Judgments

Decision Information

Decision Content

T-1861-87
Industrial Milk Producers Association, Clearview Dairy Farm Inc., Birchwood Dairy Farm Ltd., Gus deGroot, Ton deGroot and John Verdonk
(Plaintiffs) v.
Milk Board, Fraser Valley Milk Producers Co Operative Association, Canadian Dairy Commis sion, E. D. Daum, G. G. Thorpe, R. Feenstra and J. L. Gilbert (Defendants)
INDEXED AS: INDUSTRIAL MILK PRODUCERS ASSN. v. BRIT- ISH COLUMBIA (MILK BOARD)
Trial Division, Reed J.—Vancouver, December 3, 1987; Ottawa, January 8, 1988.
Combines — Motion to strike statement of claim as disclos ing no reasonable cause of action — Plaintiffs alleging damage caused by conduct contrary to Part V of Competition Act giving rise to civil cause of action — Federal Dairy Commission allocating quotas for industrial milk production to provinces — Provincial Milk Board distributing quotas to dairy farmers — Plaintiffs complaining about establishment of quota system, inadequate size of British Columbia's quotas, and that quotas not allocated to them — Motion allowed "Regulated industry defence" exempting from Competition Act activities required or authorized by legislation — Activi ties authorized by legislation — Defence still applying to "new" civil cause of action under s. 31.1 — When provincial marketing board acting within statutory mandate, "deemed" acting in public interest — Irrelevant whether legislation specifically requiring Board or Commission to act in public interest — Effect of Farm Products Marketing Agencies Act, s. 33 discussed.
Agriculture — Provincial marketing boards — Regulated industry defence exempting from Competition Act activities required or authorized by legislation — Plaintiffs complaining about establishment of quota system, size of British Columbia's quota, and distribution of quotas — Such activi ties authorized by legislation — Effect of Farm Products Marketing Agencies Act, s. 33 discussed.
These were motions to strike out the statement of claim as disclosing no reasonable cause of action. The plaintiffs claimed that the defendants caused them damage by action which was contrary to section 31.1 of the Competition Act. Section 31.1 grants a civil cause of action to anyone who suffers damage as a result of conduct that is contrary to any provision of Part V. The defendants claimed that even if their activities infringed
section 32 of Part V, those activities were expressly sanctioned by federal and provincial legislation and were therefore exempt from the operation of section 32. The defendant Milk Board was created by Provincial legislation, which specifically author ized the Board to regulate the production and marketing of milk. That included fixing prices paid to milk producers. The Dairy Commission, a creature of federal statute, operated a system for the payment of federal subsidies with respect to industrial milk (milk used to produce other dairy products). Each province was allocated a quota for industrial milk produc tion under the National Milk Marketing Plan. British Columbia was allocated a 3.7% share of the national market, which the plaintiffs complained about as wildly inadequate. This quota was distributed amongst the Province's dairy farm ers by the Provincial Milk Board. While British Columbia was out of the National Milk Marketing Plan for two years prior to 1984, the plaintiffs produced and marketed industrial milk, selling directly to cheese factories. When British Columbia rejoined the Plan, dairy farmers again had to obtain a quota to sell industrial milk. Industrial milk quotas were allocated to farmers who already held fluid milk (milk sold for consumption as fresh milk) quotas, thus forcing the plaintiffs to purchase existing fluid milk quotas at exorbitant prices.
The plaintiffs allege that this scheme was designed to elimi nate all competition in the dairy industry, to the detriment of those who wished to compete with existing fluid milk quota holders and to the detriment of consumers. It is also alleged that the scheme was designed to prevent the growth of new manufactured dairy products industries in British Columbia.
Held, the motions should be granted.
The case law which developed with respect to the antecedents to section 32 of the Competition Act created "the regulated industry defence". The courts held that provincial marketing boards did not commit an offence under section 32 when exercising authority conferred on them by provincial or federal legislation. The courts emphasized that the provincial schemes were deemed to be in the public interest, and that it could not be a crime against the state to do something authorized by the legislature. The fact that the plaintiffs sued on the basis of the "new" civil cause of action, pursuant to section 31.1 did not remove them from the operation of the regulated industry defence. The same elements must be proved to establish a civil cause of action under section 31.1 as are required to be proven under section 32.
With respect to the argument that the regulated industry defence only applied when the activity engaged in was in the public interest and the Milk Board's activity was not in the public interest, the courts cannot review a provincial marketing board's decisions to determine whether it is acting in the public interest. When such a Board is acting within its statutory mandate it is deemed to be acting in the public interest.
The crucial argument against the plaintiff's position was that section 32 was assessed by the Supreme Court of Canada in the Jabour case, and found not to apply to an action of the Law Society taken in accordance with its legislative authority under a valid provincial statute. The present case fell more clearly within the regulated industry defence than did Jabour. The Milk Board was authorized to appoint a committee composed of producers to advise it. In implementing an allocation system, the Board was exercising authority specifically granted to it. In Jabour, the Benchers were merely given a broad mandate to set standards for the profession. There was no specific authority to regulate advertising.
Whether or not the legislation specifically requires the Board or Commission to act in the public interest is irrelevant since actions taken pursuant to federal or provincial regulating authorities are deemed to be in the public interest. In any event, the preamble to the National Milk Marketing Plan and the objectives of the Dairy Commission referred to the interests of consumers and producers. The plaintiffs also sought to distin guish Jabour on the ground that further amendments (sections 1.1 and 2.1) to the Combines Investigation Act have since been enacted. Those amendments have not directly changed sections 31.1 or 32. If Parliament intended to provide that section 32 should apply to entities such as provincial milk boards with respect to the kinds of activities complained of by the plaintiffs, it would have been much more specific. This conclusion is supported by the fact that earlier bills aimed at making regulat ed industries, save for certain exemptions, generally subject to combines legislation were not enacted. While section 1.1 sets out the general purposes of the legislation, it does not signal a departure from the "regulated industries defence" nor reverse Jabour. Section 2.1 applies to "commercial activities". The activity complained of was not commercial. The anti-competi tive behaviour complained of fell within the explicit mandate of the Milk Board.
Section 33 of the Farm Products Marketing Agencies Act which exempts certain farm products marketing agencies from the operation of the Competition Act, was not intended to remove from the protection of the regulated industries defence all agencies not covered by section 33.
Not all activities carried on by individuals in a regulated industry are exempt from the Competition Act, but merely activities that are required or authorized by the legislation. The plaintiffs were dissatisfied with regulatory rather than commer cial activities. The statement of claim did not allege that the defendants had gone outside the statutory authority accorded to them, but referred to activities not required by legislation. There was no cause of action because in order for an activity to be exempted, it need only be authorized by such legislation.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Agricultural Products Marketing Act, R.S.C. 1970, c. A-7, s. 2.
Bill C-13, An Act to amend the Combines Investigation Act ... , 3d Sess., 30th Parl., 1977.
Bill C-42, An Act to amend the Combines Investigation Act ... , 2d Sess., 30th Parl., 1976-77, s. 4.5.
Bill C-256, An Act to promote competition ... , 3d Sess., 28th Parl., 1970-71,s. 92.
British Columbia Milk Order, C.R.C., c. 143 (as am. by SO R/78-758).
Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.), ss. 2(d), 6(2)(b), 7, 15(1). Canadian Dairy Commission Act, R.S.C. 1970, c. C-7, s. 8.
Competition Act, R.S.C. 1970, c. C-23 (as am. by S.C. 1986, c. 26, s. 19), ss. 1.1 (as enacted idem, s. 19), 2.1 (as enacted idem, s. 21), 31.1 (as enacted by S.C. 1974-75-76, c. 76, s. 12), 32 (as am. idem, s. 14).
Farm Products Marketing Agencies Act, S.C. 1970-71- 72, c. 65, ss. 17, 33.
Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10. Federal Court Rules, C.R.C., c. 663, R. 419.
Milk Industry Act, R.S.B.C. 1979, c. 258, s. 39 (as am. by S.B.C. 1984, c. 25, s. 24; 1985, c. 51, s. 50).
CASES JUDICIALLY CONSIDERED APPLIED:
Attorney General of Canada et al. v. Law Society of British Columbia et al., [1982] 2 S.C.R. 307; Operation Dismantle Inc. et al. v. The Queen et al., [1985] 1 S.C.R. 441; Pacific Fishermen's Defence Alliance v. Canada, [ 1988] 1 F.C. 498 (C.A.); Attorney General of Canada v. Inuit Tapirisat of Canada, [1980] 2 S.C.R. 735.
CONSIDERED:
Milk Bd. v. Clearview Dairy Farm Inc. (1986), 69 B.C.L.R. 220 (S.C.); affd. (1987), 12 B.C.L.R. (2d) 116 (C.A.); Milk Bd. v. Birchwood Dairy Farm Ltd. (1986), I B.C.L.R. (2d) 210 (C.A.); Belden Farms Ltd. v. Milk Bd. (1987), 14 B.C.L.R. (2d) 60 (S.C.).
REFERRED TO:
•
R. v. Chung Chuck, [1929] I W.W.R. 394 (B.C.C.A.); R. v. Simoneau, [1936] 1 D.L.R. 143 (Que. Ct. Sess.); R. v. Cherry, [1938] I W.W.R. 12 (Sask. C.A.); Ontario Boys' Wear Ltd. et al. v. The Advisory Committee and The Attorney-General for Ontario, [1944] S.C.R. 349; Reference Re Farm Products Marketing Act, The, R.S.O. 1950, Chapter 131, as amended, [1957] 1 S.C.R. 198; Attorney General of Canada v. Québec Ready Mix Inc., [ 1985] 2 F.C. 40 (C.A.) (sub nom. Pilote Ready Mix Inc. et al. v. Rocois Construction Inc.) (1985), 8 C.P.R. (3d) 145.
AUTHORS CITED
Skeoch, Dr. Lawrence A. & McDonald, Bruce C. Dynamic Change and Accountability in a Canadian Market Economy, Minister of Supply and Services Canada, 1976.
COUNSEL:
Christopher Harvey for plaintiffs.
Bruce F. Fraser for defendant Milk Board.
Russell W. Lusk for defendant Fraser Valley Milk Producers Co-Operative Association.
W. B. Scarth, Q. C. for defendant Canadian Dairy Commission.
SOLICITORS:
Russell & DuMoulin, Vancouver, for plain tiffs.
Richards Buell Sutton, Vancouver, for defendant Milk Board.
Ladner Downs, Burnaby, British Columbia, for defendant Fraser Valley Milk Producers Co-Operative Association.
Deputy Attorney General of Canada for
defendant Canadian Dairy Commission.
The following are the reasons for order ren dered in English by
REED J.: These reasons apply to three motions: one brought by the defendant the Milk Board; one by the defendant the Fraser Valley Milk Produc ers' Co-Operative Association; and, one by the defendant the Canadian Dairy Commission. All seek to have the plaintiffs' statement of claim struck out (pursuant to Rule 419 [Federal Court Rules, C.R.C., c. 663]) as disclosing no reasonable cause of action. Alternatively, they seek to have parts of that claim struck out on a variety of grounds, which will be addressed later.
The main thrust of the plaintiffs' claim is that the defendants have caused the plaintiffs damage by action which is contrary to section 31.1 of the Competition Act, that is the Combines Investiga tion Act, R.S.C. 1970, c. C-23 as amended by S.C. 1974-75-76, c. 76, s. 12 and S.C. 1986, c. 26, s. 19:
31.1 (1) Any person who has suffered loss or damage as a
result of
(a) conduct that is contrary to any provision of Part V, ....
may, in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct ... an amount equal to the loss or damage proved to have been suffered by him....
(3) For the purposes of any action under subsection (I), the Federal Court of Canada is a court of competent jurisdiction.
The conduct proscribed by Part V (specifically section 32 [as am. by S.C. 1974-75-76, c. 76, s. 14]) is that by which anyone:
32.... conspires, combines, agrees or arranges with another person
(a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product,
(b) to prevent, limit or lessen, unduly, the manufacture or production of a product, or to enhance unreasonably the price thereof,
(c) to prevent, or lessen, unduly, competition in the produc tion, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance upon persons or properties, or
(d) to otherwise restrain or injure competition ....
Section 32 makes such conduct a criminal offence.
The defendants do not contest, at this stage of the proceedings, whether or not their activities infringe section 32 of Part V of the Act. But, it is argued, that even if such is the case, those activi ties are expressly sanctioned by federal and provin cial legislation and therefore are exempt from the operation of section 32.
The defendant Milk Board is established pursu ant to the Milk Industry Act of British Columbia, R.S.B.C. 1979, c. 258. Section 39 [as am. by S.B.C. 1984, c. 25, s. 24; 1985, c. 51, s. 50] of that Act authorizes the Board to make orders in rela tion to the production and marketing of milk. Included in section 39, in the specific enumeration of the Board's powers is the authority to make orders:
39. (1) ...
(h) fixing the minimum value at which vendors shall account to producers for milk which is sold on the fluid market, which value shall be set by formula as later provided in this Act;
(i) determining the minimum value at which vendors shall account to producers for milk used in manufactured milk products;
(j) fixing the price which shall be paid to all producers for all milk marketed by them and qualifying for the fluid market, which price shall be a blended price, taking into account the quantity of milk which has been sold on the fluid market and the quantity of the milk surplus to fluid milk requirements and which must be sold on the market for manufactured milk products and the values applicable to the said quantities respectively in accordance with paragraphs (h) and (i);
(k) apportioning the quantity of milk which has been sold as fluid milk among all producers qualifying for the fluid market and fixing the price for milk qualifying for the fluid market so that each producer of qualifying milk receives
(i) the fluid milk value as determined in paragraph (h) for that proportion of all milk qualifying for the fluid market marketed by him which is equal to the proportion that total fluid milk sales is of the total quantity of milk which qualifies for the fluid market received by licensed vendors in each area of production; and
(ii) the value as determined in paragraph (i) for the remainder of the milk marketed by him which qualifies for the fluid market,
and providing for the distribution of the total proceeds of milk which qualifies for the fluid market accordingly;
(I) ordering that the proceeds of the total quantity of milk qualifying for the fluid market and produced by all producers in each area of production and sold on both markets shall be prorated among all producers so that each producer shall receive his proportionate share of the total proceeds in accordance with the quantity of milk qualifying for the fluid market supplied by him;
(s) providing for the establishment of milk marketing quotas regulating the quantity of qualifying milk of a producer which may be marketed in fluid form or in the manufactured milk market during a period specified by the board, authoriz ing variation of the quotas and prescribing the terms and conditions on which quotas may be issued, held, transferred or cancelled,
(t) establishing or designating an agency to or through which all qualifying milk shall or may be delivered or sold;
(u) prohibiting a person from engaging in the production or marketing of any class or grade of milk unless he is the holder of a milk marketing quota;
Milk marketed in fluid form is that marketed as fresh milk for consumption as such. The "manu- factured milk market" refers to milk used to pro duce products such as cheese, butter, yogurt. This
market is also referred to as the "industrial milk market" or the "industrial market".
The Milk Board's authority pursuant to its con stituent statute, such statute being provincial, encompasses the regulation of milk produced for and marketed in intraprovincial trade. The Board, however, also has authority to regulate milk pro duced for the interprovincial and export markets. This is accomplished through delegation to the Board of such authority, by federal legislation: Agricultural Products Marketing Act, R.S.C. 1970, c. A-7, s. 2; British Columbia Milk Order, P.C. 1973-2911 (C.R.C. 1978, c. 143) and SOR/ 78-758; as well as the British Columbia Orders in Council issued pursuant to the Milk Industry Act, R.S.B.C. 1979, c. 258; B.C. Reg. and Orders in Council 621/74 (B.C. Reg. 99/74); 3530/75 (B.C. Reg. 743/75); 479/83 (B.C. Reg. 124/83), and 1949/84 (1984).
The defendant, the Canadian Dairy Commission is established by the Canadian Dairy Commission Act, R.S.C. 1970, c. C-7. The objects of the Com mission are stated, by section 8 of that Act:
8.... 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.
The Commission operates a system for the pay ment of federal subsidies with respect to industrial milk. Also, the Commission purchases milk pro duced in excess of designated quotas for the pur pose of disposing of such milk on the export market. Levies are collected from the producers with respect to such over-production.
The quotas allowed to each province for indus trial milk production are established by something called the National Milk Marketing Plan. This is a federal-provincial agreement pursuant to which British Columbia is allocated a 3.7% share of the
national market for industrial milk.' The plaintiffs complain that this allocation is wildly inadequate, British Columbia's population being much in excess of 3.7 percent of the country's population as a whole. It is argued that this limited allocation is designed to protect existing cheese and butter manufacturers, located in central Canada, at the expense of the development of a local British Columbia industry.
The Canadian Milk Supply Management Com mittee administers the National Milk Marketing Plan. The plaintiffs' statement of claim alleges that this Committee exercises the effective deci- sion-making power, subject to the agreement of the Milk Board, over how much of the total na tional production will be allocated to British Columbia under the National Plan. The Canadian Dairy Commission supplies the chairman for the Canadian Milk Supply Management Committee. Thus, it is stated: a province's share of the total quota available is established by the National Milk Marketing Plan; this provincial quota is then, dis tributed, in turn, amongst the dairy farmers of the province, by provincial boards; in the case of Brit- ish Columbia, this is by the Milk Board, defen dant, in this action.
The defendant, the Fraser Valley Milk Pro ducers Co-Operative Association, as the name implies, is a co-operative composed of various dairy farmers in British Columbia. (The co-opera tive was colloquially referred to by counsel for the plaintiffs as Dairyland.) The co-operative is regu lated by the Milk Board; the co-operative supplies about 75% of the fluid milk market in British Columbia. The co-operative supplies members to the Market Share Advisory Committee of the Milk Board, which committee, the plaintiffs' state ment of claim alleges, exercises the effective deci- sion-making power of the Milk Board with respect to the establishment and allocation of quotas. The statement of claim alleges that only fluid milk producers are allowed to sit on the Market Share Advisory Committee. Neither industrial milk pro ducers, nor consumers are represented. I note that
' I should note that while many of the facts are presented in these reasons in narrative form, they are taken from the plaintiffs' statement of claim, as they must be for the purpose of the motions in question. As such, they are not proved facts.
paragraph 39(1)(z) of the Milk Industry Act authorizes the Milk Board to make orders:
39.(I)...
(z) appointing advisory committees of producers, consumers, vendors and other classes of persons the board considers advisable to advise and assist the board in its duties under this Act, and for the payment by the board of the expenses of those committees;
For two years prior to November, 1984, British Columbia opted out of the National Milk Market ing Plan and presumably no federal subsidies were paid to British Columbia producers of industrial milk during that time. During these years the plaintiffs commenced production and marketing of milk for the industrial market. The plaintiffs sold directly to one or more cheese factories. (Counsel referred to this activity as a "cottage industry".) In 1984, British Columbia rejoined the National Milk Marketing Plan. It then again became neces sary for dairy farmers in British Columbia to obtain a quota in order to sell industrial milk. The Milk Board refused quotas to the plaintiffs, allocating industrial milk quotas only to farmers who already held fluid milk quota (this is referred to as an integrated marketing and allocation system). Injunctions were issued, at the request of the Milk Board, preventing the plaintiffs from continuing the marketing of their milk.
In order for the plaintiffs to market their milk, they must now purchase fluid milk quota from a dairy farmer who holds existing quota rights. (There is also a very limited entry scheme which, as I understand it, is not a practical means by which the plaintiffs could be allowed to continue in production.) The cost of purchasing existing fluid milk quota rights is approximately $1,750,000 ($1 3/4 million) for a herd of 100 cows. The plaintiffs complain that the scheme requires them to purchase fluid milk quota, at an exorbitant price—one they cannot afford—when all they wish to do is supply milk to the industrial milk market.
The plaintiffs allege that the defendants designed and implemented this scheme to elimi nate all competition in the dairy industry and to enhance and fix prices for the benefit of the exist ing quota holders. This it is claimed is to the detriment of those who wish to compete with existing fluid milk quota holders and to the detri ment of consumers as well. In addition the state ment of claim notes that the plaintiffs are not allowed to ship their product out of British Columbia (e.g. to Alberta). And, as noted above, it is alleged that the scheme is designed to prevent the growth of new manufactured dairy products industries in British Columbia.
The fact situation to which this claim relates has been the subject of other litigation: Milk Bd. v. Clearview Dairy Farm Inc. (1986), 69 B.C.L.R. 220 (S.C.); affd (1987), 12 B.C.L.R. (2d) 116 (C.A.); Milk Bd. v. Birchwood Dairy Farm Ltd. (1986), 1 B.C.L.R. (2d) 210 (C.A.); Belden Farms Ltd. v. Milk Bd. (1987), 14 B.C.L.R. (2d) 60 (S.C.).
In the Clearview case, the Milk Board's actions were challenged as unconstitutional on the ground that they infringed the Canadian Charter of Rights and Freedoms [ being Part I of the Consti tution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.)]. This challenge was based on paragraph 2(d), as infringing the industrial pro ducers' and the cheese manufacturers' right of association; on paragraph 6(2)(b), as infringing the "right to work"; on section 7, as offending the right to "life, liberty and security of the person"; on subsection 15(1), as infringing the producers' right not to be discriminated against and to be accorded equal application of the law. This chal lenge was not successful. It is interesting to note that Mr. Justice Toy in rendering his decision, in that case, almost two years ago now, stated [at page 254] under the rubric obiter dictum:
As a judge and by nature I am neither entitled nor do I generally say more than is required. However, in this case
have sensed during this trial a live atmosphere of concern with respect to the regulation of the milk industry.
If the Milk Board does not offer solutions to some of the present economic problems, it seems to me that it is inevitable that the political and legislative processes will have to be reactivated.
In the Birchwood case the Board's actions were challenged on the ground that the Board was acting beyond the authority delegated to it by legislation and in any event the actions of the Board in imposing levies on milk producers were unconstitutional as beyond provincial authority (the challenge in the Birchwood case related specifically to the imposing of levies by the Milk Board). This challenge was unsuccessful.
In the Belden case, the Milk Board's and Canadian Dairy Commission's pricing system was challenged as not providing the plaintiffs with an opportunity to obtain a fair return on their labour. This challenge was not successful. It was held that the Milk Industry Act and the Agricultural Prod ucts Marketing Act did not impose on the Milk Board and the Canadian Dairy Commission a duty to ensure the equalization of payment of monies, obtained from the sale of industrial milk among all producers. Neither was there any duty under the Milk Industry Act or the Canadian Dairy Com mission Act to provide producers with the opportu nity to obtain a fair return.
The present litigation, as noted above, chal lenges the defendants' activities as being contrary to section 31.1 of the Competition Act. While counsel for the plaintiffs states that a challenge on this basis is now brought because that legislation is new (paragraph 35 of the statement of claim), it must be noted that sections 31.1 and 32 of the Competition Act are not new. These were enacted in their present form in December, 1975, in amendments enacted as of that date to the Com bines Investigation Act: see S.C. 1974-75-76, c. 76. What is more, in so far as section 32 is concerned an essentially similar provision existed, at least with respect to articles of commerce as opposed to services, prior to that time: Combines Investiga-
tion Act, R.S.C. 1970, c. C-23, s. 32 and its antecedents.
Jurisprudence developed with respect to these antecedents, creating what is known as "the regu lated industry defence": R. v. Chung Chuck, [1929] 1 W.W.R. 394 (B.C.C.A.); R. v. Simo- neau, [1936] 1 D.L.R. 143 (Que. Ct. Sess.); R. v. Cherry, [1938] 1 W.W.R. 12 (Sask. C.A.); Ontario Boys' Wear Ltd. et al. v. The Advisory Committee and The Attorney-General for Ontario, [1944] S.C.R. 349; Reference Re Farm Products Marketing Act, The, R.S.O. 1950, Chapter 131, as amended, [1957] 1 S.C.R. 198. These cases have held that provincial marketing boards, when exercising authority conferred on them by provincial or federal legislation, cannot, in exercising that authority, be said to be committing an offence under section 32 of the Combines Act. This jurisprudence developed not by way of a defence to charges under the combines legislation but in the context of constitutional challenges to the marketing boards themselves. In that context it was argued that the federal combines legislation occupied the field, requiring competitive behavi our, and therefore overrode the provincial market ing legislation which curtailed such behaviour. Be that as it may, the reasoning which developed is succinctly stated in the Farm Products Marketing Reference. Mr. Justice Rand, at page 219, wrote:
[It isl argued that the regulation was in conflict with the provisions of the Combines Investigation Act and s. 411 of the Criminal Code, but with that I am unable to agree. The Provincial statute contemplates coercive regulation in which both private and public interests are taken into account. The provisions of the Combines Investigation Act and the Criminal Code envisage voluntary combinations or agreements by individuals against the public interest that violate their prohibitions.
And Mr. Justice Locke, at page 239, stated:
It cannot be said, in my opinion, that within the terms of para. (a)(vi) of s.2 of the Combines Investigation Act the scheme "is likely to operate to the detriment or against the interest of the public, whether consumers, producers or others". Rather is it a scheme the carrying out of which is deemed to be in the public interest. Furthermore, the offence defined by s. 2 which renders
a person subject to the penalties prescribed by s. 32 is a crime against the state. 1 think that to perform an act which the Legislature is empowered to and has authorized cannot be an offence against the state. [Underlining added.]
It is clear that the idea that individuals could be guilty of a criminal offence for engaging in con duct specifically mandated to them by a legislature was not one which the courts were willing to accept. Counsel for the plaintiffs argues that while this may have been so under the old legislation, with the new emphasis in the Competition Act on non-criminal remedies, the situation is changed. What is more, he argues that the "regulated indus try defence" only applies when the activity engaged in is in the public interest. It is argued that the Milk Board's activity in this case is palp ably not in the public interest.
While it is true that the plaintiffs are suing on the basis of a civil cause of action, pursuant to section 31.1 2 of the Competition Act, in my view this does not remove them from the operation of the established jurisprudence. In order to have a civil cause of action under section 31.1, one must prove the same elements which it is required to prove under section 32. The fact situation on which a section 31.1 action is founded will also constitute a criminal offence pursuant to section 32. I cannot therefore see that the "decriminaliza- tion" of the remedies by section 31.1 of the Com petition Act can assist the plaintiffs in their argu ment that established jurisprudence does not apply.
With respect to the argument that the estab lished jurisprudence only applies when the regula tory agency operates in the public interest, I do not read the jurisprudence as giving the courts a man date to review a provincial marketing board's deci sion in order to determine whether it is, as a matter of fact, really acting in the public interest. Rather, the jurisprudence, in my view indicates
2 The constitutional validity of which was determined by the Federal Court of Appeal, in Attorney General of Canada v. Québec Ready Mix Inc., [ 1985] 2 F.C. 40 (sub nom. Pilote Ready Mix Inc. et al. v. Rocois Construction Inc.) (1985), 8 C.P.R. (3d) 145.
that when such a Board is acting within its statu tory mandate it is deemed to be acting in the public interest. Whether it is in fact doing so is a matter for federal and provincial members of the respective legislatures, who have given the Boards the relevant authority. It is not a matter for the courts.
The crucial argument against the plaintiffs' position, however, is the fact that the new (as of December, 1975) section 32 was assessed by the Supreme Court in the recent decision, Attorney General of Canada et al. v. Law Society of British Columbia et al., [1982] 2 S.C.R. 307 (the Jabour case). That decision held that a rule established by the Law Society of British Columbia, which pro hibited lawyers from advertising, could not be said to be an action in restraint of trade, contrary to section 32. Mr. Justice Estey, speaking for the Court, stated:
at page 344
In 1975 Parliament enacted c.76 of the Statutes of Canada, 1974-75-76 as a comprehensive series of amendments ....
at page 347
The relationship between provincial regulatory statutes and the federal law has been discussed repeatedly in the courts ....
at pages 354-356
The courts in these cases have said in various ways that compliance with the edicts of a validly enacted provincial measure can hardly amount to something contrary to the public interest ....
Returning to the case at hand and the activities of the Benchers under the authority of the Legal Professions Act, supra, the question which arises is whether their actions could constitute an offence under Part V of the CIA, specifically s. 32(1). The operative words at the beginning of s. 32 are: "Every one who conspires, combines, agrees or arranges with another person". These words are broad enough to include all the Benchers acting as a group or individually or the Law Society as a corporate entity and any one or more of the Benchers or of its statutory officers, or indeed any one with whom the Law Society may have acted jointly. Consequently if any two of these persons, natural or legal, voluntarily entered into an agreement condemned by the CIA, the offence would be constituted, and on suspicion of such a situation an inquiry under s. 48 might well be ordered. What happened here, however, is something different in character both in fact and in law. In the words of Rand J. in Farm Products Reference, supra, at pp. 219-20, the provincial statute is "coercive" as applied to members of the provincially regulated group, where as the federal statute is directed towards "voluntary combina tions or agreements". Here the `agreement' was apparently the
determination by the Discipline Committee that the appellant Jabour by advertising as he did was guilty of professional misconduct. In so `agreeing', the Benchers are said not only to have been doing that which was permitted by their admittedly valid parent statute but were in fact discharging their assigned duties under that Act. Mention has already been made of the Professional Conduct Handbook. It is not a regulation with any statutory or regulatory base in law. There has been no regula tion promulgated by the Benchers on the subject of advertising. The regulation of such conduct in the record in these appeals has been effected by disciplinary decision.
I do not find the words adopted by Parliament in s. 32(1) taken by itself properly construed and applied to relate to the action taken by the Law Society acting in accordance with their legislative authority, as I have concluded, under a valid provin cial statute.
I note, first of all, that the Benchers were mem bers of the group they were regulating (i.e., the persons regulated, or representatives thereof, established the restraint of trade rule). Secondly, the authority given to the Law Society was not such as to require them to prevent advertising by lawyers. Rather, it empowered the Benchers to make rules that they deemed to be in the public interest: conduct unbecoming a member of the Society was defined to include "any matter, con duct, or thing that is deemed in the judgment of the Benchers to be contrary to the best interest of the public or of the legal profession". The author ity granted was very open ended and general in nature.
In my view, the present case falls even more clearly within the established jurisprudence than did the fact situation with which the courts had to deal in Jabour. In the present case, the Milk Board is authorized to appoint a committee com posed of producers to advise it. In implementing an allocation system the Board is exercising authority specifically granted to it. It has explicit authority to allocate quotas and to prevent the marketing of milk by individuals who do not hold such quotas. In Jabour the Benchers were merely given a broad mandate to set standards for the profession. There was no specific or explicit authority to prohibit or regulate advertising. Thus, in that case, there was much more scope, than in this, for argument that
the Combines Investigation Act (now Competition Act) provisions might apply.
Counsel for the plaintiffs seeks to distinguish the Jabour case on the ground that the Benchers were expressly given the authority to determine what was "contrary to the best interest of the public" and that no such broad authority is given to the defendants in this case. Nor are the defendant Board and Canadian Dairy Commission expressly required to act in the public interest. I do not think this distinction is relevant, however. As noted above, the established jurisprudence, in my view, deems actions taken pursuant to federal or provin cial regulating authorities to be in the public inter est. Thus whether or not the legislation specifically requires the Milk Board or the Canadian Dairy Commission to act in the public interest, is not a relevant consideration. In any event it must be noted that the preamble to the National Milk Marketing Plan provides:
WHEREAS it is desirable that a supply management program for industrial milk products be continued in the long term best interest of consumers, producers and processors ...
Also the objectives of the Canadian Dairy Com mission, as set out above on page 470, refer to the balancing of the interests of consumers and producers.
Counsel for the plaintiffs seeks to distinguish the Jabour decision on the ground that further amend ments to the Combines Investigation Act have now been enacted. As noted above, there has been no direct change to sections 31.1 and 32 by those amendments. Counsel relies on sections 1.1 and 2.1 of the Competition Act which were added by S.C. 1986, c. 26, ss. 19 and 21. Section 1.1 is an objects clause and it provides:
1.1 The purpose of this Act is to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competi tion in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices.
Section 2.1 relates to certain federal and provincial crown agencies:
2.1 This Act is binding on and applies to an agent of Her Majesty in right of Canada or a province that is a corporation, in respect of commercial activities engaged in by the corpora tion in competition, whether actual or potential, with other persons to the extent that it would apply if the agent were not 'an agent of Her Majesty.
In considering the intended effect of these sec tions, it is relevant to consider some of the legisla tive history. In 1971 the process which led to the Combines Investigation Act amendments of 1975 and the Competition Act legislation of 1986 was commenced with the introduction of Bill C-256 [An Act to promote competition ... , 3rd Sess., 28th Parl., 1970-71]. That Bill, entitled the Com petition Act, had a provision which exempted from its purview, persons engaging in a course of con duct expressly required or authorized by the Par liament of Canada or a provincial legislature. 3 Bill C-256 was never passed. It was replaced by what came to be called the Phase I (1975) and Phase II (1986) amendments. Following the withdrawal of Bill C-256 and coincident with the enactment of the Phase I amendments (S.C. 1974-75-76, c. 76), a study was prepared for the Minister of Consum er and Corporate Affairs (the Skeoch/McDonald Report, Dynamic Change and Accountability in a Canadian Market Economy, published in 1976). That report, at pages 151-152, stated:
3 Part of that provision reads as follows:
92. (1) Nothing in this Act applies in respect of an agree ment, arrangement or course of conduct that would, but for this section, constitute
(a) a violation of section 16, or
(b) price discrimination, a restrictive practice, delivered pricing or granting promotional allowances within the meaning of those terms for the purposes of section 37,
where the parties to the agreement or arrangement or the person or persons engaging in the course of conduct are expressly required or authorized to do so by an enactment of the Parliament of Canada or of the legislature of a province or by any regulation, by-law, whether municipal or otherwise, ordinance, order, rule or other instrument issued, made or established pursuant to any such enactment, and such agree ment or arrangement or such conduct is expressly required to be supervised and regulated, on a continuing basis, by a board, commission or other public body appointed pursuant to the enactment or the instrument issued, made or established pursu ant to such enactment and that is charged with the duty of protecting the public interest.
Action to deal with monopolies operating under government authorization or supervision impresses us as being of at least equal urgency to that required in the private sector.
For broader considerations, we recommend that regulated industries should be deemed to be generally subject to combines legislation, and to be exempted from it only when
(1) the restrictive conduct is specifically imposed by the legislation; and
(2) the restrictive conduct is actively supervised by independent officials and not by representatives of the participants;
(3) the restraint is necessary to the effective accomplish ment of the legislative goal and is the least restrictive means available to achieve the legislative goal.
Indeed, we recommend that these three principles apply to all forms of monopoly control authorized by government. In par ticular, we are persuaded that they are necessary in the case of so-called "supply-management" marketing boards. These organizations are, in reality, nothing more than cartels. .
The report continued with a description of the abuses which can flow from quota systems and included in that description the following quota tion [at page 1551:
If quota values are allowed to rise to unlimited heights, that is another sort of abuse. To the consumer mind it shows that returns in the industry are excessive. At the producer level, high quota values represent an unconscionable burden on young farmers starting up. At the present value of quotas in British Columbia, a young man starting dairy farming could easily find himself with a $75,000 bill for quota by the time he gets a decent one-man operation on its feet. That is not the sort of thing that any country of free men can be proud of.
In March of 1977 Bill C-42 [An Act to amend the Combines Investigation Act, 2d Sess., 30th Parl., 1976-77] was introduced. This was one pre cursor of what eventually became the Phase II amendments. Bill C-42 contained a clause which seemed designed to accomplish the recommenda tions of the above-mentioned report. That clause exempted conduct expressly required or authorized by a public agency (federal or provincial) if the members of that agency were not appointed or elected by or representatives of, the persons whose conduct was being regulated and when the applica tion of the competition legislation would seriously interfere with the primary objectives of the agen-
cy's regulatory mandate. 4 Bill C-42 was not passed. In November of 1977 a second attempt was made to enact the Phase II amendments and Bill C-13 [An Act to amend the Combines Investi gation Act ... , 3rd Sess., 30th Parl., 1977] was introduced. It contained a clause defining the scope of the "regulated industry defence" similar to that which had been included in Bill C-42. Bill C-13 was never enacted. Both Bill C-42 and Bill C-13 contained a clause comparable to the present section 2.1. 5
It is necessary, then, to consider specifically sections 1.1 and 2.1 of the 1986 amendments. The question that must be asked is whether Parlia ment, in the light of the extensive jurisprudence which had established a "regulated industries" defence and the Jabour decision, rendered in 1982, intended in enacting the 1986 amendments, to provide that section 32 of the Competition Act should apply to entities such as provincial milk boards with respect to the kinds of activities com-
4 4.5 (1) Part IV.I and sections 32, 32.2, 32.3, 33, 34, 35 and 38 do not apply in respect of regulated conduct.
"regulated conduct" means conduct in respect of which the following conditions are met:
(a) the conduct has been expressly required or authorized by a public agency that is not appointed or elected by the persons, or by classes or representatives of the persons, whose conduct is subject to be regulated by such agency;
(b) the public agency mentioned in paragraph (a) is expressly empowered, by or pursuant to an Act of Parlia ment or of the legislature of a province, to regulate the conduct in the manner in which it is being regulated and has expressly directed its attention to the regulation of the conduct; and
(c) the application of this Act to the conduct, in the specific circumstances of the case, would seriously inter fere with the attainment of the primary regulatory objec tives of an Act referred to in paragraph (b).
5 This Act is binding on an agent of Her Majesty in right of Canada or a province that is a corporation, in respect of commercial activities engaged in by the corporation in competi tion, whether actual or potential, with other persons, but not in respect of commercial activities engaged in by the corporation that are directly associated with its regulatory activities. [Underlining indicates wording which is different from the present section 2.1.]
plained of by the plaintiffs in this case. I do not think it did. Had such been the intention, it is my view that much more specific provisions than sec tions 1.1 or 2.1 would have been included for this purpose. The fate of the above-quoted clauses in Bill C-42 and Bill C-13 adds weight to this conclu sion although that conclusion itself derives primarily from the specific wording of the twc above-mentioned sections.
The purpose clause, set out in section 1.1 of the Competition Act, is not of sufficiently precise nature to accomplish the result claimed by counsel for the plaintiffs. While it sets out the general purposes of the legislation, it cannot be interpreted as signalling a departure from the pre-existing jurisprudence which established the "regulated industries defence". Nor can it be interpreted as intending to reverse the holdings in the Jabour decision. Nor does the new section 2.1 help the plaintiffs. As I read the plaintiffs' statement of claim, the activity complained of is not what might be called of a commercial nature. It is not anti- competitive behaviour in the purchasing of milk, be it for the fluid or the industrial market that is complained of (if such activity falls in any event under section 2.1). The anti-competitive behaviour complained of is the establishment of quotas, the limited number of such and the fact that none has been allocated to the plaintiffs. As I read the relevant legislation this falls within the explicit mandate of the Milk Board. And the Board in engaging in that activity is not engaging in a commercial activity.
Counsel for the plaintiffs argues that the Com petition Act was intended to apply to the defen dant Milk Board and Canadian Dairy Commis sion, in this case, because section 33 of the Farm Products Marketing Agencies Act, S.C. 1970-71- 72, c. 65 expressly exempts some farm products marketing agencies (those created under section 17 of that statute) from the operation of the Competition Act and the Canadian Dairy Com mission is not so exempted. In my view, this reads too much into section 33. The insertion of that section in the legislation in 1972 was not intended to remove from the protection of the regulated
industries defence all agencies not covered by section 33.
The applicable test for striking out a statement of claim as disclosing no cause of action is set out in Operation Dismantle Inc. et al. v. The Queen et al., [1985] 1 S.C.R. 441 and was recently reviewed by the Federal Court of Appeal in Pacific Fisher- men's Defence Alliance v. Canada, [1988] 1 F.C. 498.
In the Operation Dismantle case, at page 449, the test as set out in Attorney General of Canada v. Inuit Tapirisat of Canada, [ 1980] 2 S.C.R. 735, at page 740 was cited:
. all the facts pleaded in the statement of claim must be deemed to have been proven. On a motion such as this a court should, of course, dismiss the action or strike out any claim made by the plaintiff only in plain and obvious cases and where the court is satisfied that "the case is beyond doubt" ....
In the Pacific Fishermen's Defence Alliance case it was said, at page 506, citing the Operation Dismantle case:
The rule that the material facts in a statement of claim must be taken as true for the purpose of determining whether it dis closes a reasonable cause of action does not require that allegations based on assumptions and speculations be taken as true ... No violence is done to the rule where allegations, incapable of proof, are not taken as proven. [Underlining added.]
Applying these tests to the present statement of claim leads me to conclude that it discloses no reasonable cause of action. I accept counsel for the plaintiffs' argument that it is a regulated industry defence, not an exemption, which is pertinent. Indeed, as I read the cases it is a regulated conduct defence. It is not accurate merely to identify an industry as one which is regulated by federal or provincial legislation and then conclude that all activities carried on by individuals in that industry are exempt from the Competition Act. It is not the various industries as a whole, which are exempt from the application of the Competition Act but merely activities which are required or authorized by the federal or provincial legislation as the case may be. If individuals involved in the regulation of a market situation use their statutory authority as a spring board (or disguise) to engage in anti-com petitive practices beyond what is authorized by the relevant regulatory statute then such individuals
will be in breach of the Competition Act. But, the gist of the plaintiffs' claim in this case, as I read the statement of claim, is not of that nature. The gist of the claim, as noted above is disatisfaction with the quota allocation system, the fact that the amount of the provincial quota is small and that dairy farmers other than the plaintiffs were accorded industrial milk quotas. These are regula tory not commercial activities.
I did not understand counsel for the plaintiffs to be arguing that the defendants have gone outside the statutory authority accorded to them by the relevant legislation. While some paragraphs in the statement of claim do make peripheral suggestions of this nature (paragraph 24(k)—entries are false ly characterized; paragraph 24(l)—payments for condensed skim milk are falsely characterized; paragraph 24(m)—spoilage and milk lost in trans it are falsely characterized), in the context of the statement of claim as a whole these are mere window dressing and do not constitute the founda tion of any claim. Paragraph 25 of the statement of claim states:
The aforesaid conspiracy, agreements and arrangements are contrary to section 32 of the Competition Act, R.S.C. and are not required by any legislation pursuant to which the Milk Board derives its powers, and are therefore contrary to law.
But this cannot found a cause of action because, as noted above, it is not merely agency activity required by legislation which is exempt from oper ation of the Competition Act but also activity which is authorized by such legislation. I did not understand counsel to argue nor does the state ment of claim allege that the actions of which the plaintiffs complain were not so authorized. Thus, applying the test set out in the Operation Disman tle (supra) leads me to the conclusion that the plaintiffs' statement of claim discloses no reason able cause of action.
Given this conclusion, it is not necessary to deal with the alternative arguments which were put forward. Nevertheless, for the sake of complete ness I will make reference to some of them. It is
argued that certain aspects of the plaintiffs' state ment of claim read like a press release (paragraph 26) and therefore constitute improper pleading. This contention is well founded.
It is argued that in so far as the statement of claim is based on "tortious conspiracy" rather than section 31.1 of the Competition Act, it is not within the jurisdiction of this Court. This conten tion is well founded. Indeed I do not think counsel for the plaintiffs contests this position.
It is argued that in so far as the statement of claim refers to events which occurred more than two years prior to the filing of the statement of claim on September 4, 1987, such references should be struck out. Subsection 31.1(4) of the Competition Act provides for a limitation period of two years. Therefore the relevant limitation date is September 4, 1985. Paragraph 17 of the statement of claim refers to the fact that prior to the defen dants' practices (which paragraph 23 describes as having begun in 1975) there were 650 industrial milk producers in British Columbia, while now there are only 11. Paragraph 24(q) and 24(r) refer to events surrounding British Columbia's re-entry into the National Plan in November of 1984; as do paragraphs 28, 29 and 30. Paragraph 27 refers to the insolvency of one of the plaintiffs in 1983.
It is not of course necessary to decide how the two-year limitation period operates with respect to the pleadings in this case, given that they will be struck out in total for other reasons. Nevertheless, it seems to me there is an arguable case that the continuing activity of the defendants might consti tute a continuing infringement of section 31.1. The limitation provision is certainly not a ground on which I would be prepared to strike out all the references to pre-September 4, 1985 activity, with out hearing full evidence and argument thereon.
It is argued that the Industrial Milk Producers Association should be struck out as a plaintiff because it is unincorporated and therefore not a suitable entity. Its members are also listed as plaintiffs so this is a somewhat inconsequential criticism of the pleadings. The plaintiffs resist the
striking out because they want the name of their association as the "masthead" to their litigation. In my view the defendants' position is correct: the Association is not a proper party. I do not see any reason, however, why the individual and corporate plaintiffs could not describe themselves, in the style of cause, as members of the Industrial Milk Producers Association should they so wish.
A claim is also made that some of the remedies sought should be struck out (paragraphs (a), (b), (c), and (d) of the prayer for relief). This is based on the fact that section 31.1 of the Competition Act provides for the award of damages but does not specifically refer to the granting of declaratory or injunctive relief. Whether section 31.1 is limit ing in this regard or whether, when read together with the Federal Court Rules and the Federal Court Act [R.S.C. 1970 (2nd Supp.), c. 10], the equitable forms of relief are also available, is a debatable legal issue. It is not one that should be precluded at this stage by striking out the claims.
For the reasons given the plaintiffs' statement of claim will be struck out as disclosing no reasonable cause of action.
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