Canada Wheat Board told to pay in damaged wheat row

* Case dates back to 1982

* Judge says CWB misrepresented wheat quality

* CWB ordered to pay grain-trading firm C$1.8 mln

* Damages could total C$4.5 mln including interest

* Wheat board to appeal decision

By Rod Nickel

WINNIPEG, Manitoba, July 24 (Reuters) - A judge has ordered the Canadian Wheat Board to pay two of its overseas grain customers C$1.8 million ($1.6 million) to resolve a 26-year-old dispute over frost-damaged spring wheat.

A Canadian judge ruled on July 17 that the CWB, one of the biggest grain marketers in the the world, is liable for negligently misrepresenting the quality of the wheat. The CWB had told its customers and exporters in a 1982 letter that the wheat could be milled into flour, instead of being suitable only for animal feed.

Justice Lea Duval also found that the wheat board forwarded wheat samples to one customer that were higher quality than the wheat that was shipped.

Agro Company of Canada (now owned by ConAgra Foods CAG.N), an accredited CWB exporter, bought some of the wheat from the CWB, and in 1983 sent two shipments totaling roughly 25,000 tonnes to Italian grain trader Pagnan as part of an order of 96,000 tonnes. Pagnan later asked Agro to substitute importer Albionex (Overseas) Ltd, a company incorporated in the Channel Islands, as the initial buyer, to which Agro agreed.

Pagnan had presold the wheat and soon received complaints about its quality. Agro refused to take it back and Pagnan ended up disposing of it. Albionex refused to accept the rest of Agro’s shipment.

One-fifth of Canada’s 1982 spring wheat crop had frost damage. The Canadian Grain Commission, which tests wheat quality, told the CWB then that some of the wheat was of millable quality, but after the wheat board sent a letter to customers describing the frost-damaged crop, the commission warned the board that the letter’s message “could be misleading”.

The wheat board will appeal the decision, spokeswoman Maureen Fitzhenry said.

“We disagree that we misrepresented anything. Our international reputation is solid, it’s strong and it’s important,” she said.

In years of short supply of high-grade wheat, it’s common for the CWB to tell customers about lower-quality wheat that can be milled, she said. But it doesn’t sell animal feed wheat as milling wheat capable of producing flour for baking, she said.

A lawyer for the plaintiffs said the damages may amount to C$4.5 million once interest and currency conversion are factored in.

The wheat board is also appealing a June court decision that prevents it from spending funds to promote keeping its monopoly on Western Canada’s wheat and barley sales [ID:nN01440492]. The decision backed an order by the Canadian government, which wants to break the board’s monopoly. The appeal request will go to Canada’s Supreme Court.