Lafortune v. Financière agricole du Québec

(Agriculture — Farm income stabilization — Compensation)

On appeal from a judgment of the Quebec Court of Appeal, 2014 QCCA 1891.

The appellants are hog and piglet producers who were participants in theProgramme d’assurance stabilisation des revenus agricoles (“ASRA Program”) administered by La Financière agricole du Québec (“La Financière”). The ASRA Program, which is described in the companion appeal, Ferme Vi‑Ber inc. v. Financière agricole du Québec, 2016 SCC 34, is designed to protect participants who are producers of 10 products or classes of products designated as “insurable”, including hogs and piglets, from having their income drop below a level defined in advance by La Financière. That level is reached where the net annual income of an average benchmark farm is less than the stabilized net annual income. Studies of production costs are conducted from time to time to adjust the net annual income of a benchmark farm and ensure that the compensation granted to participants reflects marketplace realities. The Groupe de recherche en économie et politique agricole of Université Laval was retained to conduct one such study in 2002.

In the years from 2006 to 2008, the appellants suffered financial losses and were surprised that this was the case, as they believed that the ASRA Program was supposed to guarantee them a positive annual income. They instituted an action in damages against La Financière in the Superior Court; in it, they submitted that the ASRA Program should be characterized as a contract of insurance within the meaning of the Civil Code of Québec and that the process that had been followed and the statistical and accounting methods that had been used in the economic study to calculate their compensation payments had yielded an unfair result. They argued that the compensation they had received was neither sufficient nor consistent with their reasonable expectations as parties to a contract of insurance. The Superior Court dismissed the appellants’ claim. It held that the ASRA Program is not a contract of insurance, that La Financière’s decisions were fair and that it had employed appropriate methods in making them. The Court of Appeal upheld that judgment.

Held (7-0): The appeal should be dismissed.

The ASRA Program is not a contract of insurance but simply an innominate contract that is subject to the general rules of private law. The rules governing the interpretation of the ASRA Program are the same ones that apply to any other contract, and in particular those set out in arts. 1425 to 1432 of the Civil Code of Québec. For the purpose of determining whether the decisions made by La Financière in performing its obligations and exercising its contractual powers are lawful, the applicable standards are good faith and contractual fairness. The public interest and the social objective being pursued by the government, which acts as a party to the contract, must also be considered both in interpreting the scope of the powers and rights under the contract and in determining whether the decisions made by the government authority in exercising those powers are lawful. It is this legal framework, not the rules applicable to contracts of insurance under the Civil Code of Québec, that applies to the ASRA Program.

Even if the ASRA Program was characterized as a contract of insurance, that would have no bearing on the outcome of the appeal. In Quebec law, the rule based on the reasonable expectations of the insured, to which the appellants refer, applies solely in its minimum dimension and can be used to interpret a provision only if there is an ambiguity. Yet the provision that is central to the dispute in this case is not at all ambiguous, but clearly gives La Financière the power to have recourse to a statistical study or to base its decision on any other data deemed to be relevant.

The trial judge did not err in refusing to award the producers damages for the alleged injury related to the compensation paid for the years from 2006 to 2008. The Université Laval study is not flawed. The appellants do not allege any specific error that might warrant the intervention of the Court with regard to the trial judge’s general finding that the study had been carried out competently and employing appropriate methods, and that this meant that the requirements relating to good faith had been met. The appellants’ compensation payments for the years from 2006 to 2008 were calculated in conformity with the requirements of good faith and contractual fairness that applied both to La Financière and to the producers as contracting parties and participants in the ASRA Program.

Reasons for Judgment by Wagner and Gascon JJ. (McLachlin C.J. and Abella, Cromwell, Karakatsanis and Côté JJ. concurring)

Neutral Citation: 2016 SCC 35

Docket Number: 36210

http://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16080/index.do 

Ferme Vi-Ber inc. v. Financière agricole du Québec

(Agriculture — Farm income stabilization — Compensation)

On appeal from a judgment of the Quebec Court of Appeal, 2014 QCCA 1886, 2012 CarswellQue 666 (WL Can.).

La Financière agricole du Québec (“La Financière”) is a legal person established in the public interest under the Act respecting La Financière agricole du Québec. Its mission is to support and encourage the development of the agricultural and agro‑food sector within the perspective of sustainable development. For that purpose, it has set up income protection, insurance and farm financing programs. The appellants are Quebec farm producers that participated voluntarily in theProgramme d’assurance stabilisation des revenus agricoles (“ASRA Program”) administered by La Financière. The ASRA Program protects participants from having their income drop below a level defined by La Financière for 10 agricultural products or classes of products designated as “insurable”. That level is reached where the “net annual income” of an average benchmark farm for an insured product is less than the “stabilized net annual income”, which corresponds to a percentage of the average annual regular salary of a skilled worker in Quebec. In short, the purpose of the ASRA Program is to guarantee that an average farm producer never earns less than a predetermined percentage of the average income of a skilled worker. Each producer participating in this voluntary program must pay a fixed contribution per unit of a designated product, agree to participate for a minimum of five years and insure all of their annual production for each designated product. La Financière makes a contribution to the program’s fund — the Fonds d’assurance stabilisation des revenus agricoles, of which it is the trustee — equal to twice the contributions paid by each participant. The amounts in the fund are used to finance the payment of compensation to participants.

The appellants contested certain decisions made by La Financière in determining their compensation payments for 2007. Those decisions were related to the calculation method chosen by La Financière, in determining the compensation payable under the program, to take account of additional income received as farm financial assistance from the federal government. Both the parties and the courts below used the word “linkage” to characterize the process of taking such income into account, which is provided for in s. 88(3) of the ASRA Program. Amounts so received are linked either “collectively” — on the basis of the amounts the average benchmark farm would have received — or “individually” — on the basis of the amounts each ASRA Program participant actually received from the various governments. La Financière deducts the amounts so “linked” from the compensation. The appellants argued that the ASRA Program was a contract of insurance and that La Financière had, by collectively linking certain amounts received as financial assistance, improperly incorporated additional income into its calculations so as to reduce their compensation under the program in violation of the terms of the contract, which had to be interpreted on the basis of their reasonable expectations as insured persons.

The appellants applied to the Superior Court, which allowed their action, characterizing the ASRA Program as a contract of insurance and ordering La Financière to pay them substantial additional compensation for 2007. The Court of Appeal set aside that judgment, finding that the ASRA Program was not a contract of insurance and that the impugned decisions were reasonable.

Held (6-1): The appeal should be dismissed.

Per McLachlin C.J. and Abella, Cromwell, Karakatsanis, Wagner and Gascon JJ.:

Despite the broad discretion conferred on La Financière by the Act respecting La Financière agricole du Québec and the ASRA Program, the program cannot be considered simply a government program that is governed by public law. As can be seen from a review of its structure and how it functions, it is different from two classic examples of social programs that fall under public law: social insurance programs and agricultural subsidies. Unlike a social insurance program, it applies to only one sector and is neither universal nor compulsory, and its benefits are not calculated using simple formulas applicable to broad classes of persons and situations. It includes several contract‑style clauses for terminating the contract for predetermined reasons, which create acquired rights for the current year. Moreover, La Financière’s considerable management autonomy is limited by the need to comply with the contractual conditions that bind it and the participants. These characteristics, together with the contributions required from participants, also distinguish the ASRA Program from simple agricultural subsidy programs granted on an ex gratia basis and without consideration.

This program in fact has the characteristics of an administrative contract, that is, a contract to which a public authority is a party, and all the rules needed to guide the actions of the parties can be found in private law. However, administrative contracts are distinguishable from contracts between private parties, since parity between the parties does not always exist. Where the government’s contractual relations are concerned, therefore, the public interest must be considered in interpreting those relations and may weigh in favour of a broader discretion in implementing the government scheme, especially where that scheme has a social objective. These are not principles of public law, but considerations related to the object of the contract that may influence the interpretation of the scope of the contractual powers of the public authority in question. The government’s discretion nonetheless has its limits. In the context of an administrative contract, those limits do not derive from the public law duty of procedural fairness but are instead based on good faith and contractual fairness, which flow, in Quebec law, from the application of arts. 6, 7, 1375 and 1434 of the Civil Code of Québec (“C.C.Q.”).

Furthermore, the ASRA Program is an innominate administrative contract that does not have the three main characteristics of a contract of insurance set out in art. 2389 C.C.Q., namely (i) an obligation on the client to pay a premium or assessment; (ii) the occurrence of a risk; and (iii) an obligation on the insurer to make a payment to the client if the insured risk occurs. It cannot therefore be subject to the rule of interpretation based on the reasonable expectations of the insured that applies to a contract of insurance and, in Quebec law, applies solely in its minimum dimension, that is, to resolve any ambiguity in the terms of the contract in favour of the insured.

For the purpose of determining whether it was open to La Financière to collectively link the amounts received under the federal assistance programs at issue in this case, it is the rules of contractual interpretation set out in arts. 1425 to 1432C.C.Q. that apply. Section 88(3) of the ASRA Program does not specify how compensation received under government assistance programs is to be linked. It states only that, for this purpose, La Financière must consider “any amounts to which a participant is entitled” under such programs. When properly interpreted in light of the contract as a whole (art. 1427 C.C.Q.) and La Financière’s past practices (art. 1426 C.C.Q.), s. 88(3) of the ASRA Program does not require that amounts be linked individually but, on the contrary, gives La Financière the discretion to decide what linkage method to employ.

The general structure of the program and the contract as a whole support the conclusion that collective linkage is normally required. In fact, a reading of s. 88(3) of the ASRA Program in the context of the program as a whole, which is based on the collective concept of a benchmark farm, leads to the conclusion that collective linkage must be preferred. Section 88(3) is in Division XI, the title of which refers to the collective concept of “Farm Models”. Moreover, ss. 86 and 92 of the ASRA Program clearly state that the net annual income used to calculate the compensation, which includes amounts received from government sources, is that of a “specialized benchmark farm for each of the products or classes of products”.

Although La Financière has sometimes linked amounts individually in the past, it appears from the evidence that decisions to do so were usually based on the number of participants that received the amounts in question and not on the fact that government assistance had been paid directly to producers. As a result, neither the contract as a whole nor past practice supports a conclusion that La Financière was under a statutory or contractual obligation to link the amounts individually in this case.

Although La Financière had the discretion to link the amounts collectively, it was required to exercise that discretion in accordance with the requirements of good faith and contractual fairness. The decision to link the amounts collectively in this case was made following extensive consultations with representatives of farm producers and after impact simulation studies had shown that most of the program’s participants would benefit from that decision. By linking them collectively, La Financière also favoured the smallest producers. This situation was consistent with La Financière’s mission. Finally, the decision to link the amounts collectively was compatible with the specific features of the federal programs at issue. La Financière thus exercised its powers in accordance with the requirements of good faith and contractual fairness. It was open to La Financière in fixing the compensation payable to the appellants to choose to link the amounts they had received under the relevant federal financial assistance programs collectively, which means that the appellants are not entitled to the amounts they claim.

Per Côté J. (dissenting in part):

The only determinative issue in this case is one of contractual interpretation. Regardless of whether the contract is characterized as a contract of insurance or as an innominate contract that falls under both public law and private law, the result is the same. It is true that the appellants participated voluntarily in the ASRA Program, but insofar as that program involves a contract of adhesion imposed by La Financière, that is, a contract that is not negotiated with participants, the characterization makes no difference. If there is any ambiguity, it must be resolved in favour of the adhering party in accordance with art. 1432 C.C.Q. The rule of interpretation of reasonable expectations adds nothing to the existing rules of interpretation.

The reason why producers participate in the ASRA Program is simple: they expect to receive the full compensation they are owed in return for paying their contributions. When La Financière deprives them of all or part of the compensation to which they are entitled, judicial intervention is warranted. The common intention of the parties, the overall scheme of the ASRA Program and past practices confirm that La Financière contravened the program in deciding to subtract excessively high amounts of notional income from the amounts to which participants were otherwise entitled.

It sometimes happens that during the year individual participants receive additional amounts to which they are personally entitled from other government agencies. The program expressly authorizes La Financière to take such amounts into account in its calculations to ensure that participants do not receive double compensation for a single loss. However, although s. 88(3) of the ASRA Program does authorize La Financière to ensure that participants do not receive double compensation, it does not permit La Financière to attribute notional amounts to some participants in order to overcompensate other participants for policy reasons.

In this case, not only did the chosen linkage method not make it possible to avoid double compensation, it also prevented many participants from receiving the full compensation to which they were entitled under the ASRA Program. While it is true that La Financière’s mission is broad, that mission does not authorize it to subvert the purpose of s. 88(3) by assuming a discretion it does not have.

Once the ASRA Program had been adopted, La Financière had to comply with the rules of the game it had itself established. In the case of amounts received directly from other granting organizations that can be considered to be annual receipts, s. 88(3) provides that, in calculating annual receipts, La Financière must take into account “any amounts to which a participant is entitled on the basis of the volume of marketed products and secondary products”. La Financière may not therefore penalize a participant for amounts to which he or she is not entitled owing to the inherent limits of those other programs. By referring to a “participant”, s. 88(3) requires La Financière to take into account the amounts that were actually received. The definition set out in s. 2 refers to an individual participant in the ASRA Program, not to a “benchmark farm”, and the same is true of the definition of “annual receipts”. If La Financière disregards the inherent limits of those programs and if the amounts attributed to participants bear no relation to the amounts they actually received, it is in breach of its contractual obligations.

The evidence shows that, where amounts have been granted directly to a producer under another program in the past, La Financière has never used a linkage method — whether collective or individual — that had the effect of negating the compensation to which participants were entitled by attributing amounts that disregarded the inherent limits of those programs. La Financière’s choice in the cases at issue is therefore also inconsistent with its past practices.

What is problematic in this case is that La Financière’s action had the effect of overcompensating certain participants to the detriment of the others, that it disregarded the impact of the caps under the federal programs on the insurance coverage of participants and that the amounts it ultimately attributed bore no relation to the amounts that had actually been received, not that it chose a particular linkage method. This was the conclusion reached by the trial judge, and there is no reason to intervene in this regard.

The producers’ appeal should be allowed, but the trial judge’s award should be reduced by subtracting from it an amount equal to the contributions the producers would have had to pay in exchange for higher compensation.

Joint Reasons for Judgment by Wagner and Gascon JJ. (McLachlin C.J. and Abella, Cromwell and Karakatsanis JJ. concurring)

Reasons Dissenting in Part by Côté J.

Neutral Citation: 2016 SCC 34

Docket Number: 36205

http://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16079/index.do