[10]
Clause
3.17 of Annex A of the Agreement is applicable only to AgriStability and
describes the potential need to combine multiple participants in a farming
operation who are related persons within the meaning of the Income Tax Act.
[11]
Clause
5.13 of Annex A of the Agreement is applicable only to AgriInvest and provides
authority for the Guidelines to limit the ANS of multiple participants to
prevent evasion. Pursuant to clause 5.13, clause 4.5 of the Guidelines gives
the Respondent discretion to treat multiple participants as one if the
effect of their business structure avoids application of the prescribed ANS
cap.
[12]
The
Colony, under the guidance of the consulting company MNP, entered into a
business re-organization which involved the incorporation of the River Road
Equipment Co on January 1, 2009, as a separate entity from River Road. In 2010,
MNP met with the Respondent to discuss the effect of this re-organization. Both
the Applicants and the Respondent agree that this re-organization was
undertaken for legitimate business reasons, unrelated to eligibility in the
AgriInvest program.
IV. Analysis
A.
Are the Combining Provisions Set Out in the Growing Forward Agreement and
the Guidelines Subject to Judicial Review?
[13]
The
Respondent argues that the creation of a benefit program such as AgriInvest by
the governments involves a policy decision and should not be a matter for
judicial review. The Respondent refers to several cases in support of the
position that it is not the Court’s function to review actual policy adopted by
a Minister, but rather individual decisions made under the policy.
[14]
In
this case, however, the decision to combine the Applicants for purposes of the
AgriInvest program was made by the Respondent pursuant to the Agreement, which
gave the authority to the Respondent to act and to combine the Applicants. It
was not a policy choice made pursuant to a broad statutory authority by the
Minister itself.
[15]
I
therefore find that the application of the provisions in question is subject to
judicial review.
B.
Are the Combining Provisions Set Out in Clause 4.5 of the AgriInvest Program
Guidelines Based on Purposes Irrelevant or Extraneous to the AgriInvest Agreement?
[16]
While
the policy decision of the Minister may also be reviewable if there has been an
exercise of bad faith, the parties agree that no bad faith is present in this
case. It is also conceded by the Applicants that the purpose of this
application is not a constitutional challenge, nor is it a policy challenge of
the Growing Forward Program.
[17]
In
my view, the combining provisions are not irrelevant or extraneous to the
AgriInvest Agreement.
[18]
In
support of their argument, the Applicants cite disparities in the eligibility
requirements for AgriStability and AgriInvest. Chief among these points is that
AgriStability specifically addresses combining related entities, in clause 3.17
of the Agreement, whereas there are no equivalent provisions for the AgriInvest
program. AgriInvest, unlike AgriStability, is not a whole farm program that is
specifically concerned with combining related entities. In contrast, AgriInvest
is concerned only with possible tax evasion tactics as the rationale, or basis,
for combining entities. The parties agree that the Applicants’ restructuring into
two entities was in no way intended to avoid application of the prescribed ANS
cap. Likewise, there are references in the 2007, 2009 and 2010 application
forms to combining entities in relation to AgriStability, but not AgriInvest.
Finally, the General Eligibility Guidelines make reference to the fact that
participants in AgriInvest can include partners, a provision that is argued would
be inconsistent with a whole farm approach.
[19]
The
other main issue raised by the Applicants is that clause 4.5 of the Guidelines
is not consistent with clause 5.13 of the Agreement. This alleged inconsistency
is due to clause 4.5’s broad, discretionary wording. Furthermore, the Applicants
argue that clause 4.5 is not a true evasion provision, as evasion necessitates
intention. In sum, the Applicants argue that any objectionable business
structures for AgriInvest ought to have been set out in the Agreement and that the
Respondent cannot define ineligible participants at its discretion, without any
defining criteria.
[20]
While
acknowledging that not all policies need to have guidelines specified in their
enacting legislation, the Applicants rely on Sander Holdings Ltd v Canada,
2005 FCA 9, for the proposition that discretionary guidelines need to be within
the scope of the power granted by that legislation.
[21]
The
Applicants also challenge the reasonableness of the application of clause 4.5.
The Applicants acknowledge that while there is no inherent entitlement to farm
income support, once created, it must be fairly administered. The Applicants
cite the Agreement principles of equity and efficiency in support of this
argument.
[22]
The
Respondent argues that policy matters are only reviewable in circumstances
where the decision relied upon considerations irrelevant or extraneous to the
statutory purpose. The Respondent argues that AgriInvest is an income support
program, which provides income protection. The analysis is based on taxable
entity status, not the whole farm concept. Some form of restriction or
limitation on costs must be necessary to achieve that purpose. It is therefore
reasonable and appropriate to consider the effect of the Applicants’ business
structure in avoiding application of the prescribed ANS cap. While
acknowledging that the administration of such programs can carry elements of
arbitrariness and unfairness, it is not the role of the courts to dictate
whether the policy is the most fair or optimally implemented (Carpenter
Fishing Corp v Canada, [1998] 2 FC 548 at paras 39, 41).
[23]
While
I am sympathetic to the Applicants’ concern with the lack of certainty or clear
articulated criteria in applying clause 4.5, I must agree with the Respondent.
[24]
My
role is not to substitute my decision even if I would have decided differently
from the AgriInvest Administration, but whether their decision was defensible
as being reasonable in the circumstances. The decision to combine the Applicants
was reasonable. The Applicants were formerly one business entity: they
reorganized to become two taxable entities, and the Respondent restricted the
benefits the Applicants received under the AgriInvest program to what they
received prior to reorganization. Such an outcome cannot be said to be
unreasonable.
[25]
Clause
5.13 of the Agreement allows for the Guidelines to “…set out circumstances” in
which the Respondent may limit the combined ANS of multiple participants. While
clause 4.5 of the Guidelines provides a broad discretion to combine
participants if the effect is to avoid the ANS cap, the Agreement’s
wording in clause 5.13 is likewise broad: to “set out circumstances” cannot be
read so narrowly as to suggest that clause 4.5 is unreasonable.
[26]
Clause
5.13 of the Agreement delegates broad authority for the Respondent to create
guidelines regarding the combining of program participants. Clause 4.5 of the
Guidelines is indicative of that delegation. These clauses reflect a policy choice
made by the Minister, and it is not the place of the court to second-guess
legislative choices, poorly executed or unintentionally arbitrary as they might
be.
[27]
I
do not find that the decision to combine the Applicants for the purposes of the
AgriInvest program relied on irrelevant or extraneous considerations to the
statutory purposes of the Agreement (Maple Lodge Farms Ltd v Canada,
[1982] 2 S.C.R. 2 at para 8).
C.
Was the Decision to Combine the Applicants For Purposes of Eligibility In
AgriInvest Fair and Reasonable?
[28]
As
stated above, I find that the decision was both fair and reasonable. A summary
of the salient facts is:
a) Prior
to the January 1, 2009 reorganization, all farming operations were conducted by
River Road. River Road was eligible to participate in the AgriIvest program,
although it was subject to the $1.5 million dollar cap in respect of ANS.
b) After
January 1, 2009, farming operations were conducted by two entities, River Road and River Road Equipment. Both entities were eligible to apply for and
participate in the AgriInvest Program.
c) However,
the reorganization led to the situation where, in respect of the exact same
farming operation, two entities were now applying for the AgriInvest benefit, whereas
before there had been only one entity. The effect was to avoid the ANS cap for
a single entity, even if the restructuring was done in good faith and for
legitimate business reasons.
[29]
While
the AgriInvest Administration does not have a system to ensure the application
of clause 4.5 is applied fairly to all applicants, the decision to combine the
Applicants in this case cannot be said to be unfair or unreasonable.
JUDGMENT
THIS
COURT’S JUDGMENT is that:
1.
The
Applicants’
application for judicial review is dismissed;
2.
Given
the acknowledgment that the AgriInvest Administration does not have a system in
place to ensure the rule regarding combining is being fairly applied, and that
the Applicants restructured their business operations for legitimate business
reasons, not to evade the ANS cap, no costs are awarded.
"Michael D.
Manson"
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