The Federal Court of Canada began hearing a test case Tuesday in Ottawa that could overturn a decades-old policy that prevents a corporate takeover of inshore fishing licences in Atlantic Canada.

The seafood processing industry, inshore fishermen's groups and the Department of Fisheries and Oceans (DFO) are all watching the case closely, albeit with very different expectations.

"The stakes are important because we have seen other fisheries be taken over by corporations and it leaves less money in the hands of individuals and communities," said Melanie Sonnenberg, president of the Canadian Independent Fish Harvesters Federation.

"This is about sustaining communities," she said from Grand Manan, N.B.

Dispute over licence

The Federal Court case centres on Kirby Elson, a fisherman from the Labrador community of Cartwright, N.L.

Elson was stripped by DFO of his snow crab licence in 2015 when he refused to exit a controlling agreement with fish processor Quinlan Brothers and a related company.

Under the 2003 agreement, the company controlled the licence and the wealth it generated.

Quinlan Brothers paid the licence fee, provided the vessel and crew, and paid for the insurance and maintenance.

No constitutional authority

Elson landed and sold the fish at the direction of the processor.

The agreement stipulated he couldn't transfer the licence without permission — even in death.

Backed by the processing industry and a high-powered legal team, Elson filed for a judicial review of the 2015 decision by the federal fisheries minister to take away his commercial fishing licence, saying without the arrangement he couldn't afford to go fishing.

His lawyers, from Toronto law firm McCarthy Té​trault, argue Canada's minister of fisheries has no constitutional authority to regulate contracts that have nothing to do with fish stocks or fish conservation.

Spread the wealth

DFO argues its minister has the power to manage the fisheries for social and economic goals.

In its evidence, DFO says controlling agreements like Elson's are "deliberately designed to circumvent the licensing policies" put in place to ensure independent fishermen are the beneficiaries of the licences they hold.

The objective is to spread the wealth and has been delivered through two policies.

One is known as owner-operator, which means a licence holder must own and operate the fishing enterprise.

'In peril in the inshore'

The second is "fleet separation," which prevents a corporation from both catching and processing the fish.

These initiatives are part of DFO's Preserving the Independence of the Inshore Fleet in Canada's Atlantic Fisheries (PIIFCAF) policy, which works to prevent a corporate takeover of the inshore fleets.

It's these policies that are at risk if Elson wins, said Sonnenberg.

"If the court gives him the nod ... that he was unfairly treated and these controlling agreements are solid, that puts us in peril in the inshore," said Sonnenberg.

"That begins to open the door to corporate takeover and that is what we are totally against."

Possible rush to buy licences

She fears independently held licences will be purchased in a mad rush if Elson is successful.

DFO said in a recent meeting it's making contingency plans in case it loses, Sonnenberg said.

CBC News has learned that could include a ministerial order freezing licence transfers or seeking a stay until an appeal is heard.

With the Elson case before the courts, DFO spokesperson David Jennings wouldn't comment on the case specifically, but did say in an email that "PIIFCAF is an important policy for the management of fisheries in Eastern Canada and the department will vigorously defend it before the court."

Neither Elson nor Quinlan Brothers have responded to CBC News requests for comment.

Two days have been set aside for arguments.