IN THE SUPREME COURT OF NOVA SCOTIA
Citation: Oak Island International Group Ltd. v.Canada (Attorney General), 2004 NSSC 179
Date: 20040923
Docket: 142279
Registry: Halifax
Between:
Oak Island International Group Limited
Plaintiff
v.
Attorney General of Canada
Defendant
Judge: The Honourable Justice Hilroy S. Nathanson
Heard: May 1, 2, 5, 6, 7, 12, 13, 14, 15, 19, 20, 21, 22, 23, 26, 27, 28, and 29, June 2, December 1, 2, 3, 4, 8, 9, 10, 11, 15 and 16, 2003, in Halifax, Nova Scotia
Last Written
Submission: April 7, 2004
Counsel: Douglas A. Caldwell, Q.C. and Lloyd Berliner, Esq.,
on behalf of the Plaintiff
Reinhold M. Endres, Q.C. and James Gunvaldsen-Klaasen,
Esq., on behalf of the Defendant
Nathanson, J.:
[1] Oak Island was a participant in an emerging Canadianized silver hake fishery, focussed in part on development of an international market for this fish. It alleges that agents of the federal Crown deliberately made false statements and initiated actions with the intention of harming it and forcing it out of the silver hake fishery, as an eventual result of which it was compelled to declare bankruptcy. Oak Island claims damages for misfeasance and abuse of public office, wrongful interference with its business relations or economic interest, and wrongful interference with its contractual relations.
ISSUES
[2] The parties originally submitted for adjudication a series of eight issues. At the end of the first 16 days of trial, the Plaintiff rested and counsel for the Defendant moved for non-suit or dismissal, pursuant to C.P. Rule 38.08, on the ground that no case had been made out. The Court heard oral submissions and, in a brief oral judgment dated June 27, 2003, granted the application for non-suit with respect to the issue of wrongful interference with business relations or economic interests.
[3] There remains for adjudication the following seven issues:
1. Whether the Plaintiff was eligible to participate in the 1995 developmental silver hake fishery.
2. Whether there is any property interest in a fishing licence and/or an allocation of quota sufficient to support an action for damages.
3. Misfeasance and abuse of public office.
4. Wrongful interference with contractual relations.
5. Whether Defendant’s activities caused or contributed to Plaintiff’s losses.
6. Whether there is proper basis for a claim for lost profits.
7. Damages.
FACTS
(A) The Parties
[4] The parties have agreed to the following descriptions of themselves.
[5] The Plaintiff, at all times material hereto, was and is a body corporate, incorporated under the laws of Nova Scotia and, since February 17, 1997, is an undischarged bankrupt. This proceeding is undertaken with the express consent of the Plaintiff’s Trustee in Bankruptcy and the Plaintiff’s primary creditors.
[6] The Defendant, the Attorney General of Canada, represents the Crown. The Crown regulates and administers the fishery through the Minister of Fisheries and Oceans and the Department of Fisheries and Oceans. Regulation and administration is undertaken pursuant to the Fisheries Act, R.S.C. 1985, c. F-7, as amended, the Department of Fisheries and Oceans Act, R.S.C. 1985, c. F-15, as amended, and the Coastal Fisheries Protection Act, R.S.C. 1985, c. C-33, as amended. The Crown will be referred to hereinafter as “DFO” and/or the “Defendant”. The Minister of Fisheries and Oceans will be referred to hereinafter as the “Minister”.
(B) Background: The Fishery
[7] Silver hake is a small groundfish. It is soft and delicate; it is easily damaged and does not keep well. Because of the perishable nature of silver hake and the distance of the fishing grounds from shore, traditionally the only feasible method of harvesting was by factory freezer trawlers—typically Russian or Cuban. They enabled fish to be frozen at sea and then landed either for processing or for export. The traditional method of marketing was as whole round, either fresh or frozen, for which little equipment is required. Over time, the industry developed additional processed products such as headed and gutted (sometimes referred to as “H&G”), fillets, minced and surimi (imitation products).
[8] Silver hake was traditionally fished off the coast of Nova Scotia by foreign trawlers for Cuba, Russia and Eastern European countries. After Canada took control over the 200 mile offshore limit in 1977, the number of foreign vessels fishing for silver hake off the Scotian Shelf was significantly reduced, and was restricted to an area along the slopes of the Scotian Shelf known and commonly referred to as the “silver hake box”. Canada was a member of the Northwest Atlantic Fisheries Organization (hereinafter “NAFO”) through which 15 countries managed fish stocks beyond Canada’s limit. Participation was important because NAFO’s conservation efforts affected fish stocks within Canadian waters. As part of its participation in this international organization and as a signatory to the United Nations Law of the Sea Convention, Canada made available to other countries—of which Russia, Japan and Cuba are examples—access to species of fish such as silver hake which were considered surplus to Canadian needs. In the case of Cuba, with which Canada had friendly fishing relations, Canada allocated to it a national quota. Cuba supported Canada in a disagreement with Spain in 1994. Eventually, the dispute was settled and a subsequent meeting of NAFO confirmed the conservation scheme proposed by Canada.
[9] Royalty charters were a problem during the 1980's. Brokers sold fish caught by foreign vessels in Canadian waters directly for consumption in other countries, without being landed in Canada. Such over-the-side sales (hereinafter “OSS”) yielded no benefits to Canada—not to fishermen nor processors nor business people. Domestic fishers were particularly upset about foreign fishing in Canadian waters.
[10] There was no significant Canadian participation in the silver hake fishery until about 1990. Harvesting and processing costs were relatively high, and markets were limited.
[11] In Canada, the silver hake fishery was, and still is, regulated by DFO. A Deputy Minister, who is authorized to act for the Minister, directs the activities of the Department. It is a large Department, having approximately 11,000 employees in five regions, a budget of $1.3 million, and some 1,000 offices. Reporting to the Deputy Minister are five Assistant Deputy Ministers as well as the Regional Director-Generals for the various regions.
[12] The Scotia-Fundy Region of DFO created a silver hake working group, the mandate of which was to develop proposals, tender advice, review applications and monitor results in the silver hake fishery. It was headed by Ben Ferguson, and included Robert Sciocchetti among others. It reported to Peter Partington who, in turn, reported to Regional Director-General Neil A. Bellefontaine.
[13] The early 1990's were turbulent years for the fisheries of Nova Scotia. Traditional groundfish stocks were declining. Many fishermen were unemployed. Processing plants, particularly those in the southwestern part of the province, were closed. Processing workers were forced out of work.
[14] In 1990, DFO initiated the Silver Hake Development Program. The stated objective was to encourage Canadian participation in the fishery. Canadianization was defined as utilizing Canadian vessels, processing plants and companies to harvest, process and market silver hake.
[15] In or about 1990, DFO initiated a domestic experimental fishery. Inshore vessels, up to 45 feet in length, fished in two areas lying between the silver hake box and the shore of Nova Scotia known as the Emerald Basin and the LaHave Basin. The silver hake box, located some 80 miles offshore, was considered to be too far offshore for such small vessels. These vessels fished a portion of a domestic allocation.
[16] As a result of increasing awareness of declining ground fish stocks, in or about 1993, DFO set up a panel to provide independent advice to DFO on the use of foreign vessels in Canadian waters, on ways to Canadianize the silver hake fishery, and related matters. Dr. Leslie Harris of Memorial University was appointed Chairman, and the panel became known as “the Harris Panel”.
[17] After an incident in 1993 involving the blockading of a Russian reefer vessel in Shelburne Harbour, the Silver Hake Workshop came into existence to deliberate achieving Canadianization. One of the results of this Workshop was the establishment by the industry, under the auspices of DFO, in February, 1994, of the Silver Hake Canadianization Committee made up of industry members and presided over by a neutral chair. Its purpose was to help develop the inshore silver hake fishery including its Canadianization and commercialization by providing alternate harvesting opportunities and onshore processing jobs. It also helped manage and co-ordinate experimental fishing in the Emerald and LaHave Basins. In addition, it was expected that the Committee would resolve inter-fleet conflicts, and provide advice in the course of DFO’s initiatives to Canadianize and commercialize silver hake harvesting and processing. Upon request, DFO provided resource people, and one official of DFO attended meetings as its representative but not as a voting member.
[18] The Canadianization effort evolved gradually. A principal instrument of Canadianization was the annual allocation of developmental quota by DFO to Canadian applicants out of the pre-determined total allowable catch (hereinafter “TAC”). DFO invited proposals from interested parties. The Minister granted an allocation of silver hake from the annual TAC, based on an evaluation of a proposal’s promise for successful participation and efforts to Canadianize the silver hake fishery.
[19] A fishing licence was required in order to fish the allocation. All allocations and licences were conditional and were issued at the sole discretion of the Minister. In the early years of the Canadianization initiative, to and including 1995, a percentage of the silver hake catch and all by-catch (i.e., other species) was required to be landed and processed in Nova Scotia.
[20] Canadian recipients of quotas often formed relationships with foreign fishing fleets which were also allocated amounts of quota. Foreign vessels fishing silver hake under a foreign quota were required to be licenced and pay fees. However, if they contracted with Canadian quota holders, they could fish the Canadian’s developmental allocation without paying the fees. A Canadian quota holder might pay its fees and fishing costs by giving up a portion of the fish caught under its developmental quota to the foreigner.
[21] In order to enter into an arrangement of this type, the foreign vessel and the Canadian quota holder were required to enter into a tripartite Memorandum of Agreement (hereinafter “MOA”) with DFO, which set out the terms of their arrangement. The terms included a requirement that a percentage of the catch be landed for processing. DFO monitored compliance with the MOA through an annual compliance audit conducted by the accounting firm of Deloitte & Touche.
[22] Cuban vessels had been fishing in Canadian waters since about 1975. In 1991, they had started to fish the allocation of D’Eon Fisheries at the same time they fished their own national allocation. In 1994, they also started to fish the allocation of Oak Island.
[23] A DFO policy, which one witness described as another instrument of Canadianization, dealt with the OSS of fish to foreign vessels. The objective of the policy was to provide inshore fishermen with an alternative source of demand for their catches, which would be purchased directly by foreign vessels in circumstances where, due to either structural problems or crisis situations, there was insufficient demand from domestic buyers or processors. For a particular OSS program to be approved, DFO set a number of guidelines, including a requirement that management of a program must be handled by a fishermen’s or processors’ organization.
[24] The transfer of fish at sea, from one vessel to another, was permissible only with a transhipment licence issued by DFO. Such a licence was required whether the vessels were foreign or Canadian.
(C) Background: Plaintiff’s Circumstances
[25] Before 1992, Oak Island had limited involvement in the silver hake fishery as a broker. It participated in the silver hake developmental fishery in 1992 for the first time.
[26] Oak Island’s chief competitor in the developmental fishery was D’Eon Fisheries Ltd. D’Eon had engaged in this fishery since 1989, when DFO granted the first developmental allocation. It owned (or leased) and operated a fish processing plant. It invested capital to equip the plant to process silver hake. In 1993 it received financial assistance provided by the federal government for the purchase of equipment.
[27] Peter A. Panagapko was the sole shareholder, officer and director of Oak Island, which was incorporated in 1989 as Oak Island Fisheries Limited, and changed in 1994 to its current corporate name. His educational background is in engineering, and he has studied international marketing. His experience in the processing of fish goes back to 1987.
[28] In 1993, Panagapko and other principals incorporated Manomet Bay Inc. to process fish acquired from southwest Nova Scotia. It owned a plant in Boston which, in 1995, processed a volume worth U.S. $6,000,000. Panagapko sold his interest in 1997. He incorporated Manomet Bay (Canada) Ltd., which still operates a plant in Sambro for processing silver hake.
[29] Capt. David Wooldridge was associated with Peter Panagapko in the silver hake fishery. He has a nautical education and is a master mariner. At various times he has been a ship’s captain, fisheries researcher and developer, entrepreneur and consultant. He started his own company, AquaFin, circa 1991, which has shipped fish to Egypt. He and AquaFin first became involved with Panagapko and Oak Island in 1992. The following year the two companies came together in an informal partnership. In 1994, Wooldridge became an employee of Oak Island. He was involved in Oak Island’s efforts to open markets in the Middle East, to set up a barter arrangement with Cuba, and the processing of silver hake.
(D) Highlights of 1994
[30] The first meeting of the Silver Hake Canadianization Committee was held at the Blue Wave Seafoods plant at Port Mouton on February 8, 1994. A representative of DFO was in attendance, as was Sylvain D’Eon of Blue Wave Seafoods / D’Eon Fisheries. The participants agreed to approach Ernest Bolivar, Mayor of Lunenburg, as a potential Chairman. A budget of $20,000 was discussed. Representatives indicated that they would assist with funding where possible. Blue Wave Seafoods Inc., which was related to D’Eon Fisheries, offered to provide secretarial/treasury services and meeting facilities.
[31] The Committee later retained the services of the firm of Coopers & Lybrand as a consultant. It prepared a Proposal to Canadianize and Commercialize the Silver Hake Fishery in Atlantic Canada dated March 8. The introduction of this proposal mentions that the Committee comprises representatives and active players in the harvesting and processing sectors, and the federal and provincial governments. The members of the Committee are listed, including Sylvain D’Eon of Blue Wave Seafoods and D’Eon Fisheries; David Lemon, of DFO; and Jeff Mullen, of ACOA.
[32] In a letter dated March 10, 1994, the Chairman of the Harris Panel responded to the Minister’s request for advice by recommending, inter alia, that DFO develop a strategic plan and timetable for commercialization of the silver hake fishery, and further recommended:
In preparation for the design of such a strategic plan, we propose that in the 1994 fishing year the Department should require, prior to the granting of licenses for a developmental fishery, and in addition to a minimum processing stipulation, clear and measurable performance targets. To this end participants should be required to provide acceptable business plans outlining planned efforts regarding processing technology, product, development, marketing and harvesting technologies. As well, a report on results achieved in respect of each of those, should be required in conjunction with the performance audit conducted on each year’s fishery.
[33] On April 20, Regional Director-General Bellefontaine informed Seafreez Foods Inc. that, because Seafreez had fallen short of the requirement to land 10% of its total catch for processing in Canada, it was not eligible for an allocation in 1994, although it might be considered for an allocation in 1995.
[34] Oak Island’s 1994 allocation was fished by vessels of Flota Cubana de Pesca, that is, the Cuban Fishing Fleet (hereinafter “the Cuban Fleet”). Each of the Cuban Fleet’s fishing vessels held a foreign fishing vessel licence issued by the Minister under the Coastal Fisheries Protection Act and Regulations. Incorporated into the conditions attached to these licences were the terms of the MOA entered into among Oak Island, the Cuban Fleet and DFO.
[35] The Cuban Fleet also fished its own national quota under Canadian licence for silver hake in the silver hake box. Fishing vessels of the Cuban Fleet also fished for D’Eon.
[36] For 1994, Oak Island was one of five companies which were awarded allocations of silver hake. Its quota was 1,500 mt (i.e., metric tonnes). Only it and D’Eon, which was awarded a quota of 15,000 mt, actively participated in the fishery that year. Oak Island contracted the Cuban Fleet to fish its quota, as did D’Eon Fisheries. Oak Island ran into difficulty with the Cuban Fleet over a proposed exchange of Cuban silver hake for other marine species. The barter arrangement was approved by DFO. The Cuban Fleet caught only 357 mt, that is, 24% of Oak Island’s quota, and 6,868 mt, that is, 46% of D’Eon’s quota, as the result of a late start and early closure of the season.
[37] Oak Island and AquaFin had a firm order for 7,000 mt of frozen hake for Egypt. Their combined quotas of 4,200 mt, even if totally caught, would be insufficient to fill the Egyptian order. Therefore, they proposed to buy from Cuban vessels fishing for D’Eon Fisheries sufficient frozen product to fill the Egyptian order, after 15% of the catch was landed in Canada. The Cubans were willing because, in exchange, they would receive a larger amount of blue whiting, which is a cheaper product, to bring back to Cuba. In a letter dated June 2, Panagapko informed Regional Director-General Bellefontaine that:
“Cuba owns 85% of the silver hake catch for 15% ashore; they need a level of comfort to know that they will not loose [sic, lose] their fishing previlages [sic, privileges] in Canada, by entering into this transaction”.
After some lengthy consideration, DFO approved the proposed transaction. Then the Cuban Minister of the Fishing Industry took the position that the substituted fish was not suitable for Cuban consumption, and the Vice Minister wrote to Panagapko stating that the catch of the Cuban Fleet could not be subject to any kind of exchange since it was already committed to be sold in Cuba. In any event, without going into further detail, it need only be noted that the government of Cuba was insulted and, upon the advice of the Canadian Ambassador to Cuba, AquaFin and Oak Island tendered their formal apology. Because of a low catch, they were unable to completely fill the Egyptian order, and they lost a substantial amount of money on the transaction.
[38] Oak Island had not been involved in the creation of the Silver Hake Canadianization Committee, and was not a member of it as was its chief competitor, D’Eon Fisheries. Jerry Conway of DFO testified that Oak Island was invited to become a member, and did join the Committee but, in fact, this was not the case. Panagapko testified that Oak Island believed that DFO “had the say” regarding membership of the Committee. It sought to join. On August 11, Oak Island wrote to the Chairman, stated that it had a market for 25,000 mt of silver hake annually for at least the next 5 years, and requested a meeting to discuss its proposal on Canadianization and to obtain support for an amount of quota which it would seek to have allocated out of the TAC for 1995 and future years. The Chairman replied promptly, stating that the Committee was primarily intended to work with harvesting and processing entities and both levels of government, and was not designed to assist in obtaining quotas for silver hake for private operators or obtaining market product.
[39] Conway testified upon Discovery that the Committee also gave advice to DFO, including advice as to how the annual quota would be divided among various sectors, but not as to the quotas awarded to individual applicants.
[40] Oak Island wrote to Regional Director-General Bellefontaine that it had been informed by fishermen that assistance was in place either to buyers or fishermen for silver hake being harvested by Canadian vessels and, therefore, requested that it be informed immediately of the details and how it could qualify because it was making arrangements to use 12 to 17 Canadian draggers to harvest its silver hake quota in order to meet its market obligations and move toward Canadianization.
[41] On August 19, Oak Island wrote to the Minister stating that it and AquaFin were trying to utilize 10 Canadian vessels to harvest silver hake in an experimental Fall fishery off their 1994 quotas in an effort to move closer to Canadianization. If successful, the operation could result in the use of up to 30 Canadian vessels harvesting approximately 12,000 mt in August, September and October of 1995, in the Emerald and LaHave Basins, in addition to harvesting in the silver hake box. Having developed markets for up to 25,000 mt of silver hake annually, the two companies were prepared to proceed if they and their fishermen could have a guarantee to cover expenses if the fish were not there.
[42] Regional Director-General Bellefontaine replied that the Silver Hake Canadianization Committee was currently carrying out experimental harvesting of silver hake using 45-foot Canadian draggers with financial assistance from the Atlantic Fisheries Adjustment Program. As no more funds were available under that Program, he urged Panagapko to discuss his plans with the Canadianization Committee to see what kind of cooperation was possible with respect to additional vessels participating in the experimental project. He said that he understood that Panagapko had been invited to attend the next meeting of the Committee. In fact, Panagapko was not invited until March of the following year.
[43] Deloitte & Touche carried out a compliance audit and prepared a report of the 1994 developmental silver hake fishery dated October, 1994. Among its significant findings were the following:
· Due to a late start and an early closure, catches of the two Canadian companies actively participating in the fishery, D’Eon Fisheries and Oak Island, were below expectations.
· Both companies were in compliance with landing requirements for silver hake, although a large portion of both companies’ landings remained unprocessed in inventory.
· D’Eon Fisheries has still not completely fulfilled its 1993 processing commitment.
· D’Eon Fisheries has made significant capital expenditures, experimental production and processing activities. There is no substantial evidence of a commitment to develop the fishery by Oak Island, whose efforts have been focussed primarily on marketing whole round silver hake obtained from the Cuban Fleet. The Canadian landings appear to be incidental to Oak Island’s primary business.
[44] Cross-examination at trial revealed that hand-written notations on the face of the draft report had resulted, after review, in some changes, most particularly the deletion of a statement that D’Eon Fisheries had not fulfilled its 1993 commitment with respect to processing. Other notations had not been incorporated into the final report. The Court ruled that certain testimony referring to the person who had allegedly made the hand-written notes was hearsay.
[45] In November, 1994, the Minister approved criteria for 1995 quotas which were unchanged from 1994.
[46] Earlier in the year, the Harris Panel had requested that a strategic plan be prepared for its consideration prior to advising on the fishery for the following year. As a result, the Scotia-Fundy Region of DFO had contracted Canadian Fishery Consultants Limited to review past developments in the fishery, consult industry participants, and assess the potential for a fishery owned and operated by Canadians. The resulting report, delivered in November, is hereinafter referred to as the “CFCL report”. Among a large number of observations and recommendations, only one is noted here:
The Canadianization of silver hake must be market pulled not resource pushed.
At the direction of DFO officials in Ottawa, who wanted to review the CFCL report, it was not presented to the Harris Panel, but was ordered in early 1995 to be released and published.
[47] A management plan for 1995 proposed by Regional Director-General Bellefontaine to Assistant Deputy Minister Chamut included the following points: establish a provisional TAC of 50,000 mt for silver hake, of which 35,000 mt would apply to the developmental program; the 1994 developmental allocation of 15,000 mt to D’Eon Fisheries and 1,500 mt to Oak Island be rolled over for 1995, and the 1994 criteria be used for 1995; this approach would permit 1994 participants the latitude to make arrangements for harvesting; the 1995 criteria should be circulated to industry immediately, and requests for proposals from proponents including full business plans should be solicited.
[48] In the meantime, Oak Island worked to renew its contractual arrangement with the Cuban Fleet for the coming year. In a letter dated November 4, Panagapko and Wooldridge informed the Deputy Minister of Fisheries and the Director of the Cuban Fleet that they expected that the silver hake TAC would be 50,000 to 60,000 mt, an amount recommended by the Fisheries Resource Council of Canada, that Oak Island’s allocation would be not less than 10,000 mt, and that the fishing season would commence not later than March 1, 1995. They noted that the compliance audit had reported that Oak Island was in full compliance with DFO criteria. Based on the foregoing, Oak Island and AquaFin offered their initial proposal, which included the following relevant points:
1. Oak Island and AquaFin would work exclusively with the Cuban Fishing Fleet in developing the Canadian silver hake fishery;
2. The Fleet would provide vessels to harvest the silver hake quota(s) made available to them being not less than 10,000 mt;
3. The Fleet would pay certain stated costs and would “tape all cartons” and stamp “quota dates” on cartons, in order to comply with rigid Egyptian import regulations;
4. 15% of the silver hake catch harvested under this contract would be landed at a port in Shelburne, and the remaining 85% would belong to the Fleet;
5. The parties agreed to barter a portion of the quota to be harvested under the contract being 5,000 mt of frozen silver hake in two shipments in exchange for another acceptable frozen fish species such as horse mackerel and mackerel.
[49] The silver hake TAC was set at 60,000 mt. Of this amount, the Minister set the developmental quota at 40,000 mt. At the same time, the Minister approved criteria and operational guidelines for the 1995 developmental program. These included the following:
1. Proposals must be from either an existing registered Canadian company that is at least 51% Canadian owned and controlled, a Canadian fishing vessel owner, or a fishermen’s association, which must own or have direct access to Canadian fish processing facilities.
2. Allocations will be authorized for the 1995 fishery, and eligibility for participation in future years will be subject to full compliance with the performance criteria as specified.
3. All proposals must include a mandatory business plan provision, which must enumerate points including, in regard to capital investment, planned efforts regarding processing technology, product development, marketing and harvesting technology, including the planned investment amount.
4. Participants utilizing foreign vessel charters will be required to land and further process 15% of silver hake catches onshore. Allocations in 1995 will depend on performance in 1994. Criteria for evaluation of proposals include the following: the contribution of the proposed project to the continued advancement of the development of the Canadian silver hake fishery; the provision of market access for Canadian silver hake product; and the proportion of silver hake to be purchased via OSS from Canadian fishermen. Participants in the 1995 silver hake development program must adhere to operating guidelines including the following: projects are subject to a confidential audit upon termination; allocations are valid for 1995 only, and DFO retains the sole right to re-assign, re-allocate or re-allot allocations; allocations will be subject to a May review with potential re-allocation by DFO on May 15, including the provision for an increase in allocations to successful projects while the fishery is underway; all participants must sign a Memorandum of Agreement with DFO. Once a particular proposal is approved, any substantial change will invalidate the original proposal. [emphasis added]
[50] The proposal of Oak Island and AquaFin to the Deputy Minister of Fisheries and to the Cuban Fleet was modified in a letter dated November 24. The modified proposal was much the same as the initial proposal although there were some changes. Worthy of note is a provision that the Fleet would provide from four to six vessels to harvest quota(s) of not less than 10,000 mt of silver hake; after 15% of the catch was landed at Shelburne, the remaining 85% which was over 23 cm in overall length would be bartered up to a maximum of 7,000 mt.
[51] In a memo from Ben Ferguson to Regional Director-General Bellefontaine dated December 13, regarding the impact of the Harris Panel’s current recommendations, Ferguson stated with respect to one proposed program:
As far as Oak Island is concerned, they will not be interested in this program at all. Their only interest to date was in the ability to broker significant quantities of silver hake in foreign markets without being landed or processed in Canada.
A similar comment was made 10 days later in a memo passing between the same parties:
As far as Oak Island is concerned... they were only interested in marketing foreign-caught and processed fish in foreign markets and do not presently own processing facilities.
[52] Oak Island and AquaFin jointly requested the Minister to grant them an increased 1995 allocation. Panagapko wrote a letter to the Minister on December 14 containing the following paragraph:
....we have experienced a great loss of approximately Four Hundred and Fifty Thousand Canadian dollars in 1994, trying to progress the fishery and complete on the Egyptian market which we worked to establish since 1989. These loses included incurred charter costs for a Panamanian flag reefer vessel and other set backs that were beyond our control. Although we have experienced a serious set back, we managed to meet all DFO criteria, and remain committed to the development and Canadianization of this fishery. We have made arrangements via a Letter of Intent from the Cuban Fishing Fleet to harvest a minimum 10,000 mt, and the procurement of additional Cuban vessels to process silver hake harvested by several Nova Scotia draggers located in south western Nova Scotia. We have arranged for the sale of 7000 mt in the sensitive Egyptian market for a record high price and would like to receive an allocation that would permit us to recover our losses incurred in the 1994 silver hake fishery. [emphasis added]
[53] Dr. Harris reported the recommendations of the Harris Panel to the Minister on December 22. The central recommendation, after considering several scenarios, was in favour of direct foreign allocations:
Let us examine the current system, how it works and to whose advantage. Let us suppose a silver hake TAC of 60,000 tons. The demands of the Canadian domestic fishing fleet will be satisfied with a very small fraction of that total, leaving the greater part of it (say 55,000 tons or more) as surplus to those requirements. This amount will, therefore, be available for allocation either directly to foreign states or to the developmental pool from which it will be reallocated to Canadian companies having agreements with foreign flag vessels to harvest it.
...
But suppose a company Y, whose developmental activity was principally smoke and mirrors and who used the developmental program merely to gain access to no cost fish for purposes of brokerage at substantial personal profit. In this case there would be no development, merely the sale of harvesting quotas. There will undoubtedly be those who will argue that money flowing into Canada, into whichever pockets it flows, is an economic good and will ultimately rebound to the general benefit of the country. But this is, at least to some degree, a specious argument and, in any case, we do not deem it to be an acceptable practice, particularly in Atlantic Canada at this time, that any individual should be permitted to preside over the foreign harvest of thousands of tons of fish which are taken directly to foreign markets at considerable profit to the individual but with no real or ponderable benefit to the community at large.
...
With those considerations in mind we propose that having set aside a generous domestic allocation from the silver hake TAC, the balance should be identified for direct foreign allocation. Such allocations would be made only on condition that appropriate observer, license and entry fees should be paid and that a fixed percentage of the catch, say 15%, should be landed, free of cost, pursuant to a formal agreement, at an agreed Canadian port or ports for distribution to such Canadian companies as had had developmental plans approved and who needed access to supplies of raw material. [emphasis added]
[54] DFO reviewed the recommendations of the Harris Panel, but decided that the recommendation of direct foreign allocations was too radical for the time being. Thereupon, DFO approved criteria for the 1995 fishery including the following:
1. Participants to own or lease and manage a fish processing plant.
2. Proponents to provide DFO with details of the their product development proposals.
3. Proponents to have or propose a significant investment in the processing of silver hake.
4. A minimum of 15% of the catch to be landed and further processed onshore in a Canadian plant.
5. The signing of a Memorandum of Agreement.
6. Subject to a mandatory compliance audit.
[emphasis added]
[55] Regional Director-General Bellefontaine testified that if the Harris Panel’s recommendations had been implemented, Oak Island would have been ineligible to participate in the silver hake fishery in 1995, while D’Eon Fisheries would have survived, primarily because Oak Island was not a Canadian processor and D’Eon Fisheries was.
[56] At the end of the 1994 season, Oak Island had debt of $487,000.00, retained earnings of $237,000.00, and net income before taxes of $181,000.00 for the fiscal year ended June 30, 1994. Oak Island believed that it had the financial means to meet its business plan for the 1995 fishing season, featuring an agreement with the Cuban Fleet to fish Oak Island’s quota.
(E) The 1995 Season
[57] In a memorandum to the Minister dated January 5, 1995, submitted by the Assistant Deputy Minister for Fisheries Management, and countersigned by the same official on behalf of the Deputy Minister, the report of the Harris Panel was discussed. While the Panel had recommended direct foreign allocations with the requirement that foreign vessels supply 15% of their allocations free of charge to Canadian processors, DFO considered that implementation of these recommendations would require a complete restructuring of the developmental program. A strategic plan for Canadianization was in the course of preparation and, in addition, it was important for Canada to obtain the cooperation of NAFO members at the upcoming meeting on turbot. Assistant Deputy Minister Chamut testified at trial that in light of the Panel’s recommendations and the foregoing considerations, staff decided to recommend continuation of the existing process, but revised to recognize the thrust of the recommendations of the Panel. Therefore, the following recommendations were made:
1. Restructure the Silver Hake Developmental Program consistent with the recommendations of the Harris Panel and the long term strategic plan for this fishery with the objective of implementation in 1996.
2. Implement the following for the 1995 season:
A. The criteria (enclosed) be amended, so that anyone wishing to charter foreign vessels would have to comply, inter alia, with the following:
- participants would own or lease and manage a fish processing plant;
- proponents would have to provide the Department with details of their product development proposals;
- proponents would have or propose a significant investment in the processing of silver hake.
B. Allocations be awarded for 1995 only but participation in the post 1995 program would be awarded to successful 1995 participants for a five year period so that they can plan for more than a year at a time thus providing stability for them to secure loans from financial institutions. Participation would be further conditional on the following:
- business plans of the proponents be consistent with the re-structured Silver Hake Development Program to be implemented beginning in 1996;
- annual review of the Silver Hake TAC; and
- annual audit of their operations to confirm compliance with the conditions of their Memorandum of Understanding with the department.
C. In order to expedite the 1995 fishery, successful participants in 1994 would not have to re-apply for access to the 1995 silver hake fishery if they have met the criteria of the 1994 fishery and comply with the revised entry criteria outlined (recommendation A) above. Thus, D’Eon Fisheries Ltd and Oak Island International Ltd would be eligible for 15,000 t and 1,500 t respectively from the 40,000 t developmental reserve established for 1995, if they meet the criteria in recommendation A. The remainder (23,500 t) would be open to proposals for additional quota from these two companies as well as others.
If you agree with the above recommendations, the press release should announce the 1995 Silver Hake Developmental Program and should also focus on the phase-in approach to the Harris Panel’s recommendations. [emphasis added]
[58] The line for the concurrence of the Minister is blank. There is disagreement between the parties as to whether the Minister ever accepted these recommendations. In any event, on January 12, DFO issued a news release setting out the three principal modifications to the 1994 program. Deputy Minister Rowat testified at trial that, following the usual practice, he briefed the Minister, who then concurred; that the Minister’s signature is not a legal requirement, merely part of an internal process; and that, in any event, he as Deputy Minister is empowered to implement for timely action. Assistant Deputy Minister Chamut testified that he often signed memoranda on behalf of the Deputy Minister. Rowat’s last comment and Chamut’s testimony on this point are no doubt references to s. 24(2)(c) and (d) of the Interpretation Act, R.S.C. 1985, c. I-21, as follows:
(2) Words directing or empowering a minister of the Crown to do an act or thing, regardless of whether the act or thing is administrative, legislative or judicial, or otherwise applying to that minister as the holder of the office, include
...
(c) his or their deputy; and
(d) notwithstanding paragraph (c), a person appointed to serve, in the department or ministry of state over which the minister presides, in a capacity appropriate to the doing of the act or thing, or to the words so applying.
In view of this testimony, the statutory provisions cited and the news release which was issued later, there can be no doubt that the recommendations were properly accepted.
[59] Chamut also testified that it was thought that if an applicant for an allocation owned or leased and managed a processing plant and invested in processing it would indicate a real commitment to develop Canadian harvesting and processing. Deputy Minister Rowat testified that the new criteria were devised and recommended by staff, after discussions in Ottawa, with a view to increasing employment on shore.
[60] Meanwhile, on January 5, Capt. Wooldridge, who was in Cuba negotiating with the Cuban Fleet, wrote to Panagapko as follows:
...I am somewhat ammased [sic, amazed] that our company does not have full approval from DFO as to our exceptance [sic, acceptance] within meeting all the points and conditions relative to the Silver Hake fishery.
...
My information from Cuba is that outside influences are at hand here. There is a strong indication that an outside influence is indicating to the Fleet that they and only they are in a position to work with the fleet and that they are the only ones out of all the Canadian companies that may be involved in the fishery that has and will have total approval from the DFO to partisipate [sic, participate].
It is my information that this company is demanding certain vessels and agreements relative to the above.
Peter, I have a very strong suspision [sic, suspicion] that it is not unlike the scenario of June last when letters were going out to the Ministry here from individuals in Nova Scotia stateing [sic, stating] that others in the industry could not be legible [sic, eligible] for involvement in the fishery. If you remember no such copies of that letter ever went to our Minister or our Director General at the DFO. Although many damaging points to the DFO and other Canadian companies were indicated.....
Wooldridge testified that his phrase “outside influences” was intended as a reference to Sylvain D’Eon, who he said was telling the Cuban Fleet not to have anything to do with Oak Island and that it should limit itself to doing business only with D’Eon.
[61] On January 12, DFO issued the press release referring to the recommendations of the Harris Panel which, because of extensive work necessary to implement them, were being deferred in order to avoid delaying the starting date of the fishery. It had been decided to implement a revised program for 1995. Attached were the new Criteria and Operational Guidelines (hereinafter “the 1995 criteria”)
[62] The 1995 criteria included the following: proposals must be from a Canadian-controlled company, vessel or fishermen’s association, which either owns or leases and manages a fish processing plant; although allocations would be authorized for 1995 only, participation would be approved for a 5-year period, subject to certain conditions including annual review of the silver hake TAC, annual audit for compliance with the 1995 criteria and the applicant’s business plan; all proposals must include a mandatory business plan detailing particulars of harvesting, processing, marketing, capital investment and pro-forma financial statements; if foreign vessels are used, the applicant would be required to land 15% of the catch for further processing; and allocations would be subject to mid-season review in May with the possibility of increased allocations to successful projects.
[63] Ben Ferguson of DFO sent a copy of the 1995 Criteria and Operational Guidelines to Sylvain D’Eon, to which a brief message was appended: “Please note. Your firm does not need to apply for an allocation. Please call for clarification.” This appears to be in accord with recommendation 2(C) set out in the memorandum to the Minister of January 5.
[64] On January 13, Regional Director-General Bellefontaine informed D’Eon Fisheries that a 1995 allocation of 15,000 mt of silver hake was approved and, on the same date, he informed Oak Island that an allocation of 1,500 mt was approved for it.
[65] D’Eon Fisheries submitted its business plan on January 16. It stated that D’Eon Fisheries and its associated company, Blue Wave Seafoods, conformed to all 1995 criteria including: the two companies were existing, registered Canadian companies that were at least 51% Canadian owned and controlled; they leased and managed a fish processing plant at Port Mouton which had a Fisheries and Oceans certificate of registration and a fish processing licence from the Nova Scotia Department of Fisheries; they had already invested in processing the sum of $1,657,405 for new equipment installed in the Port Mouton plant. Attached to the file copy of this letter is a hand-written note by Ben Ferguson stating that: “we have already inspected facilities of D’Eon Fisheries and they comply to criteria.”
[66] On the same date, Capt. Wooldridge wrote to Justo Coll, Chief Director of the Cuban Fishing Fleet:
....As I have been involved in this fishery for many many years I thought that it would help if I explained some points realvent [sic, relevant] to the new criteria and our position with regards to the DFO.
...
Because the amounts would appear some what [sic, somewhat] apart, Bluewave [sic, Blue Wave] Seafoods 15,000 M/T and Oak Island 1500 M/T. It has no bearing on the total quota’s [sic, quotas] for 1995. Although everybody is confident that the Minister will not increase on the 15,000 M/T for Blue Wave we are confident and have it on good authority that Oak Island will be awarded additional amounts taking us towards the 10,000 M/T mark.
...
It is very important that the Fleet acknowledge that they will be the only foreighn [sic, foreign] entity within this fishery, and that there is a tack [sic, TAC] of 60,000 M/T there shall be a large surplus of Silver Hake quota as the 1995 fishery progresess [sic, progresses]. Oak Island is intitled [sic, entitled] to this surplus quota if required and the most important factor is the amount of fishing effort, and we are looking towards the fleet for that support. [emphasis added]
Capt. Wooldridge also referred to Panagapko’s understanding of discussions that “there will be an OSS agreement” giving Oak Island an option to purchase 50% out of the OSS production, and that there would be a private agreement giving Oak Island the right to receive the first 2,500 mt under the Fishing Agreement for export to Egypt, which amount would be deducted from the 50% that Oak Island had the option to purchase from the OSS. Raul Dominguez testified that these statements by Wooldridge were accepted as promises.
[67] Wooldridge testified that the “good authority” that Oak Island would be awarded additional quota up to 10,000 mt was David Lemon of DFO, with whom he had discussed the matter earlier that month. He also testified that he had written that Oak Island was entitled to surplus quota out of the 1995 TAC because there were only two participants in the fishery, there was no reason to leave the fish in the ocean if available, and it was common knowledge that the quota of D’Eon Fisheries would be the same as it had been the previous year.
[68] Oak Island did not, at the time, own a fish processing plant. In response to the new criteria, it entered into arrangements with a seafood processor, Schooner Seafoods, in relation to a processing facility. There is disagreement as to whether these arrangements complied with the criteria.
[69] In a letter dated January 18, Panagapko confirmed to Regional Director-General Bellefontaine that Oak Island met the revised eligibility criteria for 1995 and, in particular, that Oak Island had leased a processing plant from Schooner Seafoods and was responsible for managing it. A copy of the lease was attached. Further investment was planned. If any new eligibility criteria should develop, Panagapko would appreciate the courtesy of at least 90 days notice. He requested written confirmation that Oak Island met all criteria, noting that any delays in acknowledging eligibility could cause serious financial hardship.
[70] The attached Lease between Schooner Seafoods, as landlord, and Oak Island, as tenant, dated January 18, leased to the tenant Schooner Seafoods’ processing plant at Lower Wedgeport, Yarmouth County, together with the use of all the fish processing and accessory equipment in the plant, and together with the right to manage the operations carried on in the premises. The term of the Lease was one year commencing on the date of the Lease and terminating on December 31, 1995. The rent was $10,000 per month plus the cost of utilities, insurance, repairs and maintenance to the building and equipment. The Lease included permission to sublease as follows:
4. Notwithstanding anything contained herein, the Landlord may sublet all or any portion of the premises herein from the Tenant during the term of this lease or from time to time when the said premises are not being used by the Tenant for the processing of silver hake in accordance with such terms and conditions as may from time to time be agreed upon between the parties; this Agreement shall be interpreted in such a manner as it will not prevent the Landlord from maintaining in good standing all of the necessary permits and licenses issued it for it to lawfully carry on the business of fish processing as in the past. To the extent that any terminology in this Agreement may be so interpreted, the parties state that it is not their intention that such will occur and the terms of this Agreement shall be modified so as to permit the Landlord to maintain its ability to process fish as in the past. [emphasis added]
[71] Unknown to DFO at the time, by a document of the same date, Oak Island agreed to sublease the same premises and equipment on a periodic basis to Schooner Seafoods. Oak Island did not forward a copy of the Sublease to DFO at the same time it forwarded a copy of the Lease, and did not mention the Sublease in its correspondence with DFO. The recitals and principal operating provisions read as follows:
WHEREAS the Landlord and Tenant have entered into a Lease - Management Agreement for the premises of the Landlord situate at Lower Wedgeport, Yarmouth County, Nova Scotia, on even date herewith;
AND WHEREAS it is the intention of the parties not to deprive the Landlord of the use of the premises for the processing of herring in accordance with its licenses and permits from the Department of Fisheries & Oceans and the Fisheries Department for the Province of Nova Scotia as has been its tradition until the time of this Lease;
NOW IN CONSIDERATION of the mutual covenants and agreements contained herein and in the Lease Agreement entered into between the parties on even date herewith, it is agreed as follows:
1. The Landlord may sublease from the Tenant and the Tenant hereby agrees to sublease to the Landlord, all of the lease premises and equipment at such time or times during the term of this Lease as the Landlord may request of the Tenant.
2. During any such times that Landlord has sublet the premises from the Tenant and the Landlord shall be fully responsible for all expense for which under the terms of the Lease the Tenant was responsible during its occupancy of the premises and in addition the Tenant shall not be liable for any rent payment during the term that the Landlord has possession of the premises; if the possession of the Landlord is for only a portion of the premises which are the subject of the Master Lease, then the expenses and rent shall be prorated between the parties in accordance with their respective occupancy, during such times as the Landlord does sublet the premises.
3. Notwithstanding anything contained herein the parties state that it is their intention that the Landlord may, on behalf of the Tenant, process silver hake for the Tenant, in which event the Landlord shall be deemed to be in possession and occupancy of the premises and liable for the expenses of the premises and shall be paid such fee or sums for the processing of silver hake as that belong to the Tenant as the parties may, by separate Agreement, determine; in the event that the Landlord processes silver hake for the Tenant it is acknowledged by the Landlord that the silver hake at all stages of processing shall remain the property of the tenant and that the only entitlement of the landlord shall be to the fee for processing agreed upon between the parties....
[72] It is noted that this Sublease does not provide for the payment of any rent. It is also noted that the term of the Sublease is exactly the same as the term of the Head Lease.
[73] Panagapko acknowledged at trial that he did not mention the Sublease in his correspondence with Bellefontaine, but testified that he later forwarded a copy of it to either Sciocchetti or Ferguson of DFO. Bellefontaine testified that he became aware of it after the end of the fishing season. Ferguson referred to the Sublease in his notes as “a double reversed lease”. Panagapko also acknowledged that Nowinski, President of Schooner Seafoods, retained the keys for the plant, that Schooner paid the bills for overhead such as electricity and telephone, that all employees of the plant were employed and paid by Schooner Seafoods although funds were advanced by Oak Island for the purpose, and that the processing of fish was directed by Panagapko and, later, by Larry LeBlanc of Schooner Seafoods. Oak Island paid Schooner Seafoods, which in turn paid him. All this was done in accordance with the Lease and Sublease and, in return, Schooner Seafoods processed Oak Island’s fish in the plant.
[74] On January 19, Regional Director-General Bellefontaine confirmed that D’Eon Fisheries met the criteria and operating guidelines under the 1995 Silver Hake Development Program.
[75] In a letter to the Chief Director of the Cuban Fleet dated January 21, Capt. Wooldridge stated:
As stated in our last fax we are agreeable to the points of issue to contract that we last descussed [discussed]. However we would like for you to look at our option to barter for 2,500 MT of Silver Hake for another specie i.e. makerel [sic, mackerel]. Over the last year we have proceeded along the lines of the fishing agreement been [sic, being] inclusive of the barter and we would like for the new OSS agreement to be seperate [sic, separate] from the fishing agreement. We have set our company over the last period to get into a position of barter without complication so that we were all in place for the 1995 season.
The price of $20 per M/T etc. for catching and $440 USD, FOBS in our proposal would assert the fleet well in advance of costs incured [sic, incurred] for mackerel for delivery late April. If we have your permision [sic, permission] for same we will start negotiations now for the makerel [sic, mackerel] to be ready at the time indicated.
We would like to state to you that if there have been any doubts about our increased allocations been [sic, being] in place they no longer exsist [sic, exist]. [emphasis added]
[76] On January 24, D’Eon Fisheries requested an additional allocation of 10,000 mt.
[77] DFO did not immediately confirm that Oak Island met the 1995 revised eligibility criteria. It requested additional information or clarification with respect to the requirement to own or lease and manage a fish processing plant. It asked: (a) does Oak Island possess a buying and processing licence from the province of Nova Scotia? (b) do the Schooner Seafoods processing facilities meet fish inspection regulations for the processing of fresh and frozen ground fish? (c) does clause 4 of the lease mean that Schooner Seafoods could at any time return to use the facilities for processing fish other than silver hake, and what guarantee does Oak Island have that it will have continuous uninterrupted use of the facilities in 1995 and beyond for the production of silver hake? It requested information concerning the plans of Oak Island with respect to product development and marketing of the quantity of silver hake to be processed in the plant. It also requested, pursuant to the letter of January 18, that Oak Island elaborate its plans for investment in the processing of silver hake. Finally, it noted that investment meant the purchase and installation of capital assets (machinery and equipment) used or to be used in the processing of silver hake.
[78] In a letter dated January 25, Oak Island submitted its proposal to Jacques Robichaud, Fisheries Management, DFO, Ottawa. With respect to eligibility, it submitted the following information: Oak Island was a 100% owned and controlled Canadian company, involved in processing and exporting Canadian seafood products, and leasing and managing Schooner Seafoods processing plant; it had guaranteed continuous uninterrupted use of the facilities for the production of silver hake; it had applied to Nova Scotia for licences to process and purchase silver hake; it had successfully developed exports because landing fresh silver hake for processing was not feasible. Oak Island requested permission to use foreign vessels which would freeze the fish at sea for further processing and export.
[79] In its business plan, Oak Island stated that it would utilize 20,000 mt in addition to the present allocation of 1,500 mt; Cuban vessels had been contracted to harvest 10,000 mt of which 15% would be landed for processing; 12 Nova Scotia based inshore trawlers had been contracted to harvest 9,000 mt during the experimental OSS; three Cuban processing vessels would be contracted to freeze 50 mt per day. Under the heading of “processing”, Oak Island had leased facilities at Schooner Seafoods where it planned to process 3,000 mt of whole round silver hake; it planned to invest $150,000 in processing equipment, and $55,000 in product development. Under the heading of “marketing”, products processed onshore were destined for Eastern Europe, Portugal, Spain, United States, Mexico and the domestic market. The offshore product would be whole round frozen and destined for the Middle East and Cuba. With respect to capital investment, Oak Island’s planned investments included $110,000 for the lease of the processing facility, $448,000 for plant, marketing and administration costs, $256,000 for fishing gear, $55,000 for product development, and $150,000 for processing equipment, all of which totalled $1,119,000.
[80] Regional Director-General Bellefontaine testified that, in his opinion, the allocation requested by Oak Island was totally unrealistic.
[81] Oak Island’s cash-flow forecast included plans to ship 3,000 mt of frozen whole round product to Egypt on or about May 7, 1995.
[82] Oak Island also arranged for a second fish processing facility. By a Lease dated January 31, Oak Island leased from Yarmouth Sea Products Limited a property known as Camp Cove fish processing plant at Lower Argyle, Yarmouth County, together with the fish processing equipment therein, together with the right to manage the plant, for a term of one year. Panagapko testified that Oak Island did not manage this plant; there was nothing to manage. The plant contained little equipment. Processing was not being carried on at the time of lease, although Panagapko considered the plant to be viable.
[83] On January 31, Oak Island responded to Regional Director-General Bellefontaine’s request for information. Its answer with respect to existing or proposed investments in processing is here set out in full:
Oak Island has invested into the repairs and maintenance of processing equipment suitable for the processing of silver hake in 1994; however, at this time we are uncertain if this meets the interpretation for the investment into the processing of silver hake by the DFO or if the amount would be considered significant? In addition, as stated in our proposal, we have proposed 150,000 Canadian dollars to be invested into capital assets for the processing of silver hake and we hereby confirm that these funds shall be spent in accordance with the DFO’s regulations; however, we require some clarification on exactly what they are. How much capital must be invested into the processing of silver hake before it is considered significant? Does the purchase of existing equipment that does not require installation qualify as investment in the processing of silver hake, and is the value calculated on replacement cost or actual purchase price? Does the investment into a processing plant that presently has the equipment suitable for the processing of silver hake qualify as investment in the processing of silver hake, and if so, what accounting procedure shall be used to determine between equipment suitable for the processing of silver hake, and other assets. As stated in our 1994 proposal it is our objective to utilize existing processing capacity for silver hake rather than make unnecessary capital investments into processing when there is already a severe over capacity for processing in the region. We have demonstrated that certain existing processing equipment can be successfully utilized for the processing of silver hake. We urge the DFO to permit investments into existing processing equipment that is suitable for the processing of silver hake to qualify as capital investments in the processing of silver hake. [emphasis added]
[84] DFO requested further clarification with respect to Oak Island’s proposed capital investment in processing. Oak Island responded with the following information:
I refer you to my silver hake proposal and letter of January 31, 1995 and would like to clarify the expenditures for Oak Island this year in order to follow you guidelines. Oak Island has a capital expenditure under a lease (joint venture) with Schooner Seafoods Ltd. This agreement calls for a payment of a 120,000 dollars in order to use their equipment for the processing of silver hake including 11 heading and gutting machines, specialized conveying and sorting equipment, packaging equipment, freezing equipment and other equipment necessary to process silver hake. Oak Island has the option to renew this lease if this fishery proves successful. [emphasis added]
[85] Panagapko followed up the letter to Regional Director-General Bellefontaine:
I explained, during that conversation and in previous conversations that we have several options on how these funds could be invested. In our letter of January 31, 1995 we asked for clarification on what qualified as an investment in the processing of silver hake in order to ascertain our options. We could invest in equipment presently situated at the premises of Schooner Seafoods that is suitable for the processing of silver hake and file this with the Registry of Deeds. We could purchase a percentage of ownership of Schooner Seafood’s total operation. We could find that in November it is feasible to produce fillets and decide to purchase a Baader 72. We could experience a strong demand for our developed salted products in Mexico and decide that these funds are best spent on equipment necessary for that operation. We could find that the investment should be made in additional freezing capacity. We would like to keep our options open.
Notwithstanding the above, what ever investment appears to be most beneficial will be taken provided that the investment qualifies as a capital investment in the processing of silver hake under the criterial. If keeping our options open for the investment in the processing of silver hake to be finalized later in the season is against the criteria please advise us immediately and a decision shall be made immediately on exactly how these foods are to be spent in November 1995. We would appreciate answers to our questions outlined in our fax of January 31, 1995 in order to make an informed decision on our proposed investment in the processing of silver hake weather [sic, whether] we have the option to make that decision later or if you decide that the criteria requires us to make that decision prior to granting our eligibility. What ever the case may be time is now a very critical factor. We are in a delay process. As you are aware the Cuban Fishing Fleet was planning to start fishing for us as of March 1, 1995, and an earlier start was always indicated by the DFO. The delay concerning Oak Island’s eligibility is undermining our arrangement for a foreign charter with Cuba. This scenario is giving our competitor an unfair advantage. Further delays in granting our eligibility will have a very serious negative impact on our business plans for 1995. ....
[86] DFO discussed the matter internally. One memo to Ben Ferguson suggested that Oak Island’s proposal be rejected because it appeared to contribute very little to the net benefit of Canada, merely moving jobs from Port Mouton to Wedgeport, and giving Oak Island a substantial return for very little investment. A briefing note from Ferguson and Partington to Bellefontaine stated that the working group recommended deferring the award of any allocation based upon the following comments regarding Oak Island’s proposal for investment in processing:
- The firm initially submitted a lease arrangements with Schnooner [sic, Schooner] Seafoods Ltd but this later firm did not wish to relinquish its facilities since it proposes to continue processing herring in the plant but would custom pack for Oak Island.
- Thus the firm obtained another lease arrangements with Yarmouth Sea Products Ltd but this facility is basically a shell and does not contain any processing equipment.
- Accordingly, we requested that the company provide further information on its processing plans specifically a breakdown of its proposed capital investment for 1995 of $150,000.
- A non-committal reply was received in which the firm presented various options for implementation late in 1995 which would depend on the market situation (purchase of equipment owned by Schnooner [sic] Seafoods Ltd, percentage ownership in Schnooner [sic] Seafoods Ltd’s facilities, purchase of filletting [sic, fileting] machinery, purchase of salting and drying equipment or installation of additional freezing capacity).
As a result, there are still some concerns and it is not believed that the firm complies to the criteria. [emphasis added]
[87] On February 8, Regional Director-General Bellefontaine replied to Panagapko’s letter. He informed Panagapko that DFO needed to know precisely what the intentions of Oak Island were with respect to investment in processing as, without further information, it was not possible to assess whether the plans were realistic and feasible. With respect to Panagapko’s question as to what constituted investment in processing, he referred to his clarification of January 24 in which he had specifically indicated that it meant the purchase and installation of capital assets (machinery and equipment) and, therefore, any of the five options indicated in Panagapko’s letter would qualify. With respect to the issue of whether investment in repairs and maintenance of processing equipment incurred in 1994 qualified, this could not be assessed without more information. Finally, Bellefontaine noted that it had been brought to his attention that Oak Island International Ltd. was not a company registered in the Registry of Joint Stock Companies. He requested a clarification of the situation, a statement as to how this affected various undertakings given on behalf of Oak Island International Ltd. in the past, and what corrective actions would be undertaken.
[88] On February 13, Regional Director-General Bellefontaine informed Assistant Deputy Minister Chamut that the regional working group had reviewed applications for 1995 allocations and made recommendations which were embodied in a draft memorandum to the Minister which was attached. In the draft memorandum, the applications of the five companies which had applied were analysed. The analysis of the application of Oak Island ended with a recommendation for an additional allocation of 1,500 mt, and the analysis of the application of D’Eon Fisheries ended with a recommendation that there should be no additional allocation for the time being.
[89] This draft memorandum was revised, countersigned by Deputy Minister Rowat, and submitted to the Minister. The analysis of the application of Oak Island was summarized as follows:
Oak Island International:
Oak Island was tentatively offered an initial 1995 allocation of 1,500 tonnes, as part of the rollover from 1994, provided revised eligibility criteria could be met. The company has applied for a further 20,000 tonnes, which would be harvested mainly by Cuban vessels and, perhaps, partly by Canadian inshore vessels.
In 1994, Oak Island did not possess a processing establishment and operated primarily as a brokerage operation, although the company did comply with 1994 operating guidelines. A review of its 1995 business proposal reveals a weak commitment to the establishment of processing facilities. There is doubt as to whether the firm will carry out its plans, as intended investment in processing capability is not well documented and appears unrealistic.
RECOMMENDATION
For Oak Island, it is recommended that the rollover of 1,500 tonnes from 1994 be confirmed and that an additional 1,500 tonnes be approved for 1995, for a total of 3,000 tonnes. Consideration could be given to allocating further silver hake to Oak Island as the season progresses and the company’s intentions become more apparent. [emphasis added]
[90] The analysis of the of the application of D’Eon Fisheries was then summarized as follows:
D’Eon Fisheries:
D’Eon Fisheries received an allocation of 15,000 tonnes as part of the rollover of 1994 allocations into 1995. The company is also seeking a further 10,000 tonnes of silver hake for 1995. D’Eon is well established, having invested heavily in silver hake processing facilities, and has been an active participant in the Program since its inception. It is not clear, however, that the company will be in a position to utilize more than 15,000 tonnes this year. It would be possible to provide D’Eon with an additional allocation as part of the mid-season review of the Program, which will take place in May.
On December 8, 1994, you approved a request from D’Eon for permission to sell 345 tonnes of frozen round silver hake, representing one third of the 1,035 tonnes that the company was obliged to process under 1994 operating guidelines, provided that D’Eon agree to invest proceeds of the sale in the company. In 1995, D’Eon Fisheries will be required to process 15% of its 1995 catch plus 345 tonnes.
RECOMMENDATION
It is recommended that D’Eon Fisheries not be provided with additional silver hake at this time, resulting in only the rollover allocation of 15,000 tonnes from 1994, but that consideration be given to allocating further silver hake to D’Eon during the mid-season Program review.
The Department will follow up to ensure that proceeds from the frozen round sale of 345 tonnes of silver hake are invested in the company, and that the company honours its commitment to process 345 tonnes of silver hake in excess of its processing requirement in 1995. [emphasis added]
[91] The memorandum ended with a list of the developmental allocations, of which the following are relevant:
1. Total allocations under the Silver Hake Developmental Program:
D’Eon Fisheries 15,000t (already approved)
UNAAQ 3,000t
Seafreez Foods Inc. 10,000t
National Sea Products 1,000t
Oak Island Int’l 3,000t
Total 32,000t
Developmental allocations will be for 1995 only.
2. Unassigned developmental quota of 8,000 tonnes, to be reserved either for mid-season allocation to active Canadian participants or to foreign allocation holders.
This was followed by a line for the signature of the Minister in order to show his concurrence to the proposals contained in the memorandum. This line is blank. As with the memorandum to the Minister dated January 5, there can be no doubt that the recommendations in this document were properly accepted.
[92] On February 7, Oak Island entered into three agreements with the Cuban Fleet: a Fishing Agreement, a Private Agreement, which was not intended to be disclosed to DFO, and a Letter of Intention.
[93] The Fishing Agreement provided, inter alia, that: the company is the holder of a fishing licence to harvest 1,500 mt of silver hake and expects to obtain permission from DFO for use of the licence by the Cuban Fleet; the Cuban Fleet will harvest up to 10,000 mt of silver hake, as well as any by-catch, all of which is the property of Oak Island; the Cuban Fleet is responsible for harvesting, the terms of delivery being outlined in the Private Agreement. Unless terminated by breach, the Agreement terminates when the allocation is caught. The Cuban Fleet is responsible for all vessel and related expenses; 15% of the frozen silver hake, squid and mackerel and all other by-catch will be landed in Nova Scotia for Oak Island; and the remaining 85% will belong to the Cuban Fleet. Any dispute will be resolved by arbitration.
[94] The Private Agreement provided, inter alia, the following: 15% of all catch will be landed in Nova Scotia, with the remaining 85% belonging to the Cuban Fleet; the Cuban Fleet will sell up to 3,000 mt to Oak Island; and the sale by the Cuban Fleet of up to 3,000 mt will depend upon Oak Island obtaining an extra silver hake allocation which, added to the allocation of 1,500 mt, covered the 15% of the frozen silver hake belonging to Oak Island, which will remain on board at the time of sale, and the amount to be sold.
[95] The Letter of Intention set out the intentions of the parties with respect to a 1995 OSS. Oak Island agrees to buy an amount of frozen hake to be agreed upon, which may be reduced by 3,000 mt considering the similar amount which Oak Island anticipates receiving pursuant to the Fishing Agreement, at a price to be agreed upon. The remaining production belongs to the Fleet. The season will commence June 1 and end not later than September 1, although it might be extended for 30 days upon agreement. Only one processing vessel will participate although, upon agreement, the number could be increased. The Fleet will be responsible for paying for and processing fish delivered to it, and supplying packaging material unless specific taping and stamping of cartons was required, in which case Oak Island would supply the materials.
[96] It is noted here that these three documents are not well-drafted. For example, in the Fishing Agreement, the provision that all catch is the property of Oak Island and the later provision that the remaining 85% belongs to the Cuban Fleet appear to be contradictory. Panagapko testified that the meaning was clear: Oak Island had a beneficial right to the catch. However, Raul Dominguez testified that he understood it to mean that Oak Island, as holder of the licence, owned the catch but, once caught, 85% of it belonged to the Cuban Fleet while 15% belonged to Oak Island. Another example: neither the Fishing Agreement nor the Private Agreement nor the Letter of Intention states a delivery date. Panagapko testified that it was unnecessary to set out a date which was understood by both parties.
[97] By letter dated February 24, Regional Director-General Bellefontaine informed Oak Island that an additional allocation of 1,500 mt of silver hake had been approved, for a total allocation of 3,000 mt. He reminded that all participants must submit proof of harvesting arrangements, sign an MOA, fully meet the 15% mandatory landing and processing requirement, own or lease and manage a fish processing establishment, invest significant funds in product or market development; and have or propose significant investment in the processing of silver hake.
[98] Subject to certain conditions being met, Oak Island’s participation in the developmental silver hake program was approved for a five-year period. The conditions were that business plans must be consistent with the development program, an annual review of the TAC, and annual audit to confirm compliance with the MOA.
[99] Oak Island was disappointed with its 1995 quota, and immediately complained to the Minister. Panagapko complained of running into DFO stumbling blocks:
Since the 12th of January 1995 we have run into DFO stumbling blocks, all of which have been resolved but I will enumerate them:
a) Would the fish plant meet fish inspection regulations for the processing of fresh and frozen ground fish and did we have the federal license in our name.
b) Would we verify that the plant was capable and had the necessary equipment to process silver hake? Did we have the keys to the plant?
c) Did we have a fish buying license in our name for ground fish?
d) Did we have a provincial processing license in our name for ground fish?
e) Did we plan to invest into the processing of silver hake?
f) How and when, specifically, were our proposed investments into the processing of silver hake be spent?
g) Would we clarify our name change from Oak Island International Ltd. to Oak Island International Group Ltd., and how this affects our various undertakings and what corrective actions would be undertaken in this respect?
h) Would we confirm that we have continuous uninterrupted use of our processing facilities exclusively for the use of silver hake processing for 1995 and beyond?
i) Could our joint venturer (Schooner Seafoods), at any time use the facilities for the processing of fish other than silver hake?
j) Did we have an approved “Quality Management Program” in place?
k) Would we provide specific details on our product development plans?
l) Did we fully comply with the 1994 criteria including the complete processing of our 15%?
m) Could we elaborate on the marketing of silver hake to be processed in the plant?
[100] Panagapko also complained that the number of inshore groundfish licences was being limited:
Yesterday we were told that the 12 fishermen, who are part of a group of 30 vessels and 50 groundfish licences we have interested would not be able to fish unless they had specific licences and that only 6 licences would be given which would go to our competitors for the fishing areas north of the silver hake box. Mr. Minister we encourage the fishermen to go out and fish their quota. We have markets for them. The price we are offering is 12 cents per lb and they would have made money and less efforts would have been directed towards traditional ground fish stocks. We fee that the policy on 6 licences is unfair to both Oak Island and the local fishermen.
[101] He complained once again about being excluded from membership on the Silver Hake Canadianization Committee:
Since last August we have tried extensively to meet and become a member of the Silver Hake Canadianization Committee. We have had no success, they seem to be exclusively in control of the efforts to Canadianize the silver hake fishery, we were assured by Neil Bellefontaine and the chairman Mr. Ernie Bolivar that we would be invited to attend their meetings many months ago. Yesterday we were informed by the DFO they cannot force the Committee to invite us to the meetings and to date we have no indication that we would be able to participate in any future meetings. It is obvious that this committee only represents the interests of Bluewave Seafoods the only processor on this committee and Dave Lemon of the department has publicly announced his support of the 3.1 million dollars in funding from the department of Human Resources Development for a three year exploratory Canadian silver hake fisher. We are the largest exporter of silver hake products. We are the only participant other than Bluewave Seafoods in 1994 and the only participant that has fully met your guidelines relative to the 1994 fishery. We feel that we are being treated unfairly by the Silver Hake Canadianization Committee by denying us our rights as a Canadian Company successfully Canadianizing this fishery, the opportunity to work cooperatively with this committee that should, by its name, represent the views of all Canadian participants. The fact that the department is not only tolerating but supporting Oak Island’s exclusion from the Canadianization of the silver hake fishery is unjust and intolerable. .... If there is any reason why the committee feels that Oak Island should not attend the meetings we would like to know why and if they wish make public the reason that we are being excluded from participating in the Candianization of this fishery with this committee. [emphasis added]
[102] He complained about the fairness of Oak Island’s 3,000 mt quota:
We do not feel that our quota of 3000mt is fair and seek a meeting to discuss the following:
1) Is you department out to destroy Oak Island’s initiative and participation in the Canadianization of the silver hake fishery? We ask this for the following reasons:
a) The fact that the department is trying by additional guidelines since January 12, 1995, to discourage Oak Island’s participation.
b) The fact that only six licences will be allowed to fish north of the silver hake box. This will exclude the 12 fishermen that we have organized to fish for our plant and OSS with the Cuban Fishing Fleet.
c) The small quota means fewer hours for the plants workers and others in South West Nova.
d) The fact that companies who we do business with are telling us that they cannot participate with us after being with us for many years and not by their choice.
For these reasons we get the impression that someone within the department does not want us in the fishery. We would like to know why?
2) Our proposal did not require any subsidization in order to Canadianize the fishery. The time effort and money we have expended in order to participate in the Canadianization of the silver hake fishery. We say this in light of:
a) Past history and ability to process and market silver hake.
b) Our attempts to attend meetings of the silver hake Canadianization Committee.
c) Our openness with the Canadian Fisheries Consultants Limited.
d) Since last summer we have sought a larger quota on the basis of Canadianization our ability to process, and markets for silver hake.
3) Oak Island seeks fishing licenses for the 12 fishing vessels in South West Nova who would have fished their quota on the basis of the market we can provide.
4) Finally we would like to discuss the small quota that Oak Island received. We have the capacity the plan and the markets to develop a much larger quota. We do not feel we were treated fairly. We require a minimum of an additional 7000mt in order to protect our investments to date and realize the 180 jobs that will be created as a result of our Canadianization plans. [emphasis added]
[103] On the same day, Capt. Wooldridge made similar complaints in a letter to Dr. Harris:
We were yesterday astounded to find that not only did we not receive an allocation relative to the amounts we had requested but that after some inquiries were told that it was the view of the panals [sic, Panel’s] recomendations [sic, recommendations] to the Minister.
I have it now on good authority from many in the industry that high officials within the DFO have advised others in the industry not to join with Oak Island as if they did they would not be allowed to move forward in this fishery. In fact on February 8th last a very close business associate of ours was told by a high official within the department not to put a working plan together with Oak Island because if he did his company would receive no allocation.
After all our efforts on the OSS we are told by other officials in Halifax that we should not request permission to go ahead with this experiment because we would get a negative responce [sic, response]. Our fisherman [sic, fishermen] who we have worked with on the OSS possibilities for many months are now been [sic, being] discouraged to deal with Oak Island by DFO officials. In fact some fisherman [sic, fishermen] and companies fear retalation [sic, retaliation] from the DFO in other area’s [sic, areas] if they deal with Oak Island International.
We have always diligently played by the rules when others have not. We have progressed this fishery in the market as no others have. We have looked toward making this fishery totaly [sic, totally] Canadian as our first priority. So I am sure you can understand our disbelief and disapointment [sic disappointment] at what is going on.
Although I am in Cuba, it is the intention of my partner P. Panagapko to through his MP and have an ordiance [sic, audience] with the Minister and try and find out what has caused the changes toward us within the DFO. If this is the reaction one gets to doing the job correctly then the Fisheries of Canada have a lot to be desired.
We would request of you the minutes from the last Foreign Vessel meeting to see if we can determine what possible reason could have come out of that meeting that was so negative towards Oak Island.
After the Minister so correctly awarded Oak Island 1500 M/T prior to the request for proposals, how can it be justified that we did not get anywhere near what we requested and we would like to know, and if you wish [sic, to] make public what Oak Island have done to deserve this attitude and treatment.
We strongly need to have an additional 3,000 M/T added to Oak Islands [sic, Island’s] quota to enable us to meet our marketing and development commitments, as without this all our efforts of the last four years would have been in vein. All our capital investment will be lost. Is that the intention of this fishery, wereby [sic, whereby] the people in it the longest are set aside becuase [sic, because] of good sound working practise? [emphasis added]
[104] The Assistant Deputy Minister for Fisheries Management and other officials of DFO prepared a briefing note for the Minister in anticipation of his meeting with a representative of Oak Island. With respect to DFO “stumbling blocks” allegedly experienced by Oak Island, the briefing note stated that program criteria, including new criteria introduced in 1995 to address major concerns of the Harris Panel, were applied consistently to all applicants; Oak Island was asked to clarify specific aspects of its proposal and, upon responding, DFO recommended the 1995 allocation. The department would ensure that Oak Island followed through with product development proposals and its intention to make capital investments in processing. DFO felt that the company had not fully demonstrated a commitment to establish a permanent processing facility. With respect to Oak Island’s complaint of unfair treatment in the amount of quota awarded to it, the briefing note stated that D’Eon and Seafreez both had more experience in the fishery and both had permanent processing facilities. The amount of Oak Island’s quota, relative to D’Eon and Seafreez, reflected the likelihood that plans would be carried out. With respect to Oak Island’s complaint that DFO was limiting the number of inshore vessels licenced to fish silver hake to a maximum of six, there might be a need to limit participation in the inshore fishery for conservation reasons related to by-catches but, as yet, DFO has not taken any such action. Inshore groundfish licence holders needed only make their interest known to regional officials and once licenced there would be no requirement to land silver hake at any particular processing facility. Processors make private arrangements with licence holders to purchase raw material. With respect to Oak Island’s complaint of exclusion from the Canadianization Committee, the briefing note stated that a DFO representative attended Committee meetings in an advisory capacity only, and that participation was controlled by industry membership. DFO was not in a position to force the Committee to invite new members to the table, although regional officials had urged the Committee to allow Oak Island to participate.
[105] The minutes of a meeting of the Canadianization Committee held on March 2 disclose a lengthy discussion concerning Panagapko’s request to attend meetings of the Committee. Oak Island was in the business of over-the-side sales, and there was concern that this business might not meet the terms of reference of the Committee. It was agreed that Panagapko should make a presentation to the Committee, after which it would be determined whether he should be invited into membership. The Committee wished to hear his plans and strategies to Canadianize the fishery.
[106] On March 3, an official in the Minister’s office informed Panagapko:
Although your request was for a total 1995 allocation of 10,000 tonnes, you will note that 8,000 tonnes will be held in reserve for allocation later in the season. Based on a mid-season review of the fishery, it may be possible to consider allocating additional silver hake to Oak Island later in the year.
[107] Oak Island replied in a letter of March 10:
Additional quota to our 3000mt allocation is required to meet our planned undertakings made with the expectation that we would receive a 10,000mt allocation to permit us to carry out our significant Canadianization plans put forward to the department ton January 25, 1995, under the 1995 Silver Hake Developmental Program. We have the ability to harvest 10,000mt which was clearly indicated in our proposal and are still able to do so, provided we are granted an additional 7000mt. If we are given the quota now we can market it. We do not feel that we can wait until mid season, as mentioned in your letter of March 3, 1995, for the possibility of additional quota. The department will still have the option to redistribute surplus silver hake quota. There will be surplus allocation as the season progresses and we do not understand why we are not being allocated additional quota knowing our past contributions to the development of the silver hake fishery and our commitments and plans for Canadianization.
[108] In a briefing note for the Deputy Minister, prepared by officials of the Scotia-Fundy Region, and dated March 10, it was noted that Oak Island had operated in the silver hake fishery in 1994 as a brokerage/marketing type of operation, giving rise to concerns about whether it met the revised criteria for 1995 with respect to processing. It was also noted that Oak Island was recommended for a further 1500 tonnes allocation for 1995. The briefing note then stated that the company had not yet produced harvesting contracts for its 1995 allocation but was believed to be proposing the use of Cuban vessels and, if it was successful in making such arrangements, as the season progressed the Department would be monitoring its operations to ensure that the company followed through with respect to its product development proposals and its intention to make capital investment in silver hake processing.
[109] Panagapko met with Regional Director-General Bellefontaine on March 13. In a letter later the same day, Panagapko described the meeting as positive and having helped clarify many issues. He said that Oak Island was looking forward to the possibility of receiving an additional silver hake allocation at the beginning of April from possible re-allocations from present licence holders, and from the 8,000 mt reserve at the beginning of May. He also said that the fact that Bellefontaine had indicated that he would try to review Oak Island’s silver hake OSS proposal expeditiously was very comforting.
[110] During the course of his direct examination, Panagapko testified that Sciocchetti, Ferguson and Bellefontaine had told him at the meeting that Oak Island would be granted additional quota at a later date. He also said that he had been told the same thing on other occasions by Borge, Sciocchetti and Bellefontaine. This testimony is contradicted by the contents of his March 13 letter to Bellefontaine. I do not accept his testimony on this point.
[111] Panagapko met with the Silver Hake Canadianization Committee on March 20. He made an extensive presentation, noting Oak Island’s achievements to date and enumerating some plans for the future:
Oak Island International Group Ltd. has been involved in the silver hake fishery since 1989, and our Managing Director Capt. David Wooldridge has been involved with the development of this fishery since 1982. We are a major participant in the development and Canadianization of this fishery being responsible for developing important markets for Canadian silver hake and since 1994 investing in the land based production of silver hake employing 25 Canadian plant workers. We have invested into larger processing facilities with plans to employ 120 plant workers in 1995. We have plans to feasibly Canadianize using Canadian vessels to harvest for an OSS operation. We have plans to land, using Canadian vessels, fresh silver hake using new methods to support land based processing and significantly increase the economic benefit to Canada. In spite of our ability to process silver hake and our significant investment in the Canadianization of the silver hake fishery many referred to us as “only a broker”. Oak Island International Group Ltd. is now a processor with significant processing facilities suitable for the processing of silver hake. We shall continue to make silver hake available to other processors as we feel that this policy will accelerate Canadianization.
The following is a list of some of Oak Island’s plans to Canadianize the silver hake fishery.
1) Invest in market development for land based production for silver hake and into land based processing of silver hake.
2) Invest into the development of silver hake feasibly caught and landed by Canadian vessels for land production at the lowest cost using new methods that provide acceptable quality fish for International markets.
3) Invest in product development for value added silver hake products.
4) To extend the silver hake fishing season for as many months as possible, to support the feasibility of a totally Canadian fishery.
5) To utilize the total TAC from a Canadian stand point [sic, standpoint] by feasibly utilize [sic, -ing] the inshore and mid shore draggers to harvest the maximum percentage of the annual silver hake TAC, and support foreign charters with Canadian license holders for the balance that cannot be harvested by Canadian vessels.
6) Maximize the economic benefit to Canada by;
(a) Continuing our success in obtaining higher prices for silver hake products.
(b) Utilize Canadian vessels to harvest the silver hake TAC and obtain higher prices for their catch.
(c) Increase land based production and increase employment for plant workers.
(d) Find new markets and develop new value added silver hake products.
7) To feasibly develop a sustainable Canadian silver hake fishery that supports the utilization of the silver hake stock by Canadian fishermen and supports land based processors.
Oak Island International Group Ltd. has been asking for permission to participate on the Silver Hake Canadianization Committee since August 1994, and would like to play a constructive role in the Committee’s efforts to Canadianize this fishery. We hope that our plans are consistent with those of the Committee and that we are invited to participate. We would like see more representation from processors on the committee.
[112] Panagapko testified at trial that Sciocchetti had told him openly at this meeting: “I’ll be watching you.” Panagapko apparently interpreted this as a threat, although why he did so was not explained. It is more likely that Sciocchetti was simply saying that he, as an official having supervisory duties regarding Oak Island, would follow its progress in implementing its plans which Panagapko had outlined in his presentation. And I so find.
[113] The minutes of the meeting referred to Panagapko’s verbal presentation followed by a brief question period. The Committee promised to consider his presentation and reply as soon as possible. After Panagapko left the meeting, a lengthy discussion ensued. Those present agreed that the Chairman and Robert Sciocchetti would draft a letter to Panagapko stating that once he had activated his plans for Canadianization and had proven that he was moving in the same direction as the Committee, he would be offered membership on the Committee. The Chairman of the Committee, Ernie Bolivar, wrote to Panagapko six days later. In his letter, he stated that the Committee had decided to defer the question of Oak Island’s participation until such time as its plans were operational and achieving their objective.
[114] Oak Island, the Cuban Fleet and DFO executed an MOA on March 24, setting out the terms and conditions agreed to for harvesting the allocation of 3,000 mt of silver hake. The provisions of the MOA included the following: the Cuban Fleet will obtain foreign fishing licences pursuant to s. 5 of the Coastal Fisheries Protection Regulation prior to commencing of fishing; Oak Island is required to land for processing 15% of the Cuban Fleet’s catch and all by-catch; the proponents will provide at least 48 hours notice of termination of the charter; and Oak Island will promote the development of the industry through ownership or lease and management of a silver hake processing facility, and investment in processing equipment. It was also provided that the MOA would prevail if there were any inconsistencies between its provisions and those of the agreements in existence between Oak Island and the Cuban Fleet. The Minister retained the right to cancel any licence for breach of any condition of the licence. After signing, it was anticipated that licences would be issued pursuant to the Coastal Fisheries Protection Act.
[115] On March 30, Panagapko wrote to Ernie Bolivar of the Silver Hake Canadianization Committee, noting that Oak Island had made several attempts to participate on the Committee without success. He then asked:
Could you please inform us exactly what is required of our firm in order to obtain permission to participate in the Committee? What we’re presently lacking that prevents us from participating in the Committee? What do you find that is not compatible in our March 20, 1995 letter outlining our plans to Canadianize the Silver Hake Fishery presented to the Committee?
[116] Regional Director-General Bellefontaine testified at trial that he had urged the Canadianization Committee to consider Oak Island for membership. Jerry Conway of DFO confirmed this in testimony given upon Discovery (a transcript of which was accepted in evidence). He also testified that Sciocchetti had told him that Bellefontaine had encouraged the Committee through Sciocchetti.
[117] Bolivar testified that membership on the Committee was controlled by the members, not by DFO, and that neither DFO nor Sciocchetti had done anything to prevent Oak Island from being invited to be a member, nor had said anything which cast Oak Island in an unfavourable light. The Committee felt that Oak Island’s plans were not compatible with its own mandate, and would not help with Canadianization: it would not tend to produce value-added products and would create little employment. The Committee was concerned that Oak Island’s proposals were mere plans; it wanted proof. Boliver also testified that D’Eon was a member because he represented processing. The Committee did not control or issue licences, had no licences issued to it, was not privy to confidential DFO information, and did not own or manage any fishing plants. The Committee consulted DFO about improvement of the fishery. DFO personnel acted as resource people to the Committee, but none were members of it.
[118] The Cuban Fleet commenced fishing Oak Island’s quota in April. Because that quota was less than had been expected, the Cuban Fleet provided three harvesting vessels rather than the five which had been agreed upon when the Fishing Agreement had been negotiated. Oak Island had obtained from the Royal Bank of Canada a letter of credit for up to $1,380,000.00 U.S.; it was assigned to the Cuban Fleet for payment of the portion the catch to be purchased by Oak Island.
[119] Oak Island submitted a formal application for a 1995 OSS on March 24. On April 4, Regional Director-General Bellefontaine replied to Panagapko pointing to various provisions of the Policy on Direct Sales of Fish to Foreign Vessels in Atlantic Canada which made it clear that applications for OSS programs were required to originate from fishermen or processor organizations. Since Oak Island was not an organization of fishers or processors, it did not qualify under the policy. He then stated that Oak Island’s application for OSS could not be considered until it was supported by a proposal from fishers or their organization(s), and DFO would embark on the mandatory consultative process with industry and try to expedite the process when it received confirmation of this.
[120] Panagapko responded that since there did not exist an association representing a group of Canadian fishermen wishing to fish for silver hake, fishermen were now in the process of forming an association to comply with DFO policy. He pointed out that Oak Island’s intention to conduct an OSS had been put to DFO on January 25. He pointed out that section 4(d) of DFO Direct Sales Policy permitted proposals from fishermen’s or processors’ organizations. He concluded:
We hope that the department recognizes our intention and has begun consultative processes in order to expedite this matter when it is in proper conformity with DFO policy. Time is of the essence and we do not wish to miss this important opportunity to move forward towards Canadianization.
[121] On April 7, the Silver Hake Fishermen’s Association submitted an application for an experimental/developmental fishery and OSS of silver hake. The recitals in the application include the following:
Oak Island International Group Ltd. is the “middle man” and the foreign processing vessel(s) shall be Cuban flagged. The Canadian vessels shall transfer their cod ends to the foreign processing vessel on the fishing grounds landward of the silver hake box. This requires special permission and is necessary due to the very delicate nature of silver hake. These vessels cannot feasibly fish where the larger foreign fleets fish for silver hake in the silver hake box. There will be a maximum of nine vessels fishing sliver hake at any one time during this proposed fishery, and only one 65-100 feet vessel participating.
[122] On April 10, Oak Island, Schooner Seafoods and Ralmin Import-Export Inc., of Montreal, entered into an agreement for the purchase and sale of a total of 149.4 mt of H&G frozen silver hake to be shipped between May 1 and May 15, at a price of US $740 per mt. Ralmin, as buyer, promised to pay 70% of the total value to Schooner Seafoods as the producer and the remaining 30% to Oak Island as the seller.
[123] There is a question as to whether Oak Island paid any rent to Schooner Seafoods, and a related question as to whether Oak Island did in fact manage the Schooner plant. Victor Altmejd, president of Ralmin, testified at trial in regard to these two issues. With respect to the first issue, he listed eight Oak Island invoices totalling approximately $180,000 which Ralmin paid to Schooner between April 10 and July 24 pursuant to an agreement to process silver hake (from the 15% of Oak Island’s quota which it was required to land and process) at a price of US $780.00/mt. The agreement required Ralmin as buyer to pay 70% to Schooner as producer and the remaining 30% to Oak Island as seller. Ralmin paid the invoiced amounts to Schooner. As to the second issue, when asked who managed the Schooner plant, he said that, as far as he knew, it was Newinski and the production manager, LeBlanc.
[124] In a letter to Justo Coll, Chief Director of the Cuban Fishing Fleet, dated April 19, Panagapko acknowledged that another participant in the silver hake fishery had alleged that Oak Island was a “fly by night operation”, and then solicited the aid of the Cuban Fleet:
We have made commitments early in the year to start processing the week of April 24, 1995, and have substantial investments into the plant and market commitments on the processed fish for delivery the first week of May. Starting production in the plan on schedule would result in additional quota for Oak Island and speedy approval for the OSS. Our strong political connection need plant workers to start working to counter the opposition from some DFO officials and another participant. ....
We appreciate the valid reasons and the logic behind waiting to land the 15% when it is most suitable to the Fleet. The lost fishing time is not good for anyone. We realize that the above is not a problem of the Fleets, and if you cannot help, we will understand that it is for a very good reasons....
Could you please authorize the Rio Lascas to discharge 15% of the Catch the week of April 24, 1995 to help us over come the false rumors about Oak Island?
[125] Oak Island had contracted with Ocean Reefer Transport Ltd. for a refrigerated or reefer vessel, the M/V Pioner Murmana, to arrive on the fishing grounds on or about May 20 in order to receive transfer of fish which Oak Island had sold to an Egyptian buyer. In doing so, it was then Oak Island’s understanding that the Cuban Fleet would sell to it up to 3,000 mt of frozen whole round product. On May 1, Oak Island informed the Chief Director of the Cuban Fleet that the chartered reefer vessel would arrive on the fishing grounds to receive silver hake for transhipment on or before May 20 in accordance with the Fishing Agreement. It also indicated a need to land Oak Island’s 15% ashore as soon as possible.
[126] On May 2, Panagapko faxed Assistant Deputy Minister Chamut that Oak Island had harvested over 1,900 mt of its 3,000 mt allocation, and there was danger that the Cuban Fleet might withdraw its vessels in view of the small amount of allocation remaining. He urgently requested additional allocation:
We are in a desperate need of additional allocation and have requested 7000mt. Oak Island has a commercial contract with the Cuban Fishing Fleet that is being jeopardized and we would appreciate an additional allocation as soon as possible, as a loss of our fishing vessels would prevent us from meeting our commercial obligations. The situation is critical, as vessels could be taken away at any moment.
[127] Exhibited in evidence is an internal DFO message to Robert Sciocchetti with respect to Panagapko’s request for a transhipment licence for a Russian reefer in which the writer reported that Raul Dominguez, representative of the Cuban Fleet at Halifax, was not aware of any such request, and had stated that he would be very surprised if Cuba authorized the request. At the same time, Dominguez had requested a licence for the Cuban refrigerated cargo vessel Oceano Atlantico to tranship approximately 4,500 mt of silver hake from Cuban vessels for delivery to Cuba.
[128] On the same date, Peter Partington, Regional Director, Fisheries and Habitat Management, reported to Regional Director-General Bellefontaine about a meeting held on April 24 with Oak Island, Schooner Seafoods and the Municipal Councillor. Panagapko indicated that he had heard that exploratory fishing outside the silver hake box by domestic vessels would be limited in the number of vessels allowed. He was told that DFO had to take a cautious approach during the initial phase for conservation efforts. Panagapko also stated that the OSS program was crucial to developing the domestic fishery, to which DFO indicated that it was conducting public consultations which precluded a response until comments had come in and were evaluated. Mike Newinski of Schooner Seafoods made reference to the processing plant being leased by Oak Island at Wedgeport:
Mr. Mike Newinski indicated to us that he had established a small market in Poland for headed and gutted silver hake and that he was very interested in processing this species for export. He indicated to us that he was the owner of the plant and that he wanted to process herring, mackerel, silver hake, and possibly other imported frozen fish. He didn’t understand why DFO wouldn’t allow a greater number of domestic vessels outside the silver hake box to catch silver hake. Mr. Newinski’s major interest was to keep his plant alive. We indicated to them that domestic vessels could fish silver hake in the box anytime they wanted however, outside the area we would have to limit the numbers until we have better knowledge of the stocks, by-catch, and gear conflict potential. Mr. Newinski made it abundantly clear that he was in charge in Wedgeport and he did not hide the fact that he would be the processor of any species he could get to save his plant. [emphasis added]
[129] When Panagapko asked about Oak Island’s request for 7,000 mt of additional quota, he was told that the request was in the Minister’s office, and:
We once again re-iterated... that domestic fishers can go and fish silver hake anytime they wanted to and that outside the traditional area we would initially restrict the number of vessels. If things proved successful and the resource could stand the harvesting, we would look at things positively in allowing more vessels outside. It was pointed out that the domestic fleet had ample quota, and were free to sell to any domestic plant - therefore Mr. Newinski had fair competitive access to product.
[130] Partington concluded by stating this opinion:
In conclusion, it is our opinion that Schooner Seafoods is not controlled by Oak Island as per the criteria established for silver hake, and is a paper exercise only.... Oak Island appears to be only interested in getting round fish to Egypt. I question the fact that his prime commitment is to Canadianize the fishery. [emphasis added]
[131] Oak Island became involved in a dispute with the Cuban Fleet over the ownership of the catch. This dispute proved particularly expensive for Oak Island because of the costs of the reefer vessel that was standing by on the fishing grounds, ready to accept the catch for transport to Nova Scotia, and then to Egypt, while the dispute was sorted out.
[132] The dispute appears to have centred upon the date on which Oak Island would take possession of its share of the catch being fished under its licence. Oak Island wanted to land the amount in April, while the Cuban Fleet sought to land the fish at a time convenient to it. It was the general practice to land fish for processing at the end of the fishing season in order to avoid unnecessary expense and time loss from fishing. Moreover, the Cuban Fleet later took the position that its sale of 3,000 mt of silver hake to Oak Island would be conditional upon DFO authorizing the OSS by Nova Scotia trawlers referred to in Oak Island’s business plan.
[133] On May 8, Capt. Wooldridge wrote to the Chief Director of the International Directorate of DFO that he had been astounded to learn from representatives of the Cuban Fleet that Oak Island’s planned shipment of 3,000 mt of silver hake to Egypt would be delayed by the Fleet. Although under contract to deliver the fish to Oak Island, the Fleet would not ship unless Oak Island’s request for OSS was approved by DFO. Since Oak Island’s fishing contract was separate from the OSS, he was at a loss as to why the Cuban Fleet was insisting upon such approval before shipping. He said that he was passing this information to DFO bearing in mind that Oak Island did not expect DFO to get involved in contracts because that was not its mandate but, without DFO approval shortly for the OSS, he could foresee many problems arising from the signed contract. The mandate of DFO was to Canadianize the OSS, which allowed Canadian fishermen to be actively involved in this fishery. Anything DFO could do to expedite this matter could save Oak Island a lot of problems.
[134] In a letter of the same date to Panagapko, Capt. Wooldridge noted that the Cuban Fleet was concerned about replacing protein needed by Cuba. But, since Oak Island was confident that it would get further quota and believed that an OSS was very possible, the argument for not replacing this amount was “null and void”.
[135] A briefing note exhibited in evidence gives some indication of the thinking of DFO personnel with respect to Oak Island’s request for an additional quota allocation of 7,000 mt. It is noted in this document that it was perceived by others in the industry that Oak Island had no investment in this fishery and was acting solely as a broker to sell fish to Egypt. It was also noted that departmental officials had the impression from meetings with the owner of Schooner Seafoods that he was the owner of the plant allegedly leased to Oak Island. Two recommendations were made. First, if established criteria were being adhered to, 3,000 mt should be offered; this would be sufficient to last until mid-July. Second, there should be no licence authorization until 15% of the first 3,000 mt of catch was landed for further processing.
[136] Panagapko testified that the requirement to land the first 3,000 mt was not set out in the MOA or other agreements with the Cuban Fleet. He said that it was contrary to the usual practice of landing the catch at the end of the season, and had never been required before this occasion.
[137] On May 11, the Director of the Cuban Fleet wrote to Capt. Wooldridge:
The Fishing Agreement signed February 17th, states the commitment to sell to Oak Island up to, and no more, than 3000 MT of frozen Silver Hake. This has been explicit in the spirit of our previous conversations as well as in the text of the Letter of Intent. To condition the referred to sale to a successful Over the Side Sale (OSS) operation which makes possible the recovery for consumption of our population any amount of frozen fish which is advance[d] to Oak Island under the Fishing Agreement, which to date has not been made totally clear, in spite of the steps being taken by Oak Island to make this possible.
As it stands, the Flota Cubana de Pesca considers that the quantity of Sliver Hake and the delivery dates have not been agreed upon and should be the object of further discussion.
Given this, we believe the date set by Oak Island for the entrance of its cargo ship (May 20th) is premature....[emphasis added]
[138] Captain Wooldridge testified that Deputy Minister Jesus Benjamin would not allow the sale of fish to Oak Island because replacement fish were needed before the sale could proceed.
[139] The next day, Panagapko wrote to the Executive Assistant to the Minister:
Our reefer will be in position ready to receive cargo tomorrow at which time, time will start to count at our expense. We applied for the transshipment license and have been informed by DFO Halifax that it is entirely at the discretion of the Fleet (copy sent to you earlier today). We oppose the fish which is contractually sold to us being taken away. Permission has been give to the Fleet to discharge from our vessels with out [sic, without] any consultation with us. We hope that only the 15% which we have requested to be landed is what is being transshipped to come ashore for processing and not the fish contracted to us for export to Egypt....[emphasis added]
Panagapko said that Cuba had requested to make the sale a condition of the OSS and, later in the letter, stated that Oak Island did not want an OSS because the Cubans demanded it; rather, Oak Island wanted an OSS because it was a good move toward commercialization and Canadianization of the silver hake fishery.
[140] On May 12, Panagapko received from Sheila A. Borge, Foreign Licencing Officer, Scotia-Fundy Region, a letter informing him that DFO had received two applications for transhipment with the Cuban Fishing Fleet. It continued:
It is our understanding that the Cuban representative, Mr. Raul Dominguez, has operational authority over all Cuban vessels fishing silver hake. Therefore, we need permission from Mr. Dominguez to authorize the activity for your chartered reefer vessel. This issue should be discussed between you and Mr. Dominguez. We will adhere to Mr. Dominguez’s decision. [emphasis added]
[141] Panagapko and Wooldridge objected to the Cuban Fleet being permitted to tranship silver hake owned by Oak Island for transport to Cuba. An e-mail from Borge, exhibited in evidence, contains this paragraph:
He queried me on the transhipment licence issued today to Raul for a Cuban Reefer to tranship with ALL the cuban fishing fleet. I told Peter that yes, the licence had been issued, and yes it could tranship with ALL the Cuban fleet, including Oak Island vessels. Peter, was asking why he was not been consulted re the transhipment with Oak Island vessels, and why he did not have to sign for the licence. I advised Peter, that the licence was approved to be released to Raul, that Raul is now the holder of the licence, and if Peter wanted any further specifics he should contact Raul. [emphasis added]
[142] On May 15, Panagapko requested a meeting with the Minister within the next 48 hours to discuss the silver hake fishery for the balance of 1995. He wished to discuss:
1) Oak Island’s request for additional Silver Hake quota. We have been requesting this since January 25, 1995. Our silver hake operation at Schooner Seafoods, Wedgeport, Nova Scotia and our market are at risk with no future idea when and if we will receive additional quota.
2) The OSS proposal with the Cuban Fleet submitted by the Silver Hake Fishermen’s Association and Oak Island providing a market. The OSS consultative process deadline was May 5, 1995. Unless this proceeds quickly both the fishermen and Oak Island will loose the opportunity provided by the OSS to Canadianize the silver hake fishery.
[143] On the same date, Panagapko notified the Chief Director of the Cuban Fleet that the reefer vessel M/V Pioner Murmana had arrived and had served a Notice of Readiness and, therefore, was waiting to receive up to 3,000 mt of frozen silver hake. He requested that the Cuban Fleet advise DFO to issue a transhipment licence and prepare to start transhipment immediately on or about May 18. At that time, the Cuban Fleet had not caught Oak Island’s full quota.
[144] On May 16, Pedro Ramirez Perdomo, Subdirector of the Cuban Fleet, gave 24 hours notice of the intended transfer of fish from the M/V Rio Las Casas to the O/V Oceano Atlantico. He noted that the Rio Las Casas had some damage in one of the fuel tanks which needed immediate repair as soon as transhipment was finished. Panagapko responded that Oak Island’s vessel, M/V Pioner Murmana, had been standing by and ready to receive cargo from the Rio Las Casas, waiting for the Cuban Fleet to authorize the transhipment. He could not understand why, if any of Oak Island’s fish was offloaded the Rio Las Casas, it should not be transferred to the Pioner Murmana which was already standing by to receive the fish.
[145] Exhibited in evidence is an e-mail from Regional Director-General Bellefontaine to the Executive Assistant of the Minister:
One stipulation of the MOA requires Oak Island to land 15% of its silver hake catch for further onshore processing.
Although the May 12, 1995 letter from Capt. Wooldridge to Mr. Panagapko states that all 3,000 tons have been contracted to be sold, the Cuban rep in Halifax assured us that it is the fleet’s commitment to deliver this percentage of fish to Oak Island and they will adhere to this commitment.
Today, May 17, we met with the Cuban rep, Raul Dominiguez, and he reassured us that there are no contractual commitments on their part to sell any fish to Oak Island at this time. However, if an OSS for silver hake is approved, they will sell some fish possibly up to 3,000 tons to pay Canadian fishermen for their deliveries.
The contract that makes up part of our MOA clearly stipulates that 85% of the silver hake catch belongs to the Cuban fleet. This was re-affirmed by the Cuban rep at our meeting.
...
... there is no commitment to transship offshore.
We will not action the Oak Island request to licence the M/V Pioneer Murmana under the Coastal Fisheries Protection Regulations unless authorized to do so by the Cuban fishing fleet or its designated rep. [emphasis added]
[146] Panagapko then wrote to the Cuban Fleet as follows:
We have since May 1, 1995 repeatedly requested your transshipment authorization, and as early as May 3 initiated license application with the Canadian department in anticipation of its receipt. As you have been previously notified by us, our transshipment vessel, M/V “Pioner Murmana”, has been on station, ready and available to receive our product, since May 15. We have been advised by our lawyers that we have a present right to purchase, and you have a present and immediate obligation to sell and deliver to us, frozen silver hake in the quantity specified in our agreement. Your delay in authorization and commencement of transshipment risks causing us substantial liability for demurrage. We shall have no choice but to hold Flota Cubana de Pesca fully accountable for such demurrage incurred between May 15, 1995 and the date on which transshipment commences. [emphasis added]
[147] On May 19, Panagapko complained to Assistant Deputy Minister Chamut about the position being taken by the Cuban Fleet:
We have every reason to believe that Flota Cubana de Pesca is taking our fish out of Canadian waters. What can the Department of Fisheries and Oceans do to stop our fish from leaving our waters?
1) We have a market and a reefer.
2) Flota Cubana de Pesca were to fish it for us at a price, and have accepted payment as per our Agreement.
3) We have paid for our quota and observers while harvesting our fish.
4) We know from recent catch reports that they have caught approximately 2,600 mt out of our allocation, and we know our reefer has been standing by since May 15, 1995 willing and ready to receive our fish caught under our Agreement at a cost to us of USD 5,500/day. We have requested on several occassions [sic, occasions] to land 15% of the catch for further processing.
5) Our lawyers can handle the legal aspects of our Agreement. Can the Department of Fisheries and Oceans prevent our fish from our quota, from leaving Canadian waters? It is urgent because of the long weekend, and the fact that we are experiencing serious communication problems with the Flota Cubana de Pesca relative to our fish.
We have met all of our obligations in our Agreement with Flota Cubana de Pesca. The failure of the Flota Cubana de Pesca to honor our agreement would have a huge negative impact on our silver hake developmental program with regards to market, and product development and proposed investments into the processing of silver hake. [emphasis added]
[148] The Subdirector of the Cuban Fleet wrote to Oak Island on May 19 giving reasons why sales of up to 3,000 mt of frozen silver hake could not begin. First, changes were required to Oak Island’s letter of credit. Second, the Fishing Agreement did not set out a date or time of delivery. He also pointed out that the decision to bring the Pioner Murmana to the fishing grounds in mid-May was a unilateral and premature decision, concerning which the Cuban Fleet had not been consulted. Raul Dominguez testified that the Cuban view was that the reefer should have come only after the fish destined for it had been caught.
[149] Exhibited in evidence is an e-mail from Robert Sciocchetti to Regional Director-General Bellefontaine dated May 25:
I WAS JUST LOOKING AT THE CONTRACT SIGNED UNDER THE MOA AND TAKING INTO CONSIDERATION WHAT IS PRESENTLY GOING ON . THE CUBAN REP. HAS INDICATED TO US THAT AFTER THE 3000 TONNES THEY LIKELY WOULD NOT BE FISHING FOR OAK ISLAND. HOWEVER, PARAGRAPH 2 OF THE CONTRACT UNDER THE MOA MAY OBLIGE CUBA CONTINUE TO FISH FOR OAK ISLAND FOR UP TO 10,000 TONNES OR FACE POSSIBLE COURT ACTION.... BASED ON THIS AND OUR SENSITIVE MEETING WE ARE GOING TO HAVE IN NAFO IT MAY BE WISE TO CONSIDER NOT GIVING OAK ISLAND ANY ADDITIONAL QUOTA THIS YEAR. THIS WOULD SOLVE A PROBLEM FOR CUBA. [emphasis added]
[150] The Subdirector of the Cuban Fleet wrote to Panagapko on May 25. He reiterated the Cuban Fleet’s interest in selling up to 3,000 mt of frozen silver hake on condition of authorization by DFO of an OSS in order to replace protein sold for consumption in Cuba. He concluded:
In addition, we reiterate that the transfer to your ship cannot take place until we have agreed on quantities and delivery dates. Lastly, the terms and conditions set in our letter dated May 11th, 1995, in relation to corrections of the Irrevocable Letter of Credit No. 6SN0017 of the Royal Bank, have yet to be agreed upon.
[151] On May 26, Panagapko wrote to the Subdirector of the Cuban Fleet that Oak Island would no longer be responsible for paying observer fees until its 15% was landed in accordance with the MOA and other Agreements.
[152] On May 30, Regional Director-General Bellefontaine reported to Assistant Deputy Minister Chamut on the proposal for a silver hake OSS. He detailed the consultations which had taken place, commented upon the proposals, and then concluded:
Based on the objections from industry that outside the silver hake box is only exploratory under tight control (area, number of vessels, etc.) and that there is processing capacity, we cannot support this proposal and recommend that this not be approved.
[153] The contents of a briefing note for the Minister of the same date, prepared by Sciocchetti and approved by Partington and Bellefontaine, give some insight into what DFO knew at that time about the dispute between Oak Island and the Cuban Fleet. It recited that Oak Island had been given a 1995 quota of 3,000 mt of silver hake for developmental purposes and had arranged contracts with the Cuban Fleet to harvest it; approximately 2,850 mt had been harvested to date; Oak Island had requested the Cuban Fleet to honour its contract to sell 3,000 mt to it for export to Egypt, and the Cuban Fleet had refused to do so; the sale of all of Oak Island’s 3,000 mt quota to Egypt would violate their MOA with DFO which stipulated that 15% equalling 450 mt must be landed for onshore processing; Oak Island was claiming in excess of U.S. $880,000 for breach of contract and had requested arbitration of its claims; the lawyer for the Cuban Fleet apparently had advised that the Fleet might be accountable because of certain contract wording; and Oak Island had reneged on paying for observer services until the Cuban Fleet delivered the 15% on shore. The current status of the dispute was that the Cuban representative had indicated to DFO that the Cuban Fisheries Department, from the Minister on down, was really disturbed by Oak Island’s action and had indicated that they would no longer charter their vessels to Oak Island; they felt they had been misled. It was recommended that this was a commercial dispute which should be settled by the parties involved.
[154] Oak Island and the Cuban Fleet submitted their dispute to arbitration.
[155] On May 31, DFO estimated on the basis of the existing catch rate that Oak Island’s quota would be fished in full by June 1. Robert Sciocchetti requested that Oak Island be informed that its licence would be amended as of that date, thereby closing its fishery for silver hake. Regional Director-General Bellefontaine testified that this was in accord with the usual procedure being followed at that time which, if not followed, might result in quotas being exceeded. Upon being notified, Panagapko asserted that the quota had not been fully caught, and inquired about the possibility of the additional quota for which Oak Island had applied on January 25 and which the Minister had stated could be made available after mid-season review in May. He pointed out that there was approximately 31,000 mt of TAC not being harvested. The parties agree that Oak Island caught 2,983 mt or over 99% of its 3,000 mt allocation for 1995.
[156] On June 1, DFO directed the Cuban Fleet to cease fishing for Oak Island. Almost immediately, with the approval of DFO, and upon the direction of Raul Dominguez, the Fleet began fishing for D’Eon which had not fished its full quota at that time. Dominguez informed DFO that he would submit data in order to have the vessels re-licenced for D’Eon. The licences were issued the same day.
[157] On June 1, the Minister, on the recommendations of Assistant Deputy Minister Chamut and Deputy Minister Rowat, accepted that Oak Island was working with a market which showed potential for Canadianization of harvesting operations, and authorized an additional allocation of 3,000 mt on condition that 15 % of Oak Island’s initial allocation be landed for processing prior to any transhipment to the Egyptian market and, if the company ran out of allocation prior to the end of the fishing season, a further reallocation would be considered. Assistant Deputy Minister Chamut testified that these recommendations flowed from the mid-season review which had been promised earlier. Attached to this memorandum is a summary of the respective silver hake development plans of D’Eon Fisheries and Oak Island. In a section dealing with Oak Island, after describing the company’s long-term development plan and its 1995 operations, the writer of the report summarized Oak Island’s contractual arrangements with Cuba and then assessed its achievements to date:
c) Contractual arrangements with Cuba
Oak Island has negotiated two contracts with the Cubans:
· the purchase of at least 3,000 tonnes of frozen-at-sea sliver hake at a price of $625.00/tonne; and,
· an agreement to organize an OSS that would enable the Cubans to acquire close to twice the amount of silver hake purchased from their fleet.
These contracts could benefit both parties. It allows Oak Island to satisfy their market’s requirements; and, the Cubans get to use the proceeds from the Oak Island sale to pay for the proposed OSS with Canadian ‹ 65 ft. vessels. Since Canadian OSS vessels have accepted a price of $0.12/lb, the Cubans could end up with twice the amount of protein as a result of the arrangement.
The Cubans now want Oak Island to sign a contract amendment making the first contract contingent upon the second contract. The Cubans have apparently been told that a silver hake OSS may not be approved for 1995. Scotia-Fundy Region has initiated the consultative process regarding the OSS and will forward a recommendation next week. In addition to this, Cuba has threatened to stop its vessels from fishing the Oak Island allocation unless additional allocation is approved.
d) Departmental assessment
Up to this point, the Oak Island operation has taken on the form of a “fish brokerage” operation. The Department’s policy is to eliminate this type of activity from developmental programs using foreign vessels. The company does not own a processing facility or operate any fishing vessel. Company officials indicate that they have leased a plant for 1995 and that they are currently negotiating a plant purchase.
Nevertheless, Oak Island’s marketing efforts could become positive contributions towards Canadianization of the silver hake fishery. Oak Island has committed to meeting the mandatory onshore processing and capital investment requirements of the 1995 Sliver Hake Program. The company should be given the benefit of the doubt for 1995. If, however, the company does not deliver its 1995 proposal, it should not be eligible for future years allocations. [emphasis added]
[158] While the arbitration between Oak Island and the Cuban Fleet was in process, the Cuban Fleet received permission from DFO to tranship approximately 1,000 mt of the fish harvested under its MOA with Oak Island. This was done without notification to Oak Island. Regional Director-General Bellefontaine testified that there was no point issuing a transhipment licence to the Pioner Murmana prior to this time because the Cuban Fleet clearly would not transfer the fish to that ship, and that DFO had decided to issue a transhipment licence to the Cuban Fleet in order to allow it to take its catch home to Cuba.
[159] DFO issued transhipment licences to the vessels of the Cuban Fleet and to the Pioner Murmana on June 2.
[160] On June 7, a Solicitor acting on behalf of Oak Island wrote to the Minister stating that Oak Island had binding agreements whereby the Cuban Fleet would fish Oak Island’ s quota, landing 15 % of it as well as the by-catch for processing, with the remaining 85 % to be purchased back by Oak Island and, since it appeared that the Cuban Fleet would return to Cuba with Oak Island’s fish, Oak Island was requesting the Minister to consider withholding 3,000 mt of the Cuban national silver hake allocation until the dispute with the Cuban Fleet was settled.
[161] On June 6, DFO Ottawa approved an additional 3,000 mt of quota for Oak Island. This was conveyed verbally to DFO officials at Halifax who, in turn, verbally informed Oak Island on June 8. Assistant Deputy Minister Chamut testified that the amount was allocated to help resolve the dispute. Deputy Minister Rowat testified that Oak Island had been pressing for additional quota, and DFO had moved to comply with its requests.
[162] Relying upon the award of additional allocation, Oak Island offered a portion of it to the Cuban Fleet in an attempt to settle their contractual dispute. However, DFO then froze the additional allocation prior to the condition attached to it having been met, stating that it had come to its attention that the Cuban Fleet did not wish to harvest additional silver hake under its Fishing Agreement with Oak Island.
[163] On June 9, Oak Island was informed that the additional 3,000 mt of quota had been frozen by the Deputy Minister. Rowat testified at trial that he had done so after having raised the issue of Oak Island’s additional quota with Jesus Benjamin, Cuba’s Vice-Minister of Fishing, at a NAFO meeting. On June 12, Panagapko wrote to Deputy Minister Rowat stating that Oak Island had altered its position in its negotiations with the Cuban Fleet in reliance upon Regional-Director General Bellefontaine’s verbal assurance that additional quota had been granted, and that withdrawal of the increased quota would cause an irreparable loss of credibility with the Cuban Fleet which would frustrate settlement of the outstanding dispute. He requested that the promised increase be made available immediately.
[164] Deputy Minister Rowat denied Oak Island’s request in these words:
First and foremost, I wish it understood that the dispute between your company and Flota Cubana de Pesca is a private matter, and the Department does not usually get involved in such disputes. Notwithstanding this, from a policy perspective, on occasion, the Department is also called upon to react to certain situations for the overall benefit of the Canadian fishing industry.
The freezing of your additional allocation was initiated by the Scotia-Fundy Region at my request, following a discussion I had with Cuban government officials. Cuban officials made it clear that the additional allocation would in no way contribute to resolving the dispute with your company and that their fleet did not wish to harvest any additional allocation for your company. By so doing, the Cubans in fact rejected your new offer (as attached to your letter) and, therefore, the freezing of your additional allocation should have no further effect in your negotiations with the Cubans.
The additional allocation was offered for the mutual benefits it could provide to your company and Cuba. You also welcomed it based on the belief that it could assist in your negotiations with the Cuban fleet. However, once rejected by Cuban interests, it no longer served any of the above intentions. [emphasis added]
[165] At the bottom of page 1 of this letter there appears a handwritten notation as follows:
You should also be aware that you and your “ham fisted” lawyer put the country into a delicate situation during the NAFO negotiation in June.
It is probable that this notation was written upon DFO’s file copy only. There is nothing in the evidence about the nature of the “delicate situation” and the “NAFO negotiation” referred to. However, Rowat testified that he, as head of Canada’s delegation to NAFO meetings, was upset by the request in the letter of June 7 to consider withholding Cuba’s national allocation in order to pressure the Cuban Fleet to settle the dispute because it raised doubts in Cuba, which was supportive of Canada’s position on the fishing dispute at NAFO meetings, and reflected upon Canada’s integrity, thus compelling him to assure Jesus Benjamin that Canada would not cancel Cuba’s national quota.
[166] On June 13, Deputy Minister Rowat replied to Capt. Wooldridge’s letter of May 8 regarding his desire for an OSS to be approved in order to help resolve Oak Island’s dispute with the Cuban Fleet:
I hope the commercial dispute can be resolved in accordance with the terms of the contract. You will understand, I am sure, that the Canadian Government cannot approve OSS on the basis of the interests of one party. A final decision on an OSS for silver hake has not yet been made. You are aware that there is considerable opposition to such a programme this year. A decision on OSS for silver hake will be based on the variety of Canadian interests involved. [emphasis added]
[167] The dispute between Oak Island and the Cuban Fleet was settled on June 14.
[168] By the terms of the settlement, the Plaintiff acquired from the Cuban Fleet a quantity of frozen silver hake for shipment to Egypt, via Yarmouth. The Minutes of Settlement, which the two parties executed, dealt with four main points. First, the Cuban Fleet was required to sell to Oak Island 1,500 mt of 23 cm silver hake at a price of $460 per mt, and 900 mt of 21 cm silver hake at $385 per mt. Second, the Cuban Fleet was required to assist in the transhipment of the product to the Pioner Murmana, subject to the issue by DFO of the required transhipment licence and other documentation. Third, the Cuban Fleet was required to assist in the transhipment of a quantity of 20 cm silver hake required to be landed by Oak Island under the 15% rule, together with the appropriate quantities of by-catch. Oak Island was required to pay various amounts for this fish, including $20 per mt for the silver hake. Fourth, the Cuban Fleet was not responsible for any demurrage regarding the Pioner Murmana, nor for any port, dockage or related expenses.
[169] On June 15, Raul Dominguez, representative of the Cuban Fleet, informed Robert Sciocchetti that he was authorizing three vessels of the Cuban Fleet to tranship a total of 2,400 mt of frozen round silver hake to the Pioner Murmana. Since the Cuban Fleet had already exported a portion of the amount caught under Oak Island’s quota, it was compelled to replace with fish aboard other vessels. Dominguez testified that approximately 1,500 mt came from vessels fishing for Oak Island, while approximately 900 mt came from Cuba’s 85% share of the catch onboard vessels which had been fishing for D’Eon. The fish was re-labelled in order to comply with the terms of the Minutes of Settlement, under the supervision of Capt. Wooldridge who was then on board one of the vessels. Dominguez testified that the re-labelling was done to Wooldridge’s satisfaction.
[170] Wooldridge was in charge of transhipping. He examined the condition of the cargo on all the Cuban ships. In his opinion, all the fish were of good quality. No problems were found, and he supervised the transhipment. He signed an acceptance of the transfer of the cargo. But halfway through transhipment from the fourth vessel, he noticed that stamps (in English and Arabic) on some of the cartons were unreadable. The stamps contained information required by the Egyptian health authorities. Oak Island had supplied the stamps, but some of the blocks of fish which were not original Oak Island cargo had begun to defrost and the wording on the stamps had become smudged and unclear. He knew this would not be acceptable to the Egyptian authorities. He stopped the transhipment process and contacted Panagapko by radio. They decided that, because of time constraints, Oak Island had no alternative but to accept the transhipped fish, and hope for the best. They never thought that the fish might be rejected. They expected a waiver. They knew that they were taking a calculated risk. One of their considerations was that if the reefer left the fishing grounds for Egypt at that point, the lesser amount might be unacceptable to the Egyptian authorities. Wooldridge signed certificates accepting the fish as delivered by the Cubans, without reservations.
[171] Assistant Deputy Minister Chamut responded to Regional Director-General Bellefontaine’s recommendation not to approve the request for OSS by the Silver Hake Fishermen’s Association. In a memorandum dated June 16, he said that many of the comments from industry were enough to refuse the request. He noted that, while the only reason under the OSS Policy for not permitting the program to proceed was that on-shore buyers were willing and able to buy the fish, the main reason was that the area to be fished was outside the silver hake box. He agreed with the recommendation but believed that DFO’s rationale must be based on concerns regarding the area to be fished rather than any strict interpretation of the OSS policy.
[172] On June 22, Deputy Minister Rowat replied once again to Oak Island’s letter of June 12 by withdrawing the additional allocation:
You will recall that an additional allocation was offered for the mutual benefits it could provide to your company and Cuba. You had indicated to Departmental officials that the 3,000 tonnes of silver hake would also assist you in your negotiations with the Cuban fleet. Prior to the resolution of your dispute, however, it was brought to my attention that the Cuban fleet did not wish to harvest additional silver hake under its agreement with your company. Accordingly, the decision was made at that time to freeze the additional allocation.
Now that the dispute appears to have been resolved, the requirement for the allocation requested by you in your letter no longer exists.... [emphasis added]
Rowat testified that he had decided to withdraw Oak Island’s additional allocation while at a NAFO meeting. He did not consult regional officials before doing so.
[173] In a letter dated June 27, Oak Island pressed Regional Director-General Bellefontaine to waive the 15 % landing and processing requirement under its MOA:
This letter is to request that the 450 mt of silver hake representing the 15% agreed to be landed and processed by Oak Island be waived under our MOA. This would allow us additional funds to pay off some of the extra debt incurred. In return for a wavier, we would encourage local fishermen to catch and land up to or more than 450 mt of silver hake to be processed on shore.
While Oak Island has tried very sincerely to meet our developmental objectives in this years silver hake fishery, we are experiencing financial hardship arising out of delays in obtaining silver hake. These delays have meant that we have had no silver hake to send to our markets. At the same time we have had ongoing legal costs in our arrangement with the Cuban Fleet who as you are aware were to catch our 3000 mt quota. As it is, we hope today that the Cubans will finally start transshipping.... to our reefer which has been standing by since May 13, 1995.
Our situation is desperate. We are sweating our last breath in the silver hake fishery. Delays in obtaining fish, delays in processing, and legal fees have cost Oak Island approximately 470,000.00 dollars in unexpected expenses. We are on the verge of financial collapse. Delays in obtaining any silver hake until now has set us back not only in our foreign market delivery, but has also hurt our present ability to land and process this 450 mt. Receipts from the sale of the 450 mt would keep us solvent and enable us to go to the fishermen immediately to harvest fresh silver hake for on shore processing. Several fishermen from the Silver Hake Fishermen’s Association have requested us to provide on shore market for them.
[174] Raul Dominguez wrote to Deputy Minister Rowat on July 3 asking for assistance in negotiating with D’Eon to replace the protein which Cuba had lost by being compelled to sell 2,400 mt to Oak Island. In this letter, Dominguez said that the contract dispute with Oak Island appeared to have resulted from the Cuban Fleet having been misled by Oak Island.
[175] On July 4, Regional Director-General Bellefontaine denied the application of the Silver Hake Fishermen’s Association for an OSS program. He stated that the main reasons for not approving the request were that the area(s) identified were outside of the current silver hake box and that on-shore buyers were willing and able to buy the fish.
[176] On July 5, Oak Island once again pressed the Minister to waive the 15 % landing and processing requirement in its MOA:
We have advised you of the considerable difficulties we encountered in obtaining delivery from the Cuban fleet of our share (and only partial share at that) of silver hake caught under developmental allocation. Of that product some 2400 mt are destined to our Egyptian market. However, 1500 mt of that product bears a May 6, 1995 production date, and therefore must be landed in Egypt no later than August 6, 1995 or be rejected by Egyptian Authorities.
We anticipate completion of transshipment by 2400 hours tomorrow, July 6, 1995. Allowing for transit and unloading time, that will barely allow for timely delivery of our product in Egypt. If [the] our reefer, M/V Pioner Murmana is (as the transshipment license requires) to first come to Nova Scotia to land the additional 450 mt of silver hake destined for processing in Canada, it may not be possible to meet our delivery deadline with respect to Egyptian regulation. We suggest that this would not only cause a commercial catastrophe for our company, it also would impair the attractiveness of Canadian silver hake and the credibility of Canadian suppliers in this important new market.
We are in a position to make separate arrangements for the landing of squid, mackerel, cod, haddock and pollack bycatch to which the transshipment license refers; however because of the much grater [sic, greater] quantity of silver hake required to be handled, we are not in a position to make such other arrangements for the landing in Nova Scotia of that product.
Please be assured that this unfortunate situation has arisen without fault on our part, and in fact occurred in spite of our diligent and constant efforts since the 13th of May to anticipate and avoid these problems. We find ourselves, however, “between a rock and a hard place” in this matter, and the only solution which we are able to identify is to solicit, and hopefully urgently obtain, the Department’s permission to immediately ship to our market the 450 mt referred to in the above correspondence.
As I hope that this letter makes it clear, this is a matter of extreme urgency and the Department’s immediate and favourable reply will be greatly appreciated.
[177] By letter dated July 7, Regional Director-General Bellefontaine denied Oak Island’s request of June 27 for a waiver, and stated that:
...[w]e cannot waive this condition.
It is our understanding that you have gone to the Minister seeking this waiver. Should you decide to leave Canadian waters with the 15% prior to a Ministerial decision, you will be jeopardizing your position in participating in the program in future years.
For some unknown reason, this letter was not received by Panagapko until July 11.
[178] The reefer vessel had been on standby since May 13, at a cost to Oak Island of U.S. $5,500 per day. Transhipment from the various fishing vessels to the Pioner Murmana was not completed until July 7, when the reefer vessel left the fishing grounds for Yarmouth. Oak Island notified DFO that the Pioner Murmana was proceeding to Yarmouth to discharge 446 mt of silver hake and all by-catch, with the balance onboard destined for Egypt.
[179] The Pioner Murmana arrived in Yarmouth on July 7. There is disagreement as to occurrences during the next three days, before the vessel left the port.
[180] The evidence tendered on behalf of Oak Island will now be summarized. Panagapko wrote to Connie Farr of DFO, at Halifax, on July 7 requesting a licence amendment for the discharge at Yarmouth of approximately 448 mt of silver hake plus by-catch for processing at the Schooner Seafoods plant, Wedgeport, and for storage of some at Ocean Garden Seafoods, Yarmouth. Farr responded by issuing Amendment No. 3 to the Pioner Murmana’s foreign fishing vessel licence. It authorized the vessel to enter the port of Yarmouth commencing July 8 to offload “for export to Egypt”. This amendment was faxed to Oak Island and, upon receipt, Panagapko noticed immediately that the amendment erroneously authorized export to Egypt rather than processing at Yarmouth. Panagapko telephoned DFO several times, but it was Friday night and the DFO office at Halifax was closed. He eventually spoke with Borge who acknowledged the error in Amendment No. 3 and promised to issue a further amendment. Panagapko waited for hours for the amendment to arrive, but it did not. He thought that there had been a change of mind and, therefore, that he was bound to act in conformity with Amendment No. 3. He testified that he was not aware that DFO had an emergency telephone number for a duty officer listed in the Halifax directory. At 11:00 p.m. that night, he faxed Farr acknowledging receipt of Amendment No. 3 and indicating that Oak Island would proceed in accordance with that amendment. Panagapko then discharged stevedores and cancelled storage space for 250 mt which it had reserved at Scotia Garden Seafoods. The following day, Jerry Conway of DFO delivered Amendment No. 4 authorizing Oak Island to land and process the catch. Cold storage space, which was at a premium at the peak of the herring season, could not be replaced or re-acquired.
[181] Panagapko contacted Regional Director-General Bellefontaine to explain the seriousness of the situation, but Bellefontaine refused to relax the landing requirement. Oak Island instructed stevedores to offload the fish onto the wharf and, when that was full, to place the remainder in the parking lot until cold storage space could be acquired. Oak Island informed Bellefontaine of the need for action in order to avoid a commercial catastrophe. When Conway arrived with Amendment No. 4, the fish was re-loaded aboard the vessel.
[182] Evidence presented on behalf of DFO painted a somewhat different picture.
[183] When DFO received a faxed request from Oak Island on July 7 for an amendment to the ship’s licence to authorize the offloading, Connie Farr of DFO replied that this was very short notice for an amendment, for which DFO usually required 15 days, but she would do what she could. She requested another faxed request. Her notes, exhibited in evidence, disclose her record of subsequent actions:
July 7/95
1:22 PM - Received request for licence amendment from Panagapko stating approximately how much cargo would be offloaded and that it would be stored processed at Schooner Seafoods Ltd.
I proceeded to get approval from PEP, FGP and Robert and to type the amendment and receipt. FGP and PEP were not available due to meetings. I had an appointment at 4:00 and had to leave early. Robert gave his OK to send off an amendment. However, the amendment I sent had an error in the wording. It stated fish was to be “offloaded for destination Egypt”. I immediately called Panagapko and advised him that the wording was incorrect and I was changing it to “offloaded for further processing.
3:15 PM - Faxed corrected amendment to Panagapko.
3:45 PM - After I had left, confirmation came back on the fax machine that the fax had not been received by Panagapko. No further telephone calls were received or logged by Panagapko that afternoon.
Saturday July 8/95
6:00 PM - Received a call from Jerry Conway advising that PIONEER MURMANA was not adhering to MOA or licence. Explained above information to Jerry and he took care of faxing the changed copy to Yarmouth for presentation to the Master of the PIONEER MURMANA.
Sunday July 9/95
11:30 AM - I came in to see what had happened and why Panagapko did not receive his fax. I noted that the fax had been sent to his Phone number in error.
I proceeded to go through the files to ensure that all documentation was there and also found a faxed copy of the original amendment #3 with a signed copy of the receipt from Panagapko which had been sent to us at about 10:58 pm
1:30 PM - I called Jerry Conway to find out what should be done at that time and if I should fax Amendment #4 to Panagapko. He told me not to bother that everything that could be done had been done and we would have to wait until Monday.
2:30 PM - Finished with file and left for home;
Monday July 10/95
8:30 AM - Called Cansov and advise that they had to pick up the original amendment and sign the receipt.
9:00 AM - Meeting with Robert, Peter, and Jerry re PIONEER MURMANA.
10:35 AM - Called Cansov and advised that we would deliver the Amendment directly to the vessel.
5:00 PM - Jerry Conway delivered Amendment #4 revoking Paragraph 2.2 directly to Master of PIONEER MURMANA.
[184] Regional Director-General Bellefontaine testified that Panagapko should have known that a correction to Amendment No. 3 would be forthcoming as the result of several phone calls. However, there is no record in Farr’s notes of such phone calls.
[185] There is disagreement as to when and to whom the amendment was delivered. Exhibit 17 Tab 274 includes an amendment receipt form stating that the recipient of Amendment No. 4 for the Pioner Murmana will inform the Captain of the terms set out in it. This is followed by the signature of a representative, the date received of July 10, 1995, and the signature of Conway as witness. Panagapko testified that he did not sign this document. Comparison of the signature of the representative on this document with signatures of Panagapko on various documents exhibited in evidence indicates that Panagapko is correct on this point. But it is an irrelevant point of contention. There is no reason why the receipt should bear his signature inasmuch as the Amendment No. 4 was issued as an amendment of the foreign fishing vessel licence of the Pioner Murmana. The receipt was probably received and signed by a representative of that vessel, as it properly should have been. There was no reason for it to have been received or signed by a representative of Oak Island.
[186] I prefer the testimony on behalf of DFO in regard to the events at Yarmouth of July 7 - 10. Panagapko testified from memory, without notes, as to events which had occurred some eight years earlier. Farr’s notes appear to have been made at the time, or shortly after, the events occurred and, in addition, are corroborated on several critical points by the testimony of Conway. Where the two versions conflict, I reject Oak Island’s version in favour of DFO’s version.
[187] On July 10, Oak Island faxed an urgent message to the Minister:
...[at] present do not have enough storage except for approximately 230 mt which will be full by mid day today. We have tried yesterday and Saturday to find storage for the remaining tonnage (approximately 220 mt) If this fish is unloaded it will have to sit and start to defrost while we continue to try and find storage. I have no more space available. Would you kindly ask if this remaining tonnage can be exported to Egypt.
The Department caused this mix up. We called the Department several times after receiving the amendment and the call indicating that there would be a correction. We did not receive a return call or new amendment. We therefore, concluded that the Department decided not issue any further amendment and proceeded accordingly in accordance with amendment #3. The Department did not have time to make the correction but did have time to send DFO enforcement to us, and contact the Coast Guard and alert them that our reefer is not to leave until the Department authorizes it to due [sic, do] so.
I have enclosed a copy of a letter showing that I had the cold storage capacity as of Friday. Due to heavy herring runs I have lost the space and other space that was available on Friday and is no longer available.
The reefer must leave in order to be in Egypt before August 6, 1995 or the Egyptian government will not accept 1500 mt of this cargo. We are on the borderline of a commercial catastrophe.
As I hope that this letter makes it clear, this is a matter of extreme urgency. What do we do? We await your instruction that must be immediate. [emphasis added]
[188] Regional Director-General Bellefontaine testified that he contacted his superiors in Ottawa about the possibility of tons of fish being left to rot. In a subsequent conference call involving Sciocchetti, Bellefontaine and Partington, DFO reluctantly authorized Oak Island to export the remaining silver hake to Egypt. Deputy Minister Rowat testified that permission was given under duress in order to avoid the fish being left to rot on the wharf.
[189] Oak Island had kept its Egyptian agent informed about its dispute with the Cuban Fleet, the labelling of the fish taken onboard the Pioner Murmana, and its request for a waiver from DFO of the processing requirement. On July 9, it informed that it had “thoroughly analysed the possibilities of changing the dates on the 1500 mt... and have concluded that it would be impossible to do this operation due to the estimated cost of USD $250,000 and the time required of approximately 14 - 21 days”. It expected the vessel to depart Yarmouth on July 10.
[190] The Pioner Murmana left Yarmouth on July 10 bound for Damietta, Egypt, with approximately 2,700 mt of frozen silver hake on board. Only 7% of the catch, less than one-half of the required amount, was actually processed locally.
[191] The cargo was covered by a contract of trade-credit insurance with Export Development Corporation (hereinafter “EDC”). This insurance provided various coverages for the sale transaction including the event of non-payment by the customer resulting from the goods not being accepted and released by Egyptian authorities. Using the EDC coverage, Oak Island was able to arrange financing for the purchase of the cargo via the letter of credit from the Royal Bank. The Egyptian buyer, EFMC, had also arranged a letter of credit with its bankers; it was assigned to the Royal Bank, payable upon satisfactory receipt of the cargo.
[192] In a letter to Panagapko dated July 11, Regional Director-General Bellefontaine expressed DFO’s concern about Oak Island’s participation in the 1995 developmental program:
Throughout the 1995 Program, Department of Fisheries and Oceans’ (DFO) staff have shown flexibility in the issuance of licences, amendments and, recently, in reporting requirements with transhipment at sea. We have also endeavoured to facilitate and expedite your requests. Your last minute planning, requests and preparations appear to have created a crisis of your own doing. You were aware from the outset of the 1995 Silver Hake Developmental Program that 15% of all silver hake harvested under foreign charter was to be landed for further processing in Canada in order to develop Canadian processing and product marketing capabilities.
It is our belief that you have demonstrated little effort in developing Canadian onshore processing and products with this Program, given the recent requests contained in letters to DFO dated June 27, 19956 and July 5, 1995. Your Company’s planning practices placed DFO in a position of having to authorize, at the last minute, approximately 226 tonnes of round silver hake, destined for a Canadian plant, to remain on board the “PIONEER MURMANA” for direct sale to Egypt.
In view of your Company’s performance in the 1995 Silver Hake Developmental Program, any further requests for participation in future programs will consider this year’s performance and be subject to the outcome of the year-end review. [emphasis added]
[193] The Pioner Murmana delivered the cargo of 2,678 mt to Egypt on July 29, only days before the deadline, a month after the buyer originally expected delivery. The Egyptian health officials rejected the shipment because the dates on the stamps, which had been used instead of printed labels, on some of the fish boxes were smudged, thus preventing verification that the fish were landed in Egypt within the time period specified by a basic Egyptian legal requirement. Therefore, the cargo was not in compliance with import requirements. Oak Island had been aware since at least January of 1993 that Egyptian regulations required that fish must arrive in Egypt within three months of being caught, and that boxes containing the fish must be clearly and specifically labelled. Since the catch date could not be ascertained from the smudged stamps, Egyptian quality control standards could not be met.
[194] EFMC refused to pay for the cargo and initiated a claim against Oak Island for certain expenses and lost profit relating to resale of the fish. Until the EFMC was fully compensated, the Plaintiff was denied access to the Egyptian market. At the same time, Ocean Transport was demanding payment on account of remaining demurrage for their vessel from September 27 onward.
[195] Oak Island, working with the Royal Bank and EDC, located an alternative buyer for the fish. ASCOP Corp. of Ukraine agreed to purchase the cargo. ASCOP paid for the cargo after inspection in Cyprus, but when the shipment was unloaded in Ukraine it was found that some of the cargo had spoiled. The cargo was eventually abandoned.
[196] The Plaintiff’s agent in Egypt demanded payment of his account. The export insurer, EDC, was forced to respond to the Royal Bank, which claimed against its Letter of Credit.
(F) The Aftermath
[197] On October 30, Panagapko alleged abuse of authority and bias in a letter to Robert Sciocchetti:
I am in receipt of your fax of today, concerning a meeting on the recommendation of the Harris Panel for silver hake.
I have noted that the main DFO distribution list that you circulated to all of the other participants omitted Oak Island, and only after my call to you at 11:03 AM today did I receive notice of this meeting.
You will recall that Oak Island had no notice of the Harris Panel’s recommendation in 1994 for the 1995 silver hake fishery, and almost resulted in our exclusion from this fishery, due to no prior notice from the Department. We supported the recommendation adopted by the Department in 1995, however, it was evident that the manner in which the Department enforced the Panel’s recommendation relative to Oak Island were bias against us. As you will also recall it was only after a lengthily [sic, lengthy] eligibility process that Oak Island qualified. I suspect that you are preparing to make Oak Island’s participation in the 1996 Silver Hake Development Program as difficult as possible. I say this for the following reasons:
(a) Your negative comments about Oak Island to the Silver Hake Canadianization Committee.
(b) The incorrect information provided by you in our meeting on February 24, 1995 after reviewing Mr. Adel Sayed Ahmed’s letter concerning the shipment of silver hake that originated from D’Eons Fisheries allocation and surfaced in Egypt with documentation that contained misleading information, stating to me not to bother pursuing this because the Minister gave D’Eon special permission, later to find out from the Minister in his letter dated March 17, 1995 that this was not the case.
(c) Your decision to abdicate authority to Flota Cubana de Pesca for a Transshipment license for Oak Island.
(d) Your very close relationship with Mr. D’Eon that you have very little time for Oak Island, while you have an extremely large amount of time for D’Eon. The gifts that you received from Mr. D’Eon. Mr. D’Eon driving you to and from the consultative meeting to discuss the merits of the silver hake OSS proposal, knowing Mr. D’Eon’s opposition to Oak Island’s participation in the silver hake Development Program, to doing business with Flota Cubana de Pesca, and our participation in the Silver Hake Canadianization Committee.
(e) Your persistent negative attitude that you have shown since we started doing business with Flota Cubana de Pesca, in competition with D’Eon.
You have a great amount of authority within your present position. Your abuse of that authority is a disgrace to the Department. Please respect the authority that the Department has vested in you, and stop being bias. [emphasis added]
[198] On the same day, he wrote to Neil Greig, President of Unaaq Fisheries Ltd., telling him that Oak Island was preparing a legal claim against DFO, and reminded him of a conversation in January of the same year:
The details of your conversation with DFO last January, l where DFO encouraged you not to work with Oak Island on silver hake, is important to our case. I recall you telling me that someone in DFO had instructed you not to put a silver hake proposal forward to them that included Oak Island, and that we would not be receiving a license this year. You asked DFO why Oak Island was “persona non grata”, and the person replied “read my lips” do not put a plan forward that includes Oak Island, or something similar to that effect.
[199] On November 3, Deputy Minister Rowat informed Assistant Deputy Minister Chamut and Regional Director-General Bellefontaine that he was prepared to sign a letter to Oak Island pointing out his concerns with its track record. A draft was prepared by Jacques Robichaud. On November 6, Assistant Deputy Minister Chamut wrote to Robichaud:
I understand this has been forwarded to you to work with Neil on reply for the Deputy’s signature. I think it would be useful to do so, as we are going to have a difficult time in 1996. The letter should lay out our record of concerns with respect to their record of performance in 1995 documenting all of the failures of Oak Island to live up to their obligations. I have one admonition: make double sure that all the assertions are provable, and have the letter reviewed by DOJ advisors as I can see this getting litigious!
[200] On January 17, 1996, Deputy Minister Rowat wrote to Panagapko that Oak Island would not be eligible to participate in the 1996 silver hake development fishery because it had failed to demonstrate efforts to develop a Canadian onshore processing facility and had failed to meet the 1995 criteria including the 15% landing and processing requirement:
I am writing you concerning your past efforts in developing Canadian onshore processing and products through participation in the silver hake developmental fishery.
As you are aware, the objectives of the silver hake developmental fishery are Canadianization of the fishery and the creation of jobs onshore. As mentioned to you in a letter date July 11, 1995 from Mr. Neil A. Bellefontaine, Regional Director General, Scotia-Fundy Region, you have demonstrated little effort in developing Canadian onshore processing and products with this program.
As your Company did not meet the agreed upon criteria of the 1995 silver hake developmental fishery, which includes landing 15% of the catch for processing in Canada, your company will not be eligible to participate in any 1996 silver hake developmental fishery. [emphasis added]
[201] Panagapko replied to Rowat on January 25:
I am in receipt of your letter dated January 17, 1996 concerning the silver hake developmental fishery. I disagree with your decision to eliminate Oak Island from this fishery. It appears the Department is avoiding the truth in an attempt to cover their bias and intentional negligence relative to the Department’s efforts to thwart Oak Island’s participation in the Canadian silver hake developmental fishery in 1995. I say this for the following reasons, which represent some of the facts relative to the above;
a) The Department directly stating to private business not to work with Oak Island knowing that Oak Island had a lucrative silver hake sales contract in hand and stood to earn considerable profits.
b) The Department originally distributing only 3000 mt of silver hake allocation to us in 1995 knowing that Oak Island had a fishing contract for 10,000 mt and lucrative sales while there was approximately 30,000 mt of quota that would not be utilized in 1995, including 8000 mt of reserve quota for participants who required additional quota.
c) The Department intentionally terminating our fishing contract, by allowing our quota to be exhausted very early in the season.
d) The Department “freezing” our allocation, with out [sic, without] just cause, at a time that you knew would cause us serious financial losses, and undermine our contracts.
e) The Department abdicating authority to a foreign entity for a Canadian transshipment license, knowing that it would cause us serious financial losses, and undermine our ability to negotiate in a commercial dispute.
f) The Department interfering, against Oak Island, in highly delicate commercial negotiations with Flota Cubana de Pesca.
g) The opposition and bias from the Department toward Oak Island.
h) The additional criteria and method imposed solely on Oak Island in 1995 by the Department.
The above is the truth. The information is documented and in your possession. Oak Island is in the process of quantifying the costs and damages caused by the Department’s intentional neglect. The Department is liable for these costs and damages and we will make every effort to recover them.
Oak Island has demonstrated a great deal of effort developing commercially viable on-shore silver hake processing and products, as well as, a commercially viable Canadian fishery. This can be easily verified by contracting the many processors and fishermen in south western Nova Scotia who we have worked extensively with over the past several years. The Department is aware of these and our other efforts, our strategy, in the development of a Canadian silver hake fishery, including developing the largest and highest paying market that could sustain a commercially viable Canadian fishery and on shore processing. You are also aware that Oak Island have sold more silver hake world wide than all of the other Canadian silver hake participants combined. Prior to this market being developed, market for silver hake was the highest priority of the Department. What happened???
The Department is directly responsible for Oak Island not landing the total 15%. Mr. Bellefontaine, Regional Director Scotia Fundy Region, gave us permission to export that fish which could not be cold stored. Although Oak Island requested permission to export the 15%, we had every intention of landing it. As you are aware we had ample cold storage and processing. It was the errors made by the Department on our licence amendments that resulted in only 6.7% being landed due to lack fo cold storage. This is also documented and in your possession. It is incorrect for the Department to penalize Oak Island for the Department’s errors.
I urge you to reconsider your decision to eliminate Oak Island from the developmental silver hake fishery. To penalize us, with out [sic, without] just cause is incorrect. As you are aware you are also preventing us from entering into lucrative contracts for silver hake in 1996, and that our allocations were to be issued for a period of five years, subject [to] a yearly review by the Department. We want what we have rightfully earned. We deserve at least 6000 mt (3000 mt originally awarded plus the additional 3000 mt later frozen) and request 10,000 mt for 1996. By maintaining your present position you will cause us to loose not only our profits but also our reputation domestically and internationally as a reliable Canadian silver hake buyer and supplier. Your failure to reverse your decision to eliminate Oak Island from the silver hake developmental fisher and make restitution for the costs and damages in 1995, will cause us further significant financial losses, to which we will hold the Department fully responsible.
We wish to settle this matter asap. We request a meeting with you to achieve a resolution. We will not let this matter pass. [emphasis added]
[202] Exhibited in evidence is the Deloitte & Touche report of its compliance audit of the 1995 developmental silver hake fishery.
[203] Under the heading of “Update of 1994 silver hake fishery”, the report contained these comments with respect to D’Eon Fisheries:
Thus, D’Eon still has not met the processing requirement of its 1994 MOA. The total amount of its 1994 allocation processed to date is 446 mt (6.7%). Given that this fish has been in storage for 18 months, the Company’s ability to comply with the 1994 MOA is questionable.
As noted in last year’s report, D’Eon fell short of its processing commitment by 154 mt (representing 0.8% of its catch and effort) with respect to the 1993 Fishery. Thus, the Company has not yet met its processing requirements for two years.
[204] The report contained the following comments with respect to Oak Island:
The MOA with the Department required Oak Island to land 15% of the silver hake harvested by the Cuban Fleet for processing to at least the H&G stage. On July 7, the Department authorized an amendment to the MOA to allow Oak Island to ship 250 mt directly to Egypt without landing or processing in Canada. This authorization was subsequently withdrawn on July 10. By this time the Company maintains that it had made irreversible arrangements to transship the fish and was no longer in the position to comply with the MOA.
The final result of this is that Oak Island’s actual landings were 7% of the reported catch and effort, and the Company has therefore not met the 15% landing and processing component of the MOA. (Of the 7% landed, all has been subsequently processed to H&G and sold). [emphasis added]
[205] After a table analysing Oak Island’s specified by-catch, there appeared this comment:
This table shows that Oak Island landed 8.3 mt (whole round equivilents) of these species, which is 59% of the reported catch. Thus the Company does not appear to have met the landing requirement of the MOA. [emphasis added]
[206] The report commented upon Oak Island’s activities in developing the Canadian fishery:
The major portion of Oak Island’s activities in marketing silver hake in 1995 (as in 1994) have been directed toward selling Cuban whole-round fish into Egypt. Management contends that these activities would help to develop the Canadian fishery by creating market demand for silver hake sufficient to support a Canadian fishery in future years. However, several key indicators of efforts to develop the fishery should be considered:
· Oak Island has landed and processed only 7% of its allocation. The remaining 7% was trans-shipped in whole-round form to Egypt.
· The majority of effort and expenditure over the past two years has been directed to marketing Cuban fish to Egypt. Oak Island acted primarily as a broker in these deals, which did not involve any “Product of Canada” fish.
· The Company has made no capital investments in 1994 or 1995.
· The Company has not yet settled its liabilities to its leased processor, which presently amount to approximately $113,000.00
On balance, we do not believe the Company’s activities can be considered “development of the Canadian fishery” for the purposes of this study. Oak Island’s efforts continue to be focused primarily on selling whole-round Cuban silver hake to Egypt. These sales would not have involved any of the company’s own allocation, and would not have provided any “value-adding” in Canada. [emphasis added]
[207] The significant findings of the auditor were summarized in a section entitled: “Summary of Significant Findings”. This summary included the following:
· An analysis of D’Eon’s 1994 sales and processing activities indicates that D’Eon still has not processed its 239 MT of Silver Hake from its 1994 harvest, and is thus not yet in compliance with its 1994 MOA.
· No significant capital investment has been made during the year.
· Oak Island’s landing requirement was incorrectly reduced by 250MT on July 7, effectively reducing the Company’s landing requirement to 7%. This amendment was rescinded on July 10, but the Company did not comply on the basis that it was no longer in a position to do so. Accordingly, Oak Island is not in compliance with the landing requirements of its MOA. The 7% landed has been processed and sold.
· Oak Island is not in compliance with its by-catch landing requirements.
· No significant capital investment has been made during the year.
[emphasis added]
[208] Also exhibited in evidence is a draft - for discussion only - of the report of the compliance audit, showing hand-written interlineations at various points. Some of these are suggested changes, some are more questions, some are comments. Some of the interlineations led to changes in the final report. Since the fax cover sheet indicates that the draft was transmitted by DFO, it is a fair inference that the interlineations reflect the result of DFO’s review of the draft document. Andrew Hill, C.A., who supervised the audit, testified that it is standard practice to forward a draft of an audit report to the client for its comments before the report is finalized. He said that the conclusions stated were the conclusions of the auditor, and were not influenced by Sciocchetti or others.
[209] Also exhibited in evidence is a briefing note for the Deputy Minister prepared by Robert Sciocchetti, as A/Chief, Surveillance Operations Division, Conservation and Protection Branch, and approved by P. Partington, Regional Director of Fisheries Management, Scotia-Fundy and Neil A. Bellefontaine, Regional Director-General, Maritimes Region. The briefing note set out in some detail the background of the relationship between Oak Island and DFO in 1994 and 1995, and concluded with a brief statement of the current status of that relationship followed by two recommendations:
CURRENT STATUS
A currently completed audit of the Silver Hake Developmental Program by Deloitte & Touche Chartered Accountants indicates that Oak Island:
· did not meet its 15% silver hake landing requirement;
· does not appear to have met its by-catch landing requirements as per the MOA;
· has not made any capital investments in 1994 or 1995;
· has not settled its liabilities to its leased processor, which presently amounts to $113,000.
They also indicated:
“On balance, we do not believe the Company’s activities can be considered “development of the Canadian fishery” for the purpose of this study. Oak Island’s efforts continue to be focused primarily on selling whole round Cuban silver hake to Egypt. These sales would not have involved any of the company’s over-allocation, and would not have provided any value-adding in Canada”
RECOMMENDATIONS
That the Department not change its position allowing Oak Island International Group Ltd. to participate in the 1996 Program.
That since Oak Island has indicated in its letter of January 25, 1996, that it intends to recover its 1995 costs from DFO, future correspondence from Oak Island should be directed to our Legal Services.
[210] On March 22, 1996, Deputy Minister Rowat wrote to Panagapko as follows:
In response to your letter of January 25, 1996, this is to inform you that the decision not to allow you to participate in the 1996 Silver Hake Developmental Fishery will not change. Since you have indicated in your letter that you intend to hold the Department liable for any costs and damages that you may have incurred in the 1995 fishery, we have referred this matter to our legal advisors....
[211] Although Oak Island had intended to apply for an allocation for 1996, it did not apply and was not awarded an allocation for that year. It also did not apply in any of the years 1997-2000. Panagapko testified that it applied once again in 2001.
[212] In the notes to the financial statements of Oak Island for the year ended June 30, 1996, Oak Islands’s accountant stated:
“Problems with the shipment of fish to Egypt in 1995 resulted in numerous claims causing significant losses...Payments totalling $4,303,658 are detailed.”
Among other information set out is the fact that Oak Island paid rent in 1995 in the amount of $6839. The figure is not broken down.
[213] Jerry Conway testified that Robert Sciocchetti had told him in early 1995 that he was thinking about leaving DFO and would be seeking employment as a consultant. Based on his experience within the Department he felt that he had something to offer various fishing companies. D’Eon Fisheries was not mentioned. Conway found out after Sciocchetti left that he had taken employment with D’Eon Fisheries in or about April, 1998, as a consultant in the management of its fishery operations. Sciocchetti had left because he felt that he could make a better income consulting in the private sector.
[214] Conway believed that Sciocchetti’s relationship with D’Eon in 1995 had been a professional relationship, and that his conduct with Mr. D’Eon was no different than his conduct with any other participant. Panagapko recalled a meeting in a motel in Dartmouth in mid-1995 at which D’Eon and Sciocchetti had arrived and left together. When asked upon Discovery about Mr. D’Eon driving to and from various meetings, Conway testified that Sciocchetti had mentioned only one meeting when they had shared the same vehicle.
[215] When asked by counsel whether there is any restriction on DFO officers becoming employed or associating themselves in private industry with the companies that are involved in the fishery managed by former DFO officers, Conway testified that at senior executive levels there is a requirement that one must be divested, removed or unassociated for a minimum of one year, but there is no restriction at Sciocchetti’s level so that he was free to join a company which had come under his mandate during his time with DFO. No evidence was adduced at trial in contradiction of these answers given upon Discovery. It may be seen in retrospect that this line of questioning directed to Conway was improper, but I find no basis for an inference that Sciocchetti was biased in favour of D’Eon or against Oak Island.
[216] The various claims initiated against Oak Island may be enumerated as follows:
1. Royal Bank - loss on Letter of Credit $ 556,378
2. Demurrage - Ocean Reefer Transport Ltd.
Re: Pioner Murmana $1,043,075
3. Egyptian Fish Marketing Company
- claim for lost profit $1,064,910
4. ASCOP Corp. and ASCOP Ukraine (broker)
- loss on re-sold cargo $1,218,262
5. Adel Sayed Amhed - commissions $ 73,935
TOTAL $3,956,560
[217] The Plaintiff was unable to meet its obligations and filed an assignment in bankruptcy on February 17, 1997.
ALLEGATIONS
[218] It is considered desirable to analyse the facts by way of reviewing each of the many allegations being made by the plaintiff in this action.
[219] However, before commencing the analysis, one matter may be noted here.
[220] This analysis is necessitated by the length and complexity of the facts. It was hoped prior to trial that the parties would be able to see their way clear to agree to all, or substantially, all of the relevant facts. Unfortunately, they were not able to do so. It is now clear in retrospect, at least to me, that if they had been able to do so the actual trial time of 29 days could have been reduced substantially, and it would probably not have been necessary to file pre-trial briefs totalling some 180 pages and post-trial briefs totalling some 300 pages. In my opinion, the parties should have been able to agree upon over 90% of the facts. The substantive facts, that is, what actually occurred, do not appear to be substantially in dispute. What is disputed is the mental element, that is, the intention behind or accompanying certain actions. The plaintiff seems to be complaining not so much that the defendant performed certain acts but, rather, that the defendant did the acts in a legally objectionable manner. With all, or substantially all, of the facts agreed upon in advance, the trial could have focussed on the mental element. There is very little direct evidence as to that mental element other than bare assertions — mostly by Panagapko and Wooldridge — as to their belief of the intention behind or accompanying a particular action of DFO or its officials. That mental element must therefore be inferred from contemporaneous occurrences and statements, or not at all.
[221] In its statement of claim, the plaintiff set out 11 particulars of alleged flagrant acts of misfeasance and abuse of public office, and five particulars of interference by DFO with the contractual relations of Oak Island.
* * *
[222] I turn first to the allegations of misfeasance or abuse of public office. I will try to summarize the principal evidence applicable to each allegation.
(a) DFO improperly introduced new criteria in 1995 to obtain a silver hake licence
[223] In the management plan for 1995 proposed by Regional Director-General Bellefontaine to Assistant Deputy Minister Chamut, it was recommended, inter alia, that the 1994 criteria be used for 1995. The Minister accepted the proposal and approved criteria and operational guidelines for the 1995 developmental program. However, Dr. Harris reported the recommendations of the Harris Panel to the Minister on December 22. The central recommendation was in favour of direct foreign allocations. DFO reviewed the recommendations of the Harris Panel, but decided that the recommendation of direct foreign allocations was too radical for the time being and the implementation of these recommendations would require a complete restructuring of the developmental program. DFO staff decided to recommend continuation of the existing process, but revised to accord with the thrust of the recommendations of the Panel. For the 1995 season, the principal revision to the criteria was that participants must own or lease or manage a fish processing plant. Successful participants in 1994 would not have to reapply for access to the fishery if they had met the criteria of the 1994 season and complied with the revised criteria outlined.
[224] The process of introducing new criteria appears to be one facet of the management of the fishery, which the Minister is authorized to do. The Minister manages the fishery by establishing relevant policies such as those concerning licencing and quotas. I have no doubt that this includes the establishment of criteria.
[225] In Carpenter Fishing Corp. v. Canada (1997), 155 D.L.R. (4th) 572, leave to appeal refused, [1999] S.C.C.A. No. 349 (S.C.C.) the Federal Court of Appeal stated at p. 581:
The imposition of a quota policy (as opposed to the granting of a specific licence) is a discretionary decision in the nature of policy or legislative action....
And at p. 582:
If the quota is adopted for a valid purpose ... one cannot look at its effects to condemn the motives of its proponents.
And, further, at p. 585:
Quotas invariably and inescapably carry with them some element of arbitrariness and unfairness. Some fishermen may win, others may lose.... Seldom, if ever, is the imposition of quotas a win-win situation.
[226] It can be seen that the process of adopting revised criteria for 1995 was a reasonable one, created after internal discussion in response to the recommendations of the Harris Panel. Even though the new criteria may have had a greater effect upon Oak Island than upon D’Eon Fisheries, there is no support in the evidence for an assertion that the revised criteria were shaped or brought into force for that reason. The revised criteria were equally applicable to all participants. If the criteria had been drafted only to comply with the recommendations of the Harris Panel, Oak Island would have been automatically eliminated from participation in the 1995 fishery because it did not own a processing facility at that time and, moreover, direct allocations to foreign fishers would have prevented it from obtaining any allocation for 1995.
[227] The process followed appears to have been about what one would reasonably expect of the civil service or any large organization. I find no evidence of unfairness or biased behavior in the development, approval and introduction of the new criteria. In short, I find no support in the evidence that DFO improperly introduced these new criteria for 1995.
(b) DFO improperly and without justification delayed granting Oak Island its fishing licence in 1995
[228] DFO had the legal right to delay granting a licence.
[229] Section 7 of the Fisheries Act, R.S.C. 1985, c. F 14, empowers the Minister, in his absolute discretion, to authorize or issue leases and licences for fisheries or fishing. In Comeau’s Sea Foods Ltd. v. Canada (Minister of Fisheries and Oceans), [1997] 1 S.C.R. 12, the Supreme Court of Canada reviewed this provision and held at page 28: (a) the Minister’s authorization to issue a licence does not confer an irrevocable legal right to a licence; (b) until a licence is issued, there is no permission to do what is otherwise prohibited; (c) until a licence is issued, the Minister may re-evaluate or reconsider and change his initial decision to authorize its issue.
[230] The scope of the Minister’s discretion is stated to be absolute, but it is not an unlimited discretion. It is limited by the requirement of natural justice. In Comeau’s Sea Foods Ltd., supra, the Supreme Court held at p. 25:
It is my opinion that the Minister’s discretion under s. 7 to authorize the issuance of licences, like the Minister’s discretion to issue licences, is restricted only by the requirement of natural justice, no regulations currently being applicable. The Minister is bound to base his or her decision on relevant considerations, avoid arbitrariness and act in good faith. The result is an administrative scheme based primarily on the discretion of the Minister: see Thomson v. Minister of Fisheries and Oceans, F.C.T.D., No. T-113-84, February 29, 1984.
[231] The revised criteria for 1995 were announced in a press release on January 12. Regional Director-General Bellefontaine informed both D’Eon Fisheries and Oak Island on January 13 that their previous year’s allocations had been approved.
[232] On January 16, D’Eon Fisheries submitted its business plan and DFO, having previously inspected processing facilities which D’Eon owned, informed D’Eon that it complied to criteria. But Oak Island had not previously owned a processing plant. On January 18, Panagapko confirmed that Oak Island had leased a processing plant and was responsible for managing it and, therefore, that it met the revised criteria for 1995. He submitted a copy of the lease, which contained a clause permitting it to sublease from time to time when the premises were not being used for processing silver hake. I find that it did not, at the same time, forward to DFO a copy of a sublease which it had entered into with the original landlord. DFO requested additional information or clarification. It asked Oak Island for additional information about its licence, processing facilities, and the implications of the sublease clause. It also asked for additional information concerning product development, marketing, and plans for capital investment. The requested information was needed so that DFO could ascertain that it was in accord with the criteria for the 1995 fishery which had been approved. Oak Island’s responses to this and subsequent requests for information were prolix and vague, giving the impression that it was avoiding specifics and possibly had something to hide. When DFO later requested information about Oak Island’s corporate name and registration, Oak Island did not appear to recognize that DFO was simply performing its due diligence with respect to the original 1995 criteria that proposals must originate from an existing registered Canadian company which is at least 51% Canadian owned and controlled. Nor did it appear to appreciate that the investment in processing facilities required of it was in the nature of capital investment rather than a mere accumulation of operating expenses.
[233] In the interim, none of this prevented Oak Island from entering into agreements with the Cuban Fleet. Oak Island’s participation in the developmental silver hake program was approved on or about February 24. Oak Island later complained that DFO had delayed giving its approval and, still later, asserted that DFO had set up “road blocks”. It is clear that DFO delayed confirming its approval of Oak Island’s participation in the 1995 fishery for good reason. It is equally clear that Oak Island, not DFO, was the cause of the delay.
[234] I find nothing improper or unjustified about the delay in granting Oak Island its 1995 fishing licence. The evidence supports the conclusion that the delay was both proper and justified in the circumstances. The delay was based on relevant considerations, without arbitrariness and in good faith.
(c) DFO improperly and without justification delayed granting Oak Island its transhipment licence in 1995
[235] The dispute between Oak Island and the Cuban Fleet broke out in late April. Oak Island applied for a transhipment licence about May 3. It apparently wanted to obtain immediate possession of the 3,000 mt mentioned in the Private Agreement and the Letter of Intention. But the provisions of those two documents are not particularly explicit. The Private Agreement provided that the sale would depend upon Oak Island obtaining an extra silver hake allocation, and the Letter of Intention provided that Oak Island agreed to buy an amount to be agreed upon, which might be reduced by 3,000 mt considering the similar amount which Oak Island anticipated receiving pursuant to the Fishing Agreement. An additional allocation had not been granted at the time Oak Island applied for the transhipment licence. Moreover, the Cuban Fleet took the position that the delivery dates had not been agreed upon and, therefore, were subject to agreement. The Cuban Fleet also contested the ownership of the fish. DFO declined to issue a transhipment licence to Oak Island without the consent of the Cuban Fleet. Borge e-mailed Oak Island around May 12 that the licence had been approved to be released to Dominguez who was now the holder of the licence. Panagapko wrote to the Cuban Fleet that, since May 1, Oak Island had repeatedly requested its transhipment authorization, and its delay in authorizing and commencing transhipment risked causing substantial liability for demurrage. In short, the matter of a transhipment licence for Oak Island became tied up in the dispute between Oak Island and the Cuban Fleet. The interpretation of the provisions of the Fishing Agreement and the Letter of Intention were unclear. DFO, without notice to Oak Island, permitted the Cuban Fleet to tranship 1,000 mt of fish. Bellefontaine testified that there was no point issuing a transhipment licence to Oak Island’s ship, the Pioner Murmana, because the Cuban Fleet, in dispute with Oak Island, would not transfer the fish to Oak Island’s ship. On June 2, DFO issued transhipment licences to both the Cuban Fleet and the Pioner Murmana. On June 15, the day the dispute was settled, Dominguez authorized three vessels of the Cuban Fleet to tranship to the Pioner Murmana.
[236] Clearly, there was some delay in granting a transhipment licence to Oak Island. Taking the general position that it did not wish to become involved in private disputes, and taking the particular position that the interpretation of the Fishing Agreement and the Letter of Intention was uncertain, DFO was doubtless justified in declining to issue a transhipment licence without the consent of the Cuban Fleet. The greater part of the delay resulted from the failure of the Cuban Fleet to authorize transhipment from its vessels to the Pioner Murmana. Oak Island acknowledged as much in the letter which Panagapko wrote to the Cuban Fleet by impliedly accepting that the Cuban Fleet’s consent was a prerequisite to transhipment. The Cuban Fleet delayed further from June 2 to June 15, that is, from the date on which DFO issued its transhipment licence and the date on which Dominguez authorized three vessels of the Cuban Fleet to tranship to the Pioner Murmana. The delay caused by the Cuban Fleet cannot be attributed to DFO.
[237] Section 5.1(a) of the Coastal Fisheries Protection Regulations, C.R.C., c 413 authorizes the Minister to issue a licence to a foreign fishing vessel to tranship or take on board any fish. This is sufficient authority for DFO having exercised its discretion —based on relevant considerations, without arbitrariness and in good faith — in doing what it did leading up to the issue of the transhipment licence.
[238] I find that the delay in granting Oak Island its transhipment licence was proper and justified in the circumstances.
(d) DFO, improperly and without justification, terminated Oak Island’s fishing licence in June of 1995
[239] Oak Island and the Cuban Fleet submitted their dispute to arbitration in late May. On May 31, following the usual practice, DFO estimated on the basis of the existing catch rate that Oak Island’s quota would be fished in full by June 1. Sciocchetti requested that Oak Island’s licence be amended as of that date, thereby ending Oak Island’s season. The recommendation was accepted and, on June 1, DFO directed the Cuban Fleet to cease fishing for Oak Island. Licences permitting the Cuban Fleet to begin fishing for D’Eon Fisheries were issued the same day.
[240] The Fishing Agreement provided that it terminated when Oak Island’s allocation was caught. Thus, the Cuban Fleet’s right to fish Oak Island’s allocation would expire when the allocation was caught.
[241] DFO terminated Oak Island’s fishing licence on, or almost on, its expiry. I find nothing in the evidence to support the allegation that the termination by DFO of Oak Island’s fishing license was improper or without justification.
(e) DFO refused to grant Oak Island additional allocation for silver hake in 1995 to further undermine Oak Island’s involvement and further pressure Oak Island out of the silver hake fishery
[242] The first indication that Oak Island expected an allocation larger than that which it had in 1994 is found in the letter which it sent to the Deputy Minister of Fisheries and the Director of the Cuban Fleet on November 4, 1994, in which Panagapko and Wooldridge stated that they expected that Oak Island’s allocation would be not less than 10,000 mt. There is nothing in the evidence justifying such an expectation. In the letter dated December 14, Panagapko informed the Minister that Oak Island had made arrangements via a Letter of Intent with the Cuban Fleet to harvest a minimum of 10,000 mt. That statement is not correct; the Letter of Intent referred to a maximum of 10,000 mt. This letter may be viewed as a solicitation for a larger allocation; Regional Director-General Bellefontaine testified that, in his opinion, it was unrealistic; in view of the fact that DFO had not at that time indicated what the allocations for 1995 might be, and the further fact that Oak Island had not caught anywhere near its full quota in 1994, the letter might be termed arrogant or intended to mislead.
[243] On January 16, 1995, Captain Wooldridge wrote to the Chief Director of the Cuban Fishing Fleet that Oak Island was confident and had it on good authority that it would be awarded additional amounts up to 10,000 mt. There is nothing in the evidence to support the view that the “good authority” upon whom he relied, namely, David Lemon of DFO, was in a position to know or inform him in advance of the Minister’s decision as to the quantum of Oak Island’s 1995 allocation. Captain Wooldridge went on in the same letter to state that Oak Island was entitled to any surplus quota. There is no support in the evidence for his claim of such an entitlement.
[244] In a letter to the Chief Director of the Cuban Fleet dated January 21, Captain Wooldridge said that if there were any doubts about Oak Island’s allocations being in place, they no longer existed. This statement could not possibly be true because it was made at a time before the allocations for 1995 were decided upon and made public.
[245] On February 24, Regional Director-General Bellefontaine informed Oak Island that an additional allocation of 1,500 mt had been approved, for a total allocation of 3,000 mt. Oak Island was disappointed with its 1995 quota, and immediately complained to the Minister. Its complaint was in the form of an attack upon DFO. Panagapko complained of running into a large number of DFO stumbling blocks, that the number of inshore groundfish licences was being limited, that Oak Island was being excluded from membership on the silver hake Canadianization committee, and that Oak Island’s quota was unfair. Captain Wooldridge complained to Dr. Harris that Oak Island was astounded to find that it did not receive an allocation relative to the amounts which it had requested; it had no reason to expect an allocation of the amount it had requested. On March 3, an official in the Minister’s office informed Panagapko that it might be possible to consider an additional allocation after a mid-season review. In a letter dated March 10, Oak Island said that it required an additional quota to meet planned undertakings made with the expectation that it would receive a 10,000 mt allocation; it had no basis for such an expectation. Panagapko met with Bellefontaine on March 13. He testified that Sciocchetti, Ferguson and Bellefontaine told him at that meeting that Oak Island would be granted additional quota at a later date, and he had been told the same thing on other occasions by Borge, Sciocchetti and Bellefontaine. I do not accept his testimony in light of the fact that in a letter dated the same day of the meeting, Panagapko said that Oak Island was looking forward to the possibility of an additional allocation from possible re-allocations from present licence holders. Panagapko faxed Assistant Deputy Minister Chamut on May 2 urgently requesting additional allocations. Finally, on June 6, DFO Ottawa approved an additional 3,000 mt of quota in order to help resolve Oak Island’s dispute with the Cuban Fleet.
[246] My review of the foregoing facts leads me to conclude that DFO never promised additional allocation to Oak Island, and that Oak Island’s requests for additional allocation were based upon expectations which it — not DFO — had created for two reasons. First, it had created the expectation of an enlarged or additional allocation in late 1994 in order to persuade the Cuban Fleet to fish for it and to allocate a certain number of vessels to the enterprise. Second, its statements of expectation to DFO were based on nothing other than its own need to make up for financial losses sustained in 1994 and to offset the extra expenses resulting from its 1995 dispute with the Cuban Fleet. It had no reasonable basis for its expectation of a larger or additional allocation. DFO never committed itself to a larger or additional allocation before it did so in order to help resolve the dispute between Oak Island and the Cuban Fleet.
[247] Oak Island alleges that DFO refused additional allocation in order to further undermine its involvement and to further pressure Oak Island out of the silver hake fishery. I find no support in the evidence for these bare allegations.
(f) DFO improperly froze Oak Island’s additional allocation in 1995
[248] On June 6, 1995, DFO Ottawa approved an additional 3,000 mt of quota for Oak Island. Deputy Minister Rowat testified that Oak Island had been pressing for additional quota, and DFO had moved to comply with its requests. Assistant Deputy Minister Chamut testified that the amount was allocated to help Oak Island and the Cuban Fleet resolve their dispute. Oak Island offered a portion of the additional quota to the Cuban Fleet in an attempt to settle the dispute. On June 9, Rowat froze that additional quota, after speaking to Jesus Benjamin, Cuba’s Vice-Minister of Fishing, at a NAFO meeting. Rowat later wrote that Cuban officials had made it clear that the additional allocation would not contribute to resolution of the dispute and that the Cuban Fleet did not wish to harvest any additional allocation for Oak Island. The Cubans had rejected Oak Island’s offer of a portion of the additional quota and, therefore, the additional quota would not serve the intended purpose. In addition, Rowat was upset by the June 7 request of Oak Island’s lawyer requesting the Minister to consider withholding 3,000 mt of the Cuban national allocation, believing that it reflected upon Cuba’s view of Canada’s integrity.
[249] Section 7 of the Fisheries Act, R.S.C. 1985, c. F-14, empowers the Minister, in his absolute discretion, to authorize or issue leases and licences for fisheries or fishing. In Comeau’s Sea Foods Ltd. v. Canada (Minister of Fisheries and Oceans), [1997] 1 S.C.R. 12, the Supreme Court of Canada reviewed this provision and held at page 28: (a) the Minister’s authorization to issue a licence does not confer an irrevocable legal right to a licence; (b) until a licence is issued, there is no permission to do what is otherwise prohibited; (c) until a licence is issued, the Minister may re-evaluate or reconsider and change his initial decision to authorize its issue. Here, no licence was issued, and the Minister changed his initial decision.
[250] In the same case, at pp. 25-26, the Supreme Court stated that is the Minister’s duty is to manage, conserve and develop the fishery. In light of that duty, there were real and legitimate reasons for Deputy Minister Rowat to have frozen the additional allocation and, since the powers of the Minister may be exercised by the Deputy Minister, Rowat appears to have acted properly in doing what he did. The decision to freeze the additional allocation was based on relevant considerations, and was made without apparent arbitrariness and in good faith.
[251] I find no credible and cogent support in the evidence for the allegation that the freezing of Oak Island’s additional allocation was improper.
(g) DFO caused numerous delays and obstacles for Oak Island to deliberately thwart Oak Island in its development of the silver hake fishery
[252] I have already found that DFO acted properly and with justification in issuing revised 1995 criteria, in delaying granting a fishing licence to Oak Island, in delaying granting a transhipment licence to Oak Island, in terminating Oak Island’s fishing licence, and in freezing its additional allocation. DFO also acted properly and pursuant to DFO policy in refusing to waive the 15% landing and processing requirement to allow the Pioner Murmana to avoid landing catch at Yarmouth and proceed directly to Egypt. I find no credible and cogent support in the evidence that any of these actions were done deliberately in order to thwart Oak Island in its development of the silver hake fishery.
[253] It was alleged in argument that DFO blocked Oak Island’s participation in the Canadianization Committee, that DFO delayed the start of Oak Island’s 1995 fishery, that DFO delayed and eventually refused Oak Island’s indirect application for OSS, that DFO caused or contributed to the dispute which broke out between Oak Island and the Cuban Fleet, that DFO was responsible for the late arrival of Oak Island’s fish in Egypt, and that DFO improperly denied renewal of fishing licences of Oak Island in 1996 and following years. I find almost no support in the evidence for any of these allegations.
[254] The weight of the evidence is that the Canadianization Committee was independent of DFO, and controlled its own membership. I also find that DFO did not take any action to block the participation of Oak Island. The worst that can be said of DFO in this regard is that perhaps it did not press the Canadianization Committee as much as it might have.
[255] DFO did not delay the start of Oak Island’s 1995 fishery. It is not clear that there was any delay but, if there was, the delay was caused largely by the manner in which Oak Island responded to DFO’s legitimate requests for additional information. It was approved for participation as soon as it satisfied DFO that it met the current criteria.
[256] Oak Island applied for OSS on March 24. The application was refused on April 4 because it did not conform to policy requiring that such applications originate from fishermen or processor organizations. Oak Island then proceeded to help give birth to the Silver Hake Fishermen’s Association. It submitted an application on April 7. Existing policy required that such applications required public consultations. DFO arranged for the consultations to be held. On May 30, Bellefontaine set out reasons why DFO could not support the proposal, and gave reasons for the decision. There may have been some delay, but it does not appear to have been excessive. The reasons given for refusal of the application were in accord with DFO policy.
[257] The dispute between Oak Island and the Cuban Fleet had its genesis in 1994. In its first year of participation in the silver hake fishery, Oak Island had not caught its full allocation and had suffered a substantial financial loss. I have no doubt that it was anxious to recoup. It could do so by obtaining and fulfilling a substantially larger allocation. Since it did not have vessels of its own, it needed assurance that vessels would be available to fish such a larger allocation. It persuaded the Cuban Fleet to make vessels available by stating its confidence that it would have a much larger allocation in 1995 than it had in 1994. It expressed this confidence in words which Cuban officials interpreted as a promise or fact. After the 1995 fishing season opened, the Cuban Fleet must have realized that the 10,000 mt allocation and the OSS program which Oak Island had virtually promised were figments of Oak Island’s imagination. The Cuban Fleet felt that it had been misled by Oak Island. Since Cuba needed protein badly, it could not afford to sell 3,000 mt to Oak Island without assurance that the amount would be replaced from an OSS, and DFO had not approved the OSS. Thus, the dispute ensued. Oak Island had raised the expectations of the Cubans, but had been unable to fulfil those expectations. While it is true that the Cubans contributed, Oak Island must take the major part of the responsibility for the dispute which ensued.
[258] One of the elements of the dispute concerned ownership of the fish caught by the Cuban Fleet. Oak Island insisted that it owned 85% of the cargo despite the provisions of the Fishing Agreement and the Private Agreement, which Oak Island had participated in drafting, and despite its acknowledgment the previous year in a letter from Panagapko to Bellefontaine dated June 2, 1994 that Cuba owned 85% of that year’s catch. Oak Island must have known that its assertion of ownership was weak.
[259] The fish which were shipped to Egypt by Oak Island were rejected by the Egyptian authorities because of the poor labeling. The labeling was carried out by the Cuban Fleet under the supervision of Captain Wooldridge. He knew, and he told Panagapko, that there was a problem with the labeling, but they decided to take the risk of rejection by the Egyptian authorities. Wooldridge signed a release to the Cuban Fleet. They assumed the risk a second time when, on July 9, they decided not to change the dates on the cartons of fish. The labeling problem arose as a result of the dispute between Oak Island and the Cuban Fleet. That dispute was caused by Oak Island, and contributed to by the Cuban Fleet. DFO did not contribute to the dispute other than to try and help the parties settle it by awarding Oak Island additional quota.
[260] The problem experienced at the port of Yarmouth was caused substantially by Oak Island. It had been delayed by the dispute between it and the Cuban Fleet. Borge acknowledged the error in Amendment No. 3 to Panagapko, and promised to issue a further amendment. When it did not arrive, he chose to act as if he was bound to act in conformity with Amendment No. 3. He was not aware that DFO had an emergency telephone number for a duty officer listed in the Halifax directory, which he might have used to contact DFO. He chose to release storage space which had been reserved, and then chose to discharge the fish onto the wharf. No doubt Oak Island was pressed for time because of the delay caused by the dispute between it and the Cuban Fleet, and the resulting need to ensure that the Pioner Murmana reached Egypt before the deadline date. He had previously attempted without success to obtain from DFO a waiver of the 15% landing and processing requirement and, at this time, he forced DFO into a position in which it felt compelled to reluctantly authorize Oak Island to export the remaining fish to Egypt. Much later, Oak Island characterized this authorization as a waiver, but at no time did DFO describe it as such; Deputy Minister Rowat said that it was merely permission given under duress. It is true that DFO contributed to the problem at Yarmouth, but its contribution was minute: Farr had issued Amendment No. 3 containing an error, and she faxed a corrected Amendment and then left the DFO office not knowing that a confirmation later came back on the fax machine that the fax had not been received by Panagapko. These were human, unintentional errors, soon corrected.
[261] DFO refused to renew Oak Island’s participation in 1996. It is not known whether DFO would have refused again in subsequent years because Oak Island did not apply in those years. In January, 1996, DFO informed Oak Island that it had failed to demonstrate efforts to develop a Canadian onshore processing facility and had failed to meet the 1995 criteria including landing 15% of the catch for processing in Canada. Both of these points were subsequently supported by findings in the Deloitte and Touche report of its compliance audit for the 1995 developmental silver hake fishery. DFO had refused to renew the Seafreez company’s licence in 1994 for a similar reason. The MOA which had been executed on March 24 by Oak Island, the Cuban Fleet and DFO provided, inter alia, that the Minister retained the right to cancel any licence for breach of any condition of the licence. He exercized that right and, in doing so, appears to have been justified in refusing to renew Oak Island’s licence for 1996. Oak Island requested a waiver of the landing and processing requirement on more than one occasion, but only the last one (at Yarmouth) was granted and, then, only under duress; the breach of the requirement was not forgiven.
[262] I find no cogent and credible support in the evidence to support the allegation that DFO caused numerous delays and obstacles for Oak Island to deliberately thwart it in its development of the silver hake fishery.
(h) DFO created criteria to obtain a silver hake licence with the sole intention of protecting the financial interest of others in the silver hake fishery at the expense of Oak Island
[263] In November, 1994, the Minister approved criteria for 1995 quotas which were unchanged from 1994. Since Oak Island makes no complaint about the 1994 criteria, its present allegation appears to refer to something else, namely, the Minister’s subsequent approval of revised criteria for 1995.
[264] Recommendations of the Harris Panel were submitted to the Minister on December 22. DFO reviewed the recommendations but decided that the recommendation of direct foreign allocations was too radical for the time being. Revised criteria were devised and recommended by staff, after discussions in Ottawa, with a view to increasing employment onshore. Of particular importance in this regard were the requirements that participants in the fishery must own or lease and manage a fish processing plant and, in addition, must have or propose a significant investment in the processing of silver hake.
[265] Thus, it can be seen that the 1995 criteria flowed from the 1994 criteria, recommendations of the Harris Panel, internal DFO staff discussions which concluded that the Harris Panel’s recommendations were too radical or premature and, overarchingly, that the process of Canadianization should be advanced a notch.
[266] I can find no support in the evidence for the bare allegation that the Harris Panel’s recommendations were influenced and distorted by DFO officials withholding the report of Canadian Fisheries Consultants which, in any event, was relatively innocuous. While it is true that it was not presented to the Harris Panel at the direction of DFO officials in Ottawa, who wanted to review it, it was made public a few months later. There is no support for the assertion that this was done contrary to the Minister’s instructions.
[267] I find no credible and cogent support in the evidence that the 1995 criteria were created in order to protect the financial interest of others at the expense of Oak Island. It is correct that in 1994 there were only two active participants in the silver hake fishery, namely, D’Eon Fisheries and Oak Island. Of these, only Oak Island did not own or lease and manage a fish processing plant. But it does not necessarily follow that DFO created the 1995 criteria solely to penalize Oak Island. Clearly, DFO sought to advance its policy of Canadianization and, since it did not know until much later who the participants in the 1995 fishery would be, its creation of the 1995 criteria was directed at all future participants in the fishery, and not merely at Oak Island whose participation in the 1995 fishery was not then known.
[268] If DFO intended to remove Oak Island from the fishery, it could simply have not granted it an allocation for 1995. It had the discretion to grant or not grant an allocation. It exercized that discretion and granted an allocation, thereby disclosing its intention that Oak Island should have the opportunity to participate in the fishery.
[269] I find no support in evidence for the allegation that DFO created the 1995 criteria with the sole, or any, intention of protecting the financial interest of others in the silver hake fishery at the expense of Oak Island.
(i) DFO acted willfully and improperly in courting Cuba’s support at the expense of Oak Island
[270] As previously noted, the Minister’s duty is to manage, conserve and develop the fishery. The Minister does so by establishing relevant policies such as those concerning licencing and quotas.
[271] Canada maintains relations with other countries. One such country with which Canada has had a long-standing and friendly relationship is Cuba. The relationship is doubtless extensive, but one aspect of that relationship is fishing. Cuba has been fishing off the coast of Canada for many years. The relationship is reported to be a friendly one. One aspect of this friendly relationship is found in the support which Cuba gave to Canada in Canada’s dispute at NAFO with certain European countries in regard to overfishing in the North Atlantic. A mark of Canada’s appreciation for this friendly relationship is seen in the grant by Canada of a national allocation of silver hake.
[272] In the present fact situation, Canada’s relationship with Cuba and DFO’s duty to manage, conserve and develop the fishery intersected at three relevant points: in mid-1995, DFO entered into an MOA with Oak Island and the Cuban Fleet with respect to their joint participation in the silver hake fishery during the fishing season of that year; later in the same year, DFO was pressed by Oak Island to intervene in its dispute with the Cuban Fleet by granting it an additional allocation, which DFO did grant, subsequently froze and, still later, withdrew; and, during the dispute, DFO declined to grant a transhipment licence to Oak Island.
[273] All this gives rise to two questions: (1) Did DFO do what it did in order to court Cuba’s support? (2) If it did, did DFO act willfully and improperly in doing so?
[274] The evidence in support of the allegation of DFO courting Cuba’s support is found in the e‑mail of May 25, 1995, from Robert Sciocchetti to Regional Director-General Bellefontaine, which suggested that since the Cuban Fleet may be obliged to fish up to 10,000 mt for Oak Island and since there was going to be a sensitive meeting in NAFO, not giving Oak Island additional quota this year would solve a problem for Cuba. This e-mail is an internal DFO document containing a low-level suggestion which, as far as one can tell from the evidence, was never acted upon. To the contrary, Oak Island was given additional quota. Although there is evidence of communications between DFO, especially Deputy Minister Rowat, and officials of the Cuban government and the Cuban Fleet, there is no support in the evidence that withholding additional quota from Oak Island was used as a vehicle to court Cuba’s support. Even if it was, there is nothing in evidence to indicate that the suggestion by Sciocchetti or such a manner of courting support would have been improper.
[275] There is evidence that DFO granted a transhipment licence to the Cuban Fleet and withheld granting a transhipment licence to Oak Island until shortly before Oak Island’s dispute with the Cuban Fleet was settled and the Cuban Fleet consented. All this was part and parcel of the private dispute between Oak Island and the Cuban Fleet. DFO’s position was that it ought not entangle itself in a private dispute, and Oak Island appeared to agree until it felt it necessary to solicit DFO to act to prevent the Cuban Fleet from removing from Canadian waters fish which Oak Island described as “our fish” but whose ownership was at the core of the dispute. In any event, there is no support in the evidence proving that DFO took the position that it did in order to court Cuba’s support.
[276] In short, I find no credible and cogent support in the evidence for the allegation that DFO acted willfully and improperly in courting Cuba’s support at the expense of Oak Island.
(j) DFO created false statements and impressions about Oak Island within the industry and abroad in order to create a poor impression of Oak Island within the industry
[277] There are several references in the evidence beginning, I believe, with the memo from Ben Ferguson to Regional Director-General Bellefontaine dated December 13, 1994, in which a DFO official referred to Oak Island as being essentially a broker. These references are directed at the process of buying and reselling at a profit without the necessity of owning processing facilities in Canada.
[278] That particular reference was in the past tense, that is, directed at Oak Island’s activities in 1994 and earlier. That was the type of operation which Oak Island had carried on, but it changed in 1995 when it was required to lease processing facilities. It may be that its image in the eyes of some employees of DFO did not change. If so, that it did not do so is partly Oak Island’s own fault. In the April 7 application of the Silver Hake Fishermen’s Association for an experimental/developmental fishery and OSS, Oak Island is referred to as the “middle man”. In its arrangement with Ralmin Import-Export Inc. and Schooner Seafoods, Oak Island arranged for Ralmin, as buyer, to pay 70% of its obligation to Schooner Seafoods as the producer and the remaining 30% to Oak Island as the seller. Finally, after the close of the 1995 fishing season, Oak Island kept pressing DFO to allow it to bypass landing and discharging at Yarmouth in favour of proceeding with its full cargo directly to Egypt, thus reinforcing an image of a non-processor. I do not consider any internal DFO references to Oak Island being a broker as necessarily false statements or impressions. Further, there is no evidence that DFO circulated such within the industry or abroad.
[279] Oak Island believes that DFO or some of its officials made derogatory statements about Oak Island to the Silver Hake Canadianization Committee. There does not appear to be any substance to this allegation. Ernie Bolivar testified that neither DFO nor Sciocchetti had done anything to prevent Oak Island from being invited to be a member, nor had said anything which cast Oak Island in an unfavourable light. Jerry Conway testified that Sciocchetti had told him that Bellefontaine had encouraged Oak Island’s membership through Sciocchetti.
[280] In a letter dated January 5, 1995, Captain Wooldridge wrote to Panagapko about “outside influences” being at work. Wooldridge testified at trial that the phrase “outside influences” was a reference to Sylvain D’Eon. There is no indication in the evidence of an involvement by DFO.
[281] All in all, I find no credible and cogent support in the evidence for the allegation that DFO created false statements and impressions about Oak Island within the industry and abroad in order to create a poor impression of Oak Island within the industry.
(k) DFO threatened and warned third parties negotiating with Oak Island not to include Oak Island in any silver hake proposal.
[282] As far as I can tell, this is a reference to the matter discussed in a letter from Panagapko to Neil Greig, President of Unaaq Fisheries Limited dated October 30, 1995. In the Court’s decision June 27, 2003, dealing with the Defendant’s motion for non-suit, it was held that the evidence respecting an allegation that Robichaud and Sciocchetti of DFO impliedly warned Greig not to put together a business plan with Oak Island was extremely weak. There were uncertainties in the testimony given prior to the application for non-suit as to exactly who said what and when. I was not permitted to evaluate that evidence upon the application for non-suit. When the trial resumed, little (if any) additional evidence on this point was adduced. Now, having evaluated all the relevant evidence, I have confirmed that it is extremely weak, and have concluded that it ought not be relied upon.
[283] I find no credible and cogent support in the evidence for the allegation that DFO threatened and warned third parties negotiating with Oak Island not to include Oak Island in any silver hake proposal.
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[284] I now propose to review Oak Island’s allegations as to interference with contractual relations which Oak Island, in its post-trial submissions, reduced to three items.
(a) DFO improperly froze Oak Island’s additional allocation of silver hake thereby severely weakening Oak Island’s bargaining position with the Cuban Fleet and knowingly exposing Oak Island to other liabilities.
[285] I have already summarized the essential evidence touching upon the freezing of Oak Island’s additional allocation, and there is no need to do so a second time. It was found that there was no support in the evidence for the allegation that DFO improperly froze Oak Island’s additional allocation.
[286] The second part of the allegation is that Oak Island’s bargaining position with the Cuban Fleet was thereby severely weakened. I find no evidence that it was. I also find that the freezing of the additional allocation did not result in a delayed settlement or prevent a more favourable settlement. Settlement discussions continued to agreement. There is no evidence that settlement could have been reached earlier. Oak Island got essentially what it wanted.
[287] The evidence does not support the allegation that the freezing of Oak Island’s additional allocation interfered in any way or to any extent with the contracts in existence between Oak Island and the Cuban Fleet.
(b) DFO improperly terminated Oak Island’s fishing licences.
[288] On May 31, 1995, DFO estimated on the basis of the existing catch rate that Oak Island’s quota would be fished in full by June 1. Robert Sciocchetti requested that Oak Island be informed that its licence would be amended as of that date, thereby closing its fishery for silver hake. Bellefontaine testified that this was in accord with the usual procedure. Upon being notified, Panagapko did not object to the procedure, but simply asserted that Oak Island’s quota had not been fully caught and inquired about the possibility of the additional quota for which Oak Island had applied on January 25. On June 1, DFO directed the Cuban Fleet to cease fishing for Oak Island. Almost immediately, the Cuban Fleet began fishing for D’Eon which had not fished its full quota at that time.
[289] DFO terminated Oak Island’s fishing licence approximately at the time when it was due to terminate. If, as alleged, Oak Island had not fully caught its quota, the discrepancy was minuscule. Further, if DFO had waited any longer, Oak Island might have exceeded the quota authorized under its licence.
[290] Section 9 of the Fisheries Act permits the Minister to suspend or cancel a lease or licence if the Minister has ascertained that the operations under the lease or licence were not conducted in conformity with the Act. The Supreme Court reviewed this provision in Comeau’s Sea Foods, supra, and held, at p. 26, that after issuance of a licence the ability to revoke the licence is governed by s. 9 of the Act. DFO’s action in terminating the licence would appear to be in conformity with this statutory provision.
[291] In the result, the evidence does not support the allegation that DFO improperly terminated Oak Island’s fishing licences.
[292] Moreover, DFO’s action in terminating Oak Island’s licence was in accord with the licence and in accord with the provision of the Fishing Agreement between Oak Island and the Cuban Fleet which stated the Fishing Agreement would terminate when Oak Island’s allocation was caught. Therefore, the evidence does not support the allegation that the termination of the fishing licence interfered with Oak Island’s contractual relations with the Cuban Fleet.
(c) DFO improperly delayed granting a transhipment licence for the Pioner Murmana.
[293] I have already dealt elsewhere with the matter of alleged improper delay in granting a transhipment licence. I found that any delay was proper and justified in the circumstances.
[294] In the result, there is no credible and cogent support in the evidence for the allegation that DFO improperly delayed granting a transhipment licence for the Pioner Murmana and, further, no support in the evidence for an allegation that, if there was such a delay, it interfered with contractual relations.
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[295] The Briefs submitted on behalf of the Plaintiff contain a large number of sentences which virtually assume fault on the part of DFO or its employees.
[296] One example, chosen more or less at random, is found in the memorandum on behalf of the Plaintiff dated April 7, 2003 page 19:
Oak Island’s pleas to DFO to intercede on Oak Island’s behalf with the Canadianization Committee fell on deaf ears. Oak Island’s approaches to the Minister of Fisheries were followed up with misleading and false statements from Regional DFO officials and inaction, while these same officials made certain to keep Oak Island in the dark as they set their plans in place for D’Eon to have the lion’s share of Canadian caught Sivler Hake. Regional DFO officials refused to deal with Oak Island on the use of Canadian vessels, instead misleading Oak Island that they were encouraging the Committee to accept Oak Island when in fact DFO would take steps to ensure that Oak Island could not gain access to the Committee.
[297] A second example, found in the same memorandum at page 50, is as follows:
At the end of the day May 31, 1995 Oak Island’s fishing contract with the Cuban Fleet was systematically terminated. In a careful exchange of correspondence on May 31 and June 1, 1995, Sciocchetti, in collaboration with the Fleet, put the finishing touches on his plan, terminating the Fleet’s fishing deal with Oak Island to the benefit of D’Eon.
[298] I respectfully decline to make any such assumptions. I rely solely upon the facts disclosed in evidence.
[299] The same Briefs virtually invited the Court to infer fault on the part of DFO or its employees from various facts situations. Perhaps the most obvious example is found in the alleged relationship between Robert Sciocchetti and D’Eon Fisheries which may have resulted in D’Eon Fisheries employing Sciocchetti after his retirement from DFO. I am not prepared to infer that Sciocchetti was biased against Oak Island because he made some unfavourable comments in the course of his employment about Oak Island, drove to a single meeting with Sylvain D’Eon, and after retirement sought to use his experience by obtaining employment with D’Eon Fisheries. These facts are susceptible of other, reasonable conclusions.
[300] Similarly, other fact situations are susceptible of alternative, reasonable conclusions.
LEGAL ANALYSIS
[301] Oak Island’s allegations of fact set out in the statement of claim are substantially unsupported by credible and cogent evidence. There is also no credible and cogent support in the evidence for any of the submissions of fact made on behalf of Oak Island during the course of argument (in the Briefs). I have therefore concluded that Oak Island has not established a factual basis for its claim.
[302] Therefore, it is considered unnecessary to conduct any legal analysis with respect to issues of misfeasance and abuse of public office and interference with contractual relations.
DAMAGES
[303] In view of the conclusion reached previously on the facts, it is not considered necessary to set out and discuss the facts, figures and reports upon which the plaintiff’s claim for damages is based and contested, nor to assess damages. Nevertheless, there are two aspects of the subject of damages which attracted the Court’s attention during the course of the trial, and which it is felt ought to be discussed.
[304] The first aspect is the period of accrual of damages. Oak Island’s claim is for damages which have accrued over a five year period. The accountants for both parties, who prepared reports of assessments of business losses and subsequently testified at trial as expert witnesses, quantified losses which Oak Island allegedly sustained in each of the years 1995, 1996, 1997, 1998 and 1999. The reason why they chose the five year period was doubtless that they believed that DFO approved Oak Island’s 1995 participation in the developmental silver hake program for a five year period.
[305] Participation was indeed approved for five years, but the quota allocation of 3,000 mt was for 1995 only. Participants were expected to meet the mandatory 15% landing and processing requirement, own or lease and manage a fish processing plant, invest significant funds in product and/or market development, and have or propose significant investment in processing. Moreover, in the years subsequent to 1995, participation would be dependant upon the acceptability of the business plan, the amount of the silver hake TAC, and compliance which would be confirmed by annual audit. All these expectations and conditions are set out in the letter from Regional Director- General Bellefontaine to Oak Island of February 24, 1995, which appears to accurately reflect the contents of the 1995 criteria issued on January 12. However, both of these misstate the policy recommended to, and approved by, the Minister on January 5 which states, in part: “allocations be awarded for 1995 only but participation in the post-1995 program would be awarded to successful 1995 participants for a five year period....”. Thus, the actual policy which was adopted may be summarized as follows: award allocation for 1995 and, if a participant is successful, award participation for five years after 1995. The validity of the 1995 criteria issued subsequently, as well as the validity of the award of quota allocation to Oak Island, are therefore questionable. Based on the actual policy, the accountants should have calculated damages accruing over six years, that is, in 1995 and in the five years post 1995.
[306] The second aspect is the discretion of the Minister to authorize licences. Oak Island was not a successful participant in 1995. Even if it had been successful, its participation subsequent to 1995 was always conditional and subject to the exercise by DFO of the Minister’s absolute discretion to actually issue a fishing licence for a specific year: Fisheries Act, R.S.C. 1985, c. F-14, s. 7 and Comeau’s Sea Foods, supra, at p. 28.
[307] The post-1995 participation promised by the DFO policy is simply the equivalent of an authorization to issue one or more annual licences which, as discussed elsewhere in this Decision, may be re-evaluated, rescinded or changed by the Minister at any time prior to actual issue. No one can anticipate whether the Minister will or will not issue a licence in any given year.
[308] Therefore, if damages had been awarded to Oak Island in this action, those damages would have been limited to those sustained in the year 1995, and would not have included any claim for damages in the subsequent five years.
DISPOSITION
[309] In the result, the claim of Oak Island is refused.
[310] The Defendant will have its costs of the action to be taxed. If the parties are unable to agree upon the amount, counsel may address the Court on this issue at the time an Order for Judgment is taken out.
J.