Strengthening the Inshore Regulations – Engagement video series: Understanding use, control, and transfer

Slide 1- Strengthening the Inshore Regulations

Understanding use, control, and transfer

Slide 2 - Context

Use, Control, and Transfer are central concepts under the Inshore Regulations but how they apply in practice is not always easily understood.

Licence holders are expected to decide when, where, and with whom to fish (otherwise referred to as “using the licence”) and be in full control of the enterprise.

Licence holders cannot transfer the Rights and Privileges under the licence to any other third party.

And, third parties (processors, buyers, private lenders, or other harvesters) cannot use or control the rights and privileges under the licence.

DFO’s objective is to ensure that use, control, and transfer are well understood and reflect practical application.

Slide 3 - What are the rights and privileges under a licence

Rights and privileges are granted by the Department to all inshore licence holders through the licence issuance.

The specific rights are:

• the right to engage in an exclusive fishery under the conditions imposed by the licence (including decision-making over fishing activities authorized by the licence); and
• the proprietary right to the fish caught under the licence (including, but not limited to, decision-making over the benefits resulting from their catch)

While the privileges are granted through policy and include:

• The ability to make requests, including but not limited to:
  • substitute operators
  • licence renewal
  • licence reissuance
  • quota transfers

A licence holder is not permitted to transfer these to a third party and no third party can use or control them.

There are limited exceptions to the transfer of rights and privileges outlined within the inshore regulations but in most cases transfer is not allowed.

Slide 4 - Understanding what it means to use a licence

The current definition of “use” is found within the Commercial Fisheries Licensing Policy for Eastern Canada.

Use: means, including but not limited to, carrying out (in person or through a designated or substitute-operator) the activities authorized under the licence or making decisions related to these activities and the results of these activities (catch and earnings).

Use can also include using the licence as a security (collateral) in a loan agreement, provided it does not transfer control of the rights and privileges to the lender.

Simply put, “use” means: Doing the activities allowed by the licence (such as the fishing, supervising crew onboard the vessel, and selling the catch) or making choices about these activities.

But fishing often requires help (crew). So, using a licence can mean different things to different people.

What is most important is that the primary individual who is issued the licence must be the one using it.

Slide 5 - Discussion question

In your own words/from your own experience, how else can DFO show what it means to “use” a licence?

Slide 6 - Understanding what control means

The current definition of “Control” is found within the Commercial Fisheries Licensing Policy for Eastern Canada.

Control: means, including but not limited to, directing, managing, overseeing, restricting, or influencing any of the rights or privileges conferred to an individual or entity under a licence issued in their name (i.e. making decisions related to the licence's use, the catch, or earnings without Departmental authorization).

Simply put, “control” means: Making choices about the licence or telling someone else how to use it.

But, it can be difficult to show when another person other than the licence holder is in control, whether it be another licence holder or fisher, a lender, or some other third party.

What is most important is that the licence holder must be the individual making the decisions under the licence. Specifically, when, where, with whom to fish, and where to land the catch.

Slide 7 - Discussion question

In your own words/from your own experience, how else can DFO show what it means to “control” a licence?

Slide 8 - Understanding transfer of rights and privileges

We’ve covered that licence holders cannot transfer the rights and privileges under a licence and third parties are prohibited from using or controlling them.

So, when DFO refers to “use” in the context of a transfer, it means a licence holder does not personally participate in undertaking the activities but rather has another individual perform the activities, often for long periods of time.

And when DFO refers to “control” in the context of a transfer, it means when stipulations in an agreement (usually a loan or supply agreement) or an arrangement (a handshake deal) allow any third party that isn’t the licence holder to effectively have operational control. In these instances, it is the third party who is making decisions about the licence and how it is used, not the licence holder.

But, understanding when an agreement crosses the line from and results in a transfer is not always straight forward.

Importantly, DFO is not here to stop bad deals – we are concerned about licence holders being controlled where they cannot be said to be the one in charge of the licence. When DFO reviews agreements and arrangements that leave you with a minimal amount of income at the end of the day, it can imply that there is something else going on. Most often, this looks like control, especially if this lasts for long periods of time. In these instances, it’s hard to say the benefits are actually yours.

DFO is trying to develop practical examples of when an agreement goes too far and would be deemed a transfer of rights and privileges.

Slide 9 - Discussion question:

Are there any examples that could show what a “transfer” looks like in practice?

Some examples include:

• 60% of revenue goes to paying debt associated with a lending agreement;
• Loan principal (the amount borrowed) grows even when you make payments;
• In an Individual Transferable Quota fishery, the licence holder transfers all their quota every season and never fishes in person

Slide 10 - Clauses that can lead to control

While all agreements need to have clauses (terms and conditions) some are more likely to lead to control than others.

What we want to discuss here are the clauses that we have seen that lead to a transfer of rights and privileges.

However, we also want to reiterate that control is probably best understood as being on a continuum, in the same way we saw that a transfer isn’t black or white.

So, rather than focusing on the specific words, we want to get to the effects certain clauses have:

• Clauses that lead to default because of supply or other side rules (e.g. requirement to land at a particular place)
• Clauses that let the lender set or influence daily fishing choices (crew selection, or when, where, and how to fish)
• Clauses that let the lender influence who gets the licence next (reissuance)
• Clauses that assign licence rights (like payments in fish instead of money), or
• Clauses that force the borrower to sign future unknown deals or pay undefined future costs

Slide 11 - Discussion questions

What are your views about these clauses (terms and conditions)?

Are there other types of clauses you think should be added to the list?

Slide 12 - Thank you