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.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.