villetard's eggs ltd. v. canada
A-641-94
The Canadian Egg Marketing Agency (Appellant) (Respondent)
v.
Villetard's Eggs Ltd. (Respondent) (Applicant)
Indexed as: Villetard's Eggs Ltd. v. Canada (Egg Marketing Agency) (C.A.)
Court of Appeal, Stone, Décary and Robertson JJ.A."Ottawa, April 12 and 20, 1995.
Administrative law " Increasing opposition to attempts to import into administrative law corporate veil theory from corporation law " Whether as non-application of or exception to corporate veil doctrine, regulatory agency justified in enquiring into relationship between licence applicant and third party to determine whether attempt to circumvent Regulations.
Agriculture " Egg marketing licences " CEMA justified in considering whether licence applications by corporation controlled by persons whose licences recently revoked attempt to circumvent Regulations.
Villetard's Eggs was a family partnership in Alberta which carried on business as a producer, grading station and wholesale dealer in eggs. In 1992, its licences were revoked by the Canadian Egg Marketing Agency for having, in violation of the conditions of licence contained in the Canadian Egg Licensing Regulations, 1987, purchased eggs from producer in the Northwest Territories, knowing that it did not have a federal quota.
In January 1993, the Agency received applications for buyer's and seller's licences from a corporation called Villetard's Eggs Ltd. Its address and telephone number were identical to those of the partnership and the applications were signed by a partner as manager of the respondent.
After a show cause hearing, the Agency, based on the Federal Court of Appeal decision in Wight v. Canadian Egg Marketing Agency, [1978] 2 F.C. 260 (C.A.), denied the applications on the basis that they were colourable and that they were in fact the same as if they had been made by the partnership.
The Motions Judge allowed an application for judicial review, ruling that the Wight case was distinguishable since, inter alia, it was decided before the Charter came into effect, that the Agency was not empowered to lift the corporate veil of the respondent, that the Agency could refuse applications in this kind of situation only if it were to find actual mala fides or some kind of fraud and that since the issue of whether an application was colourable was a question of jurisdiction or of law, no deference was owed to the findings of the Agency on that issue.
This was an appeal from that decision.
Held, the appeal should be allowed.
The issue was whether the Agency had the authority, prior to issuing a licence, to look into the practical relationship between an applicant and third persons and, in the affirmative, whether the Agency had the authority to deny the licence on the basis that the application had been made with the intention of circumventing the Agency's regulations.
(1) Wight was applicable. It stood for the proposition that, implicit in the licensing power of the Agency was its ability to enquire into the conduct of an applicant and to refuse to issue a licence to an applicant whose application was in reality an attempt to circumvent the Regulations. It was impossible to imagine a licensing authority invested with such a duty not being capable of denying a licence where it had good grounds to believe that the issuance of the licence would be detrimental to the interests of the public. This followed from the Supreme Court of Canada's invitation in Maple Lodge Farms Ltd. v. Government of Canada to interpret statutory legislation in such a realistic way as to allow administrative agencies to function effectively.
Whether or not the Agency had the power to deny a licence to a mala fides applicant was not an issue that could be related to the Charter.
The interrelationship between the respondent and the partnership was a proper and, in the circumstances, essential consideration for the Agency to take into account in deciding whether or not to grant the licences.
(2) Attempts to import into modern administrative law the theory of the corporate veil developed a century ago in the area of corporate law have been facing increasing opposition: some decisions were based on findings that what was done was not lifting the corporate veil, others, that to do so was justified in the particular circumstances. Whether this was a case of non-application of, or exception to, the corporate veil doctrine, the Agency was justified in enquiring into the relationship between the applicant and a third party to determine whether the application was an attempt to circumvent the regulations.
(3) The Motions Judge's view that the Agency was required to issue a licence unless the conduct of an applicant was akin to criminal conduct was not supported by any authority. The question the Agency was entitled to ask was whether the respondent's application was colourable, in the sense that it was made by a corporation controlled by persons whose licences had been very recently revoked. If the Agency had good grounds to find, on a balance of probabilities, that it was, it could then in its discretion decide not to issue the licence.
(4) Whether or not an application is colourable and whether or not a corporation is to be treated as distinct from other related persons or entities are to a large degree factual issues, and the Agency should be accorded curial deference in this regard. There was here ample evidence upon which the Agency could find that the application was colourable.
statutes and regulations judicially considered
Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44].
Canadian Egg Licensing Regulations, 1987, SOR/87-242, ss. 5, 8, 9.
Farm Products Marketing Agencies Act, R.S.C., 1985, c. F-4, s. 21(b).
cases judicially considered
applied:
Wight v. Canadian Egg Marketing Agency, [1978] 2 F.C. 260; (1977), 19 N.R. 529 (C.A.); Maple Lodge Farms Ltd. v. Government of Canada, [1982] 2 S.C.R. 2; (1982), 137 D.L.R. (3d) 558; 44 N.R. 354; Gray v. Canadian Egg Marketing Agency, [1977] 1 F.C. 620 (C.A.); Canada (Attorney General) v. Mossop, [1993] 1 S.C.R. 554; (1993), 100 D.L.R. (4th) 658; 149 N.R. 1.
referred to:
Pineview Poultry Products Ltd. et al. v. Canadian Egg Marketing Agency et al. (1993), 151 N.R. 195 (F.C.A.); Syntex Pharmaceuticals International Ltd. v. Medichem Inc., [1990] 2 F.C. 499; (1990), 28 C.P.R. (3d) 1; 105 N.R. 49 (C.A.); Salomon v. Salomon & Co., [1897] A.C. 22 (H.L.); CIBM-FM Mont Bleu Ltée v. Canadian Radio-television and Telecommunications Commission and CION-FM Inc. (1990), 123 N.R. 226 (F.C.A.); B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Developments Ltd. (1989), 60 D.L.R. (4th) 30; 37 B.C.L.R. (2d) 258; 43 B.L.R. 67; 4 R.P.R. (2d) 74 (B.C.C.A.).
APPEAL from the Trial Division's decision (Villetard's Eggs Ltd. v. Canadian Egg Marketing Agency (1994), 86 F.T.R. 215) allowing the application for judicial review of the Canadian Egg Marketing Agency's decision denying the respondent's application for buyer's and seller's licences. Appeal allowed.
counsel:
François Lemieux and David K. Wilson for appellant (respondent).
R. Graham McLennan for respondent (applicant).
solicitors:
Osler, Hoskin & Harcourt, Ottawa, for appellant (respondent).
McLennan Ross, Edmonton, for respondent (applicant).
The following are the reasons for judgment rendered in English by
Décary J.A.: The issue, in this appeal, is whether the Canadian Egg Marketing Agency (the Agency) has the authority, prior to issuing a licence, to look into the practical relationship between an applicant and third persons and, in the affirmative, whether the Agency has the authority to deny the licence on the basis that the application had been made with the intention of circumventing the Agency's regulations.
One would have expected this issue to have been settled by the decision of this Court in Wight v. Canadian Egg Marketing Agency,1*ftnote1 [1978] 2 F.C. 260 (C.A.). but the respondent and the Motions Judge were not of that view.
The factual background is fairly simple and uncontested. I shall limit myself to those general facts that are relevant to the very issue outlined above. The debate so far in the proceedings has been for all practical purposes restricted to that issue irrespective of the merits of the application which was before the Agency, and it will remain so in this Court.
Villetard's Eggs (the Partnership) is a family partnership which resides and carries on business as a producer, grading station and wholesale dealer in eggs operating in Beaumont, Alberta. The partners are the father, Robert Villetard, and his three sons, Gary, Larry and Randy Villetard.
On May 1, 1992, the Agency issued an interprovincial buyer's licence and an interprovincial seller's licence to the Partnership.
Sometime in the summer of 1992, the Agency sent a notice of its intention to suspend or revoke the licences of the partnership on the grounds that the partnership had violated the conditions of licence contained in the Canadian Egg Licensing Regulations, 19872*ftnote2 SOR/87-242, 24 April 1987.
(the Regulations), namely that the partnership had purchased in interprovincial trade from Pineview Poultry Products Ltd. (Pineview Poultry), an egg producer located in the Northwest Territories, knowing that Pineview Poultry did not have a federal quota. The show cause hearing was to take place on August 10, 1992.
Prior to the hearing of the show cause hearing, Gary Villetard, the partnership and Pineview Poultry filed a statement of claim in the Federal Court in which they sought a declaration of invalidity of some sections of the Farm Products Marketing Agencies Act3*ftnote3 R.S.C., 1985, c. F-4. (the Act) and the Regulations. They also sought an order from the Federal Court to prohibit members of the Agency from holding the show cause hearing pending disposition of the declaratory action. The prohibition order was denied on August 7, 1992 but the Motions Judge stayed prospectively the effect of any decision to cancel the licences as a result of the show cause hearing. The Agency appealed that order.
On August 10, 1992, the show cause hearing took place and the Agency revoked the licences of the partnership.
On January 28, 1993, just one week before the hearing in this Court of the appeal filed by the Agency, the Agency received applications for buyer's and seller's licences from a corporation, Villetard's Eggs Ltd. (the respondent). The address and telephone number of the respondent were identical to those of the partnership. The licence applications were signed by Randy Villetard, a partner in the partnership, as "Manager" of the respondent.
On February 3, 1993, this Court allowed the appeal of the Agency and quashed the stay order. In the course of its oral reasons, the Court said the following:4*ftnote4 Pineview Poultry Products Ltd. et al. v. Canadian Egg Marketing Agency et al. (1993), 151 N.R. 195 (F.C.A.), at p. 197.
. . . [the Motions Judge] failed to consider that by granting the stay, he was allowing the respondents to continue to break the law, as they had done knowingly and wilfully until then, without regard to the effect of this on other egg producers and on the scheme as a whole.
In subsequent exchanges of correspondence, the Agency sought to clarify the status of the respondent and the relationship between it and the partnership.
On May 27, 1993, acting pursuant to section 9 of the Regulations, the Agency issued a notice to the respondent to show cause why the Agency should issue the licence. As grounds, the show cause notice expressed the concern of the Agency that the direction and control of the respondent resided in the Villetard family which controls the partnership, that the Villetard family has a financial interest in Pineview Poultry and Northern Poultry, two non-federal quota egg production facilities in the Northwest Territories and that the Villetard family directed the flow of eggs from Pineview Poultry to the grading station facility of the partnership in Beaumont, Alberta, knowing that such marketings were in breach of the Regulations.
The show cause hearing was held on July 15, 1993. Following the presentation of evidence and submissions by counsel, the Agency denied the applications on the following basis:
It was the submission of the Agency's lawyer that based upon a decision of the Appeal Division of the Federal Court, White (sic) vs CEMA (1978) 2 F.C. that the Application by Villetard's Eggs Ltd. was really the same as Villetard's Eggs, the partnership. The argument presented was that the relationship of all parties was so interwoven that in effect, the Application by Villetard's Egg Ltd. was merely an Application for renewal by Villetard's Eggs, the partnership. The White (sic) case provided precedent that where a course of conduct was shown which was intended to enable an applicant to do indirectly what if could not do directly, that the conduct is colourable. The case dealt with whether or not the Application might be considered as less than a bona fide Application, with the applicant acting in less than good faith.
It is my view that the Application by Villetard's Eggs Ltd. is colourable application and that its application is in fact the same as if it had been made by Villetard's Eggs, the partnership.
Had the present application been made by Villetard's Eggs, the partnership, and been accompanied by a clear intention to comply with the rules and law relating to interprovincial trade, then the Application would have been received in a different light. However, the Application appears to be an attempt to obtain a License while at the same time information presented at the Hearing indicated that for the "immediate Future", the applicant would not be in violation of the rules and regulations but might well decide to do so at some future time. This is not acceptable and accordingly, no license should be granted to the applicant for either a Buyer or Seller's license at this time. At such time as there is clear indication that Villetard's Eggs Ltd. or Villetard's Eggs, the partnership, is prepared to comply with the regulations, any application for licenses might received favourable consideration. However, to grant a license in the current circumstances will be very difficult to do. [Appeal Book, at pages 188-189.]
On August 19, 1993, the respondent applied for judicial review of the Agency's decision and on November 4, 1994, the Motions Judge allowed the application, set aside the Agency's decision and referred the respondent's application back to the Agency for determination on the basis that the Agency process such application "without regard to any conduct or activities of any person, firm or corporation, except the applicant's."5*ftnote5 (1994), 86 F.T.R. 215 (F.C.T.D.), at p. 228.
The reasons of the Motions Judge can be summarized as follows:
1) The decision of this Court in Wight is distinguishable for the following reasons: it was decided before the Canadian Charter of Rights and Freedoms [being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]] (the Charter) came into effect; it involved an element of "conspiracy, stealth and deliberate defiance"6*ftnote6 Ibid., at p. 224. which is not present in the instant case; and the Regulations have since been amended in a manner that narrows the scope of the Agency's discretion;
2) The Agency was not empowered "to lift the corporate veil" of the respondent "without proof of [its] own fraud, if at all";7*ftnote7 Ibid., at p. 229.
3) The only situation in which a licence could be refused in this kind of situation would be if:8*ftnote8 Ibid., at p. 229.
. . . the agency [were to] find on fair adjudication, on a high degree of probability, actual mala fides, colourable conduct, sham, conspiracy, fraud, stealth, deception and/or defiance of the law on the applicant's part in regard to the agency's or the applicant's activities in, with and about egg marketing.
4) In the context of judicial review application, the Agency is "not relieved from coming to a legally and factually correct decision"9*ftnote9 Ibid., at p. 228. and the issue of whether an application is colourable is a question of jurisdiction or of law, no deference being therefore owed to the findings of the Agency on that issue.
I beg to differ, with respect, on all four grounds.
The Wight decision
The "sole issue before the Court" in Wight was the following:10*ftnote10 Wight, supra, note 1, at p. 263.
. . . whether the [Agency] was entitled to consider the relationship between the applicants and [third parties] in relation to the marketing of eggs in interprovincial trade on the application of the applicants for an interprovincial licence and whether on the evidence before it, it was entitled to conclude that the application of the applicants was not made in good faith, if issued, such licence would only have been a device to enable [the third parties] to circumvent order and regulations of the respondent . . .
Counsel for the applicant had conceded that the Agency, in granting a licence, did so in the exercise of a discretion and was entitled to examine the bona fides of an applicant as part of the exercise of that discretion. Counsel was arguing however that the relationship between the third parties and the applicant were "extraneous matters" which the Agency could not "take into account . . . in the determination of the bona fides".11*ftnote11 Ibid., at p. 266. Urie J.A., for the Court, held that such relationship was not an extraneous matter and concluded that:12*ftnote12 Ibid., at p. 267.
The inquiry by the Agency to ascertain the applicants' bona fides did not involve an inquiry into extraneous matters but was encompassed by the duty imposed on the respondent in respect of the issuance of licences under the Canadian Egg Licensing Regulations.
The proposition for which Wight stands, in my respectful view, is that implicit in the licensing power of the Agency is its ability to enquire into the conduct of an applicant and to refuse to issue a licence to an applicant whose application is in reality an attempt to circumvent the Regulations. That ability does not stem from a specific provision in the Regulations; it stems, rather, from the very duty imposed by Parliament on the Agency "to have due regard to the interests of producers and consumers of the regulated product or products".13*ftnote13 S. 21(b) of the Act.
I simply cannot imagine a licensing authority invested with such a duty, not being capable of denying a licence where it has good grounds to believe that the issuance of the licence would be detrimental to the interests of the public.
In making this proposition I am only responding to the invitation made by the Supreme Court of Canada in Maple Lodge Farms Ltd. v. Government of Canada14*ftnote14 [1982] 2 S.C.R. 2. to interpret statutes"and, I would add, regulations"such as the ones at issue here in such a realistic way as to allow administrative agencies to function effectively:15 *ftnote15 Ibid., at p. 7, McIntyre J.
In construing statutes such as those under consideration in this appeal [the Export and Import Permits Act], which provide for far-reaching and frequently complicated administrative schemes, the judicial approach should be to endeavour within the scope of the legislation to give effect to its provisions so that the administrative agencies created may function effectively, as the legislation intended. In my view, in dealing with legislation of this nature, the courts should, wherever possible, avoid a narrow, technical construction, and endeavour to make effective the legislative intent as applied to the administrative scheme involved.
The Regulations at issue in Wight were admittedly different from those in the present case, but nothing in my view turns on these differences. The combined drafting of sections 5 and 8 of the actual Regulations:16*ftnote16 Supra, note 2.
5. Subject to section 8, the Agency shall, on receipt of an application for a licence and payment of the fee set out in Column II of an item of Schedule I, issue the licence.
. . .
8. The Agency may refuse to issue or renew a licence or may suspend or revoke a licence where the applicant or holder of the licence
(a) has failed to observe any condition of the licence; or
(b) is in contravention of any order, regulation or directive made pursuant to a provincial egg marketing plan established under the "Federal-Provincial Agreement in respect of the revision and consolidation of the Comprehensive Marketing Program for the purpose of regulating the marketing of Eggs in Canada", authorized by Order in Council P.C. 1976-1979. (Not published in the Canada Gazette Part II.)
is not particularly happy, to the extent that it may give the impression that a licence has to be issued once the two conditions set out in section 8 have been met. As these two conditions are more relevant to the renewal than to the issuance of a licence and as the respondent was not itself in breach of them, the respondent had strenuously argued"it was indeed its only argument"before the Agency that the latter had absolutely no discretion and that a licence should be issued as of right. That argument was not seriously pursued before us, and with good reasons. Such a "narrow, technical construction," to use the words of McIntyre J. in Maple Lodge ,17*ftnote17 Supra, note 14, at p. 7. would deny the Agency the means to accomplish its mission in cases, for example, such as the present where persons whose licences have just been revoked because of non-compliance with the Regulations, reapply immediately as a corporate entity.
As regards the facts in the Wight case, they were also, as suggested by the respondent, of a different nature. The effect, however, should there be one, of these differences would be reflected not on the proposition as set out by Urie J.A., but on its application to the facts of the case at bar. I shall return to these facts later.
The last source of distinction retained by the Motions Judge, i.e. the advent of the Charter, was not pressed upon us by counsel and is clearly irrelevant. Whether or not the Agency has the power to deny a licence to a mala fides applicant is not an issue that can be related to the Charter.
The Motions Judge, therefore, erred in deciding that the question of law and jurisdiction put to the Court in this case could receive a different answer from that given in Wight. I note further that this Court, prior to its decision in Wight and without discussing the issue, had already reached a somehow similar conclusion: in Gray v. Canadian Egg Marketing Agency,18*ftnote18 [1977] 1 F.C. 620 (C.A.), at p. 621. Urie J.A. had held as follows:
The failure of the company, of which the applicant was the president and the owner of 94% of its shares, to comply with the requirements of the law respecting the levy was certainly a relevant consideration as to whether he personally should be granted a licence.
For these reasons I have taken the view that the interrelationship between the respondent and the partnership was a proper and, in the circumstances, essential consideration for the Agency to take into account in deciding whether or not to grant the licences applied for. Indeed, had the Agency failed to take that interrelationship into account, that failure might well have constituted a reversible error.19*ftnote19 See: Syntex Pharmaceuticals International Ltd. v. Medichem Inc., [1990] 2 F.C. 499 (C.A.), where a project officer with the Commissioner for Patents had failed to have regard to the close relationship between the applicant for a compulsory licence and a corporation with a poor record of discharging licence obligations.
Lifting the corporate veil
Attempts to import into modern administrative law the theory of the corporate veil developed a century ago by the House of Lords20*ftnote20 See: Salomon v. Salomon & Co., [1897] A.C. 22 (H.L.). in the area of corporate law have been facing increasing opposition.
That opposition has come either through findings that what was done by a licensing authority was not piercing the corporate veil21*ftnote21 See: CIBM-FM Mont-Bleu Ltée v. Canadian Radio-television and Telecommunications Commission and CION-FM Inc. (1990), 123 N.R. 226 (F.C.A.), at p. 233, where this Court held that the CRTC was not lifting the corporate veil in "[i]nquiring into the identity of a corporation's shareholders, or even of the shareholders of corporate shareholders". or through findings that the corporate veil may be lifted where the corporation is under the control of another person or entity to such an extent that they constitute a common unit, or where one company is in fact the agent or puppet of the other or is being used as a cloak for the actions of the other22*ftnote22 See: Syntex Pharmaceuticals, supra, note 19, at pp. 516ff. or, more generally, where fraud or improper conduct is alleged.23*ftnote23 See: B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Developments Ltd. (1989), 60 D.L.R. (4th) 30 (B.C.C.A.), at p. 38.
Whether we characterize it as a case of non-application of, or exception to, the doctrine of corporate veil, what the Agency did in the instant case, i.e. enquire into the relationship of an applicant with a third party for the purpose of determining whether the application in the circumstances constituted an attempt to circumvent the regulations, was permissible.
Actual mala fides etc . . . on a high degree of probability
The conclusion by the Motions Judge that the Agency was required to issue a licence unless it found "on a high degree of probability, actual mala fides, colourable conduct, sham, conspiracy, fraud, stealth, deception and/or defiance of the law on the applicant's part"24*ftnote24 Supra, note 5, at p. 229. is, with respect, an overstatement of the law.
The Motions Judge's view that the conduct of an applicant must be akin to criminal conduct"hence, the "high degree of probability" criterion"is not supported by any authority. The Wight case25*ftnote25 Supra, note 1. on which he appears to rely contains no such statement and none can be inferred from the reasons of Urie J.A. It may be, as suggested by the respondent, that the actions of the applicant in Wight were more akin to fraud and cannot be compared with the actions of the respondent whose true identity was at no time concealed to the Agency, but that does not help the respondent much because an improper course of conduct short of a fraud may yet be offensive enough to justify a denial of the application.
The question the Agency was entitled to ask itself was whether respondent's application was colourable, in the sense that it was made by a corporation controlled by persons whose licences had been very recently revoked. If the Agency had good grounds to find, on a balance of probabilities, that it was, it could then in its discretion decide not to issue the licence.
Standard of review
Whether or not an application is colourable and whether or not a corporation is to be treated as distinct from other related persons or entities are to a large degree factual issues. The courts have long recognized the need to accord curial defence to boards and tribunals on findings of fact, even in respect of tribunals which are not protected by a privative clause.26*ftnote26 See: Canada (Attorney General) v. Mossop, [1993] 1 S.C.R. 554.
In the instant case, there was ample evidence upon which the Agency could find, as it did, that the application was colourable.
I wish to add, in closing, that nothing in these reasons should be interpreted as preventing the respondent, or the partnership, as the case may be, from filing a new application or as excusing the Agency from considering afresh any new application thus submitted. Indeed, I read the last paragraph of the reasons of the Agency27*ftnote27 Supra. as a clear indication that the Agency would welcome a new application and would look at it favourably once it has been satisfied that the application has been filed by the "real" applicant and that this "real" applicant has every intention in the immediate and distant future to comply with the Regulations.
I would allow the appeal, set aside the order of the Motions Judge dated November 4, 1994, and reinstate the decision of the Agency. The appellant not having asked for costs, there should be no order as to costs.
Stone J.A.: I agree.
Robertson J.A.: I agree.