Agriculture, Food and Rural Affairs Appeal Tribunal

1 Stone Road West Guelph, (Ontario) N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: appeals.tribunal.omafra@ontario.ca

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1, chemin Stone Ouest Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: appeals.tribunal.omafra@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL: Chesterman Farm Equipment Inc., v. CNH Canada Ltd. CFEI v. CNH 2011 ONAFRAAT 10

STATUTE: Farm Implements Act

HEARING: October 26, 2010

DATE OF DECISION: March 17, 2011 2011-10

NEUTRAL CITATION: 2011 ONAFRAAT 10

IN THE MATTER OF THE FARM IMPLEMENTS ACT

AND IN THE MATTER OF: an Application to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) by Chesterman Farm Equipment Inc. (CFEI), of Tillsonburg, Ontario, under Section 5 of the Farm Implements Act from a dispute with CNH Canada Ltd. (CNH).

Before: Susan Whelan, Vice Chair; John O’Kane, Vice Chair; Rob Scouller, Member

Appearances: Eric Gillespie, counsel for appellant, Chesterman Farm Equipment Inc. John May, co-counsel for appellant Dave Chesterman, witness for the appellant Harry Cummings, PhD., expert witness for the appellant Stuart Mackay, counsel for respondent, CNH Canada Ltd. Ian Campbell, witness for respondent Miles Mackow, witness for the respondent Scott Smith, witness for the respondent Ralph Walsh, witness for the respondent Réal Prefontaine, witness for the respondent Donald Good, counsel for intervenor, Association of Equipment Manufacturers Catherine Beagan Flood, counsel for intervenor, John Deere Limited Rahat Godil, co-counsel for intervenor, John Deere Limited

INTERIM DECISION OF THE TRIBUNAL

Overview

Between 1987 and December 31st, 2006, Chesterman Farm Equipment Inc. (CFEI) was a farm implement dealer for CNH Canada Ltd. (CNH) or its predecessor corporation. The issues in this case arise from a dispute between CFEI and CNH over the end of their nineteen-year business relationship.

CFEI and CNH were unsuccessful resolving their dispute in mediation under subsection 5(3) of the Farm Implements Act (the Act) and CFEI brought the dispute to the Tribunal under subsection 5(5) of the Act.

The parties agree that the three issues the Tribunal must decide are:

1. Did CNH breach the warranty provisions of section 18 of the Act? (Liability)

2. Did CNH breach the contract, the Act or Ontario Regulation 123/06 by ending the business relationship in 2006? (Liability)

3. If there is liability, what are the damages?

The warranty issue (#1) involves interpreting section 18 of the Act. That issue engaged the interest of John Deere Limited (JDL), a farm implement manufacturer, and the Association of Equipment Manufacturers (AEM), a trade association, whose membership includes agriculture equipment manufacturers. On consent, JDL and AEM participated in this proceeding as intervenors to address interpreting section 18 of the Act.

At the start of the hearing, the parties and intervenors presented their agreement that the Tribunal should divide the proceeding into two phases. Phase 1 would focus on the liability issues associated with the end of the business relationship and the section 18 issue, while phase 2 would focus on damages. The parties explained that there would be extensive evidence from both parties on damages. Dividing the hearing could save significant time if the Tribunal ruled there was no liability since the extensive damage evidence would then be unnecessary. The Tribunal accepted the parties’ suggested approach to divide the hearing.

The Tribunal heard the Phase 1 evidence and arguments over seven days starting on October 18th, 2010.

According to the parties and intervenors, this is a case of first instance since no Tribunal or Court has previously considered these issues.

Preliminary Issues

At the start of the hearing on the morning of October 18th, 2010, CFEI raised what it described as a concern about Vice-Chair O’Kane’s participation as a member of the hearing panel. The parties only learned about the composition of the hearing panel at the start of the hearing on the 18th.

CFEI explained that Vice-Chair O’Kane had made an interlocutory ruling on CFEI’s production and discovery motion in 2009 that was unfavourable to CFEI and that the ruling had included a cost award against CFEI. That interlocutory ruling was upheld following a review request by CFEI.

CFEI did not make a formal motion that Vice-Chair O’Kane recuse himself from the hearing panel. CFEI did not advance any grounds or evidence to support a recusal. CFEI opted simply to raise the issue as a concern for the panel’s consideration.

While CFEI made no assertions or arguments about conflict, bias, reasonable apprehension of bias or lack of impartiality, their expressed concern intimated that spectre.

There is nothing in the Statutory Powers Procedure Act (SPPA), the Farm Implements Act, or the Tribunal’s Rules of Procedure that prevents a member who decided an interlocutory matter from sitting on a related substantive hearing unless the member had been involved in settlement discussions as provided for in Rule 24.08(b). Vice-Chair O’Kane had not been involved in any such settlement discussions.

Interlocutory motions frequently involve the tribunal making rulings that will be unfavourable to one of the parties before it. Making an unfavourable interlocutory decision does not mean the tribunal member making that interlocutory decision has pre-judged the substantive dispute between the parties. Similarly, a reasonable apprehension of bias does not arise simply because a tribunal member has ruled in favour of one of the parties in the past on a different issue.

The tribunal justice system and the court system would suffer if it precluded members making interim decisions from sitting on further related hearings.

The panel Chair ruled that in the circumstances, there was no decision for the panel or Vice-Chair O’Kane to make in the absence of a motion or complaint supported by grounds and evidence.

General Background Evidence

Dave Chesterman, the principal of CFEI, testified that his family’s history in the farm implement business dated back to the 1940’s. During that history, CFEI had been a farm implement dealer for International Harvester, Case International Harvester, Ford New Holland Inc., New Holland Canada, Ltd. and CNH.

In 1987, CFEI became a dealer with Ford New Holland Inc., CNH’s predecessor. Dave Chesterman identified his father Milton’s signature on the Ford New Holland Dealer Agreement that governed the relationship between New Holland and CFEI until 1999. In June 1999, Ford New Holland sent CFEI a letter advising that it would not renew the existing Dealer Agreement and that it would terminate effective December 31st, 1999. Ford New Holland then offered CFEI the opportunity to continue as a dealer under a new Dealer Agreement. Dave Chesterman identified his father Milton’s signature on the new 1999 Dealer Agreement and confirmed that he believed he had read it over before his father signed it. The Dealer Agreement created a one-year renewable term. The term renewed automatically unless either party gave at least ninety days written notice of its intention not to renew.

Both the 1987 and 1999 version of the Dealer Agreement are very similar. Both Dealer Agreements are standard form contracts drafted by the farm implement manufacturer. CFEI had no opportunity for input into any of the terms. The reality for CFEI was that if it wished to be a CNH dealer, it was obliged to sign the standard form Dealer Agreement without any changes. Dave Chesterman also identified his father’s writing on a post-it note placed onto Ford New Holland’s copy of the signed Dealer Agreement. The note read “unreasonable request, not fair and reasonable”. While that note may well suggest that CFEI’s view was that some parts of the Dealer Agreement were unfair, it nonetheless signed the Dealer Agreement. Dave Chesterman testified that given CFEI’s business investment it had no choice but to sign the Dealer Agreement.

The Dealer Agreement assigned CFEI certain product lines. For tractors, the product lines were “compact”, “mid-range”, “bi-directional”, and “high horsepower”. The other implement lines were “hay and forage” and “skid steer loaders (SSL)”.

The Dealer Agreement assigned CFEI a geographic territory described as its Primary Area of Responsibility (PMR). While CFEI was free to sell farm implements anywhere, the Dealer Agreement measured CFEI’s sales performance based on the PMR. CFEI’s PMR comprised parts of three counties: Elgin, Haldimand-Norfolk, and Oxford. The Dealer Agreement obliged CFEI to promote vigorously and aggressively the sale of CNH’s products. The Dealer Agreement also obliged CFEI to obtain a reasonable share of the market in the PMR and reasonable total sales revenue. The Dealer Agreement set 90% of the average market share that CNH products achieve within the province of Ontario or the regional sales area as CFEI’s reasonable market share within the PMR.

Dave Chesterman testified about the nature of CFEI’s business investments as part of the relationship with CNH. In 1991, CFEI purchased new business premises that included a six-acre lot with an existing 80’ x 80’ building. In 1999, CFEI almost doubled its existing building with a 75’ x 80’ addition, primarily for its farm implement business. Almost three acres of the lot were devoted to displays of new CNH and used farm implements. Typically, CFEI maintained on its lot about ten large tractors and ten large hay implements. CFEI also painted the outside of the building to CNH’s specifications. The lot also had an 8’ x 8’ pylon sign advertising the CNH logo. Inside the building, CFEI maintained dedicated CNH displays and areas painted to CNH’s specifications. About fifty percent of the interior floor space was devoted to CNH displays.

CFEI sold other non-competing product lines such as Polaris, Cub Cadet and ALO loaders as part of its business operation to increase its overall sales and overall profits.

Dave Chesterman testified that in 2005, the last full year as a CNH dealer, CNH products accounted for about 50% of its sales business and about 80% - 90% of the service work. He testified that those results were consistent from 2000 to 2006.

Between 2000 and 2006, CFEI expanded its employees from six to eleven and by 2010, CFEI had reduced its employees to six.

CFEI scored well in CNH’s dealer monitoring program and in 2005 and 2006 received service excellence awards, and in 2004/05 and 2005/06 it received CNH’s “President’s Prestige Award”.

Ralph Walsh was CNH’s sale representative and he visited CFEI regularly once a month. On those monthly visits Ralph Walsh reviewed CFEI’s sales in units, market share, and provided CFEI with feedback about how it was performing compared with other dealers. Dave Chesterman described Ralph Walsh’s feedback as a casual review pointing out areas where CFEI had to work on improving. Dave Chesterman testified that CFEI never received any warnings from CNH that their dealership status was in jeopardy.

In late September 2006, Dave Chesterman received a letter from CNH dated September 30th, 2006 advising CFEI that CNH would not renew the Dealer Agreement at the end of 2006. That letter explained that CNH based its decision not to renew on “serious breaches” of the Dealer Agreement. That letter recited section 4 a)¹ from the Dealer Agreement. That letter also explained that CFEI had failed to “achieve and maintain a reasonable market share” during the previous four years. The letter included a chart giving an illustration of CFEI’s performance in select product categories. CNH’s Regional Sales Director, Réal Prefontaine, signed the letter.

Dave Chesterman explained that he believed that an incident between him and Réal Prefontaine from 2005 was the real reason behind CNH refusing to renew the Dealer Agreement. That earlier incident arose when Dave Chesterman expressed views at a dealer meeting which Réal Prefontaine considered as reflecting a bad attitude. In an e-mail exchange shortly following that meeting, Réal Prefontaine suggested that Dave Chesterman should consider resigning as a CNH dealer. After a few exchanges over a few months in 2005, the tension between Chesterman and Prefontaine seemed to fade. However, after CFEI received the September 30th, 2006 non-renewal letter, a further e-mail from Réal Prefontaine reinforced Dave Chesterman’s view that Prefontaine considered him as having an attitude issue.

Dave Chesterman testified that he feared CFEI faced bankruptcy after losing the CNH dealership. At that time, CFEI owed almost $1 million to CNH’s credit division and CFEI did not have that money or have the ability to raise it in three months. With a concerted effort and significant price discounts and a 150-day credit extension from CNH, CFEI was able to sell off most of its new and used equipment inventory and retire its debt to CNH. Dave Chesterman testified there were no other dealership opportunities for CFEI to pursue to replace CNH.

Ralph Walsh testified that he knew nothing of CNH’s decision not to renew the CFEI dealership until after Dave Chesterman had received Réal Prefontaine’s non-renewal letter. He testified that he had never provided CFEI or Chesterman with any warnings about non-renewal of the Dealer Agreement.

Miles Mackow was, beginning in May 2006, the Market Representation Manager for CNH in Canada. His responsibilities included growing CNH’s sales and market share; compliance with CNH’s Dealer Agreement; and, dealer performance and evaluation. Mr. Mackow explained how all farm equipment dealers report monthly sales details to the Association of Equipment Manufacturers (AEM). AEM then tallies the industry data and reports to CNH on the performance of its dealers, county-by-county. Mr. Mackow testified that when he became the Market Representation Manager he reviewed CNH’s reports to inform himself about the dealers. He reviewed previous zone reviews completed by his predecessor and the Sales Managers to assess how dealers were performing and to learn their strengths and weaknesses. Mr. Mackow testified that from those previous CFEI reports, CFEI was on “his radar” as a poor performer. Based on discussions he had with Ralph Walsh about CFEI, he formed an impression that CFEI’s focus was turning away from farm implements and toward recreational vehicles. Mr. Mackow testified that by May and June of 2006 he was looking for trends that showed improved sales performance. When he compared CNH’s standing in the industry, the trend was increasing and yet CFEI’s market share and total revenues were declining. Mr. Mackow made the determination to recommend to Réal Prefontaine that CNH not renew CFEI’s Dealer Agreement.

Mr. Mackow listed four reasons why he recommended that CNH not renew with CFEI:

1. Poor “high-power” tractor sales performance

2. Lack of trained salespeople

3. Declining total revenue

4. Poor hay and forage equipment sales performance

Despite Mr. Mackow’s testimony that CFEI was performing poorly in the high-power tractor categories, CFEI’s 2006 Dealer Profile Report “year to date through July” showed that for tractors over 100 horsepower, CFEI was enjoying its best showing in several years with 50% of the total industry sales in the 100-139 horsepower category for the PMR.

Mr. Mackow testified that CFEI’s high performance in the dealer standards program and its awards did not factor into his decision to recommend non-renewal of CFEI as a dealer. While he recommended non-renewal, CNH’s internal processes required approval of five CNH senior management before implementing the non-renewal decision.

Mr. Mackow also testified that there were a number of other CNH dealers that were performing poorly, and one other dealer was not renewed in 2006. Mr. Mackow testified that when he made his non-renewal recommendation of CFEI, he was unaware of the tensions from 2005 between Réal Prefontaine and Dave Chesterman.

The Issues

A. The Section 18 Warranty Issues

1. The Evidence

The relevant warranty repair and reimbursement practice between the parties, as explained by Dave Chesterman and confirmed by Ian Campbell of CNH, is that CFEI carried out warranty repair work and then submitted claims to CNH for reimbursement. The parties treated the warranty repair work as pre-authorized pursuant to the Dealer Agreement.

CFEI claimed that CNH breached section 18 of the Act by failing to reimburse CFEI for the cost of transporting farm implements needing warranty repairs from the field to CFEI’s repair shop and for the travel time of CFEI’s repair technicians from the CFEI shop to the field and back. Section 18 refers to “dealers”, such as CFEI and “distributors”. Section 1 of the Act defines “distributors” to include manufacturers, like CNH. Given that this dispute arises between a dealer and a manufacturer, for the purposes of this part of the decision, we will use the word “manufacturer” rather than the more expansively defined “distributor”.

CFEI restricted the time frame for this claim from starting in 2005 to the end of the relationship on December 31st, 2006. The start date coincided with amendments to the Act in 2005, and specifically with the amendments to section 18.

In 2005, the legislature amended section 18 of the Act to change subsection 18(7) and to add subsections (8), (9) and (10). Section 18 in its entirety is set out in an endnote to the decision.ⁱ Before the 2005 amendments, subsection 18(7) read as follows:

“The distributor shall repair the defective farm implements at the distributor’s expense, including any transportation costs.”

CFEI’s position is that subsections 18(8) and 18(9) apply to all warranty repair work whereas CNH’s and the Intervenors’ position is that those subsections apply only to warranty repair work arising in a mass product defect recall as alluded to in subsection 18(6).

CNH’s process for reimbursing a dealer like CFEI for warranty repair work did not change with the 2005 amendments to section 18. CNH relied on the terms of its Dealer Agreement when it reimbursed CFEI for warranty repair work. The Dealer Agreement incorporated CNH’s service and warranty policies and that included CNH’s Repair Time Schedule. The Repair Time Schedule established flat rate times for completing most repair procedures. There is no provision in the Dealer Agreement for a dealer to receive reimbursement from CNH for the cost of transporting a farm implement in need of warranty repair. Similarly, there is no provision in the Dealer Agreement for a dealer to receive reimbursement from CNH for the cost of travel incurred by the dealer for the warranty repair.

After the 2005 amendments, CFEI received advice from its dealer association that the amendments to section 18 meant it was entitled to receive reimbursement for transportation and travel costs from CNH. Acting on that advice and its own view that the amendments to section 18 meant it was entitled to travel and transportation costs, CFEI submitted a number of warranty claims to CNH claiming travel costs. CNH rejected reimbursing CFEI for any travel costs. After several such rejections, CFEI stopped submitting claims for transportation and travel costs. While CNH had an internal warranty appeal program, Dave Chesterman confirmed that CFEI did not avail itself of that appeal process because he was unaware of that process. The Tribunal concludes that nothing material to this analysis turns on CFEI not availing itself of CNH’s internal appeal process. CNH representative Miles Mackow confirmed in evidence that CNH does not reimburse dealers for transportation and travel costs. Therefore, the Tribunal concludes that even if CFEI had availed itself of the internal appeal process, CNH would not have reimbursed CFEI for transportation and travel costs.

2. Interpreting Legislation

The parties and the intervenors provided the Tribunal with extensive case books citing many decisions about interpreting legislation.

None of the decisions cited related to interpreting the Act.

Most of the decisions cited on statutory interpretation encompassed some aspect of the modern approach to statutory interpretation and the parties and intervenors agreed that the modern approach to statutory interpretation guides us in interpreting section 18 of the Act.

This approach, endorsed by the Supreme Court of Canada, requires us to read the words of the Act in their entire context, and in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act and the intention of the legislature².

Another principle of statutory interpretation guiding us is that if we find ambiguity within the wording or meaning of the Act, we can then rely on extrinsic aids to assist us in resolving the ambiguity. As will become apparent, we did not find any ambiguity in the Act on this issue and therefore did not need to resort to any extrinsic interpretive aids.

A further principle assisting our interpreting section 18 is the presumption that when legislation amends the common law, it does so with clear and explicit language.³

3. The Object and Purpose of the Act

Based on the legislative materials filed by the parties, at least since 1988 the legislature of Ontario has been regulating some aspects of the relationship between buyers of farm implements, sellers of farm implements and manufacturers of farm implements.

It is only “some aspects” because the 1988 version, the 1990 version and the current version of the Act all similarly provided in section 33 that the rights, duties and remedies provided for in the Act are “in addition to the rights, duties and remedies under any other Act and the common law.”ⁱⁱ

We conclude the object of the Act is to supplement contractual rights, duties and remedies between buyers, sellers and manufacturers of farm implements.

4. Organizational Context: Sale Agreements and Warranties

The structure of headings in legislation can provide helpful context for reading the words of an Act. Headings can also provide context for the object or purpose of the sections that the legislature chose to group together. In this case, the legislature organized the Act under eight headings. Section 18 is part of a group of sections numbered from 12 to 18 under the heading “Warranties”.

Examining the Act as a whole, it is apparent that the “Warranties” sections of the Act do not exist in isolation but, rather, relate directly to the previous sections 10 and 11 that are grouped together under the heading “Sale Agreement”.

Sections 10 and 11 relate to the statutory requirements or “musts” in every sale contract document between a farm implement buyer and a farm implement dealer for both new and used farm implements. Subsection 10(1)(f) requires that on the sale of a new farm implement, the contract must set out the statutory warranties required by the Act and any additional or extended warranties. That subsection links directly with the provisions of sections 12 to 16 that create statutory warranty protections for farm implement buyers.

• Section 12 creates a warranty that any new motorized farm implement will develop the horsepower stated in the sale agreement.

• Section 13 creates a warranty that any new farm implement is properly built and will perform the work for which it is intended to the manufacturer’s specification, subject to proper operation, maintenance and reasonable operating conditions.

• Section 14 provides that the duration of the statutory warranties is one year except for tractors or combines where it is the lesser of one year and 1,000 operating hours for tractors and 500 operating hours for combines.

• Section 15 creates a warranty that ensures a ten-year supply of repair parts.

• Section 16 creates a warranty that repair parts will be free of defects for 90 days from purchase or first use.

The legislature amended the common law right of freedom of contract to impose into every sale contract those section 12 to 16 warranties. However, in subsection 17(1) of the Act the legislature preserved the rights of parties to contract for greater warranty protections. Therefore, read together, those provisions create a code of statutory minimum standards for new farm implement warranties. The language of section 17 is instructive as it highlights that the legislature is drawing a clear distinction between the specific warranties created by the Act and any warranties that might exist in the contract relationship between farm implement buyer, farm implement dealer and farm implement manufacturer.

17. (1) A distributor or dealer may give a warranty in respect of a farm implement or a repair part that affords greater protection or that has a longer duration than the warranties under this Act.

Warranties, whether contractual or statutory, protect buyers from defective products.

Therefore, we conclude that the aim of the “Warranties” sections within the Act is to address defective farm implements.

5. Liability for Warranties

The warranty issue between CFEI and CNH is over reimbursement for warranty repair related transportation and travel costs which primarily engages consideration of subsections 18(7), (8) and (9) of the Act. The Tribunal will refer to those three subsections together as the “reimbursement” subsections since that is the essence of those subsections.

However, we must interpret those subsections in the context of the entirety of section 18, in the context of the “Warranties” sections (12 to 18), and in the context of the entire Act.

The intervenors and CNH argue that subsections 18(7), (8) and (9) work as a subset of subsection 18(6) and relate only to a mass defect recall situation. The Tribunal is unable to accept that argument. In our view, the reimbursement subsections apply to all statutory warranty repair issues and not only to mass recall defect issues.

First, from an organizational and structural perspective, had the legislature intended us to interpret the reimbursement subsections as a subset of subsection 18(6), it would have signalled that intention by numbering those reimbursement subsections as further subsections of 18(6). Since it did not do so, that supports our view that the reimbursement subsections apply to all warranty repair issues.

Second, it does not make sense that the legislature would create a set of reimbursement rules applicable to only one category of warranty repair and leave a gap for all other warranty repair categories. Leaving such a gap would result in an absurdity and there is a general presumption that the legislature does not intend its legislation to have absurd consequences⁴.

Third, there is no special meaning attached to the words “defective farm implements”. It is not a defined phrase in the Act. We heard no evidence that the phrase has acquired some fixed legal meaning or a particular meaning within the farm implements industry. Therefore, its first appearance in subsection 18(6) does not attract any special meaning when considered in the context of what precedes it and what follows it.

We summarize the preceding subsections as follows:

• Subsections 18(1), (3) and (4) make the manufacturer liable to honour the primary statutory warranties (power, quality and quality of repair parts).

• Subsection 18(2) makes manufacturers and dealers jointly and severally liable to honour the ten-year parts supply warranty.

• Subsection 18(5) imposes an obligation on manufacturers and dealers who make warranty repairs to use new parts, unless a buyer agrees in writing otherwise.

In those subsections, the Act fixes liability for warranties, primarily on the manufacturer. While the legislature did not use the words “defective farm implements” in those subsections, as noted from above, the plain reading of sections 12 to 18 is that they address “defective farm implements”. The object, therefore, of sections 12 to 18 is “defective farm implements”.

Subsection 18(6) imposes notice obligations. The notice obligations arise when a significant number of implements exhibit common defects. The parties and intervenors aptly described subsection 18(6) as addressing mass defects. Consistent with the manufacturer as primarily responsible under subsections 18(1) - (5), the legislature imposed the obligation to notify of mass defects on the manufacturer.

Of those first six subsections of section 18, only one deals with mass defects. The first five subsections deal with defective farm implements more generically and while none of those subsections use the words “defective farm implements”, it makes both common and contextual sense that defective farm implements are the subject matter of those first six subsections.

Subsection 18(7) requires the manufacturer to repair “the defective farm implements” at the manufacturer’s expense or the manufacturer shall reimburse the dealer for the cost of repairing “the defective farm implements”. Subsections 18(8) and (9) both connect directly to subsection 18(7) since the former addresses reimbursing a dealer for warranty repairs in accordance with an existing agreement, and the latter addresses reimbursement where there is no existing agreement.

However, on the facts of this case, CFEI and CNH had an existing agreement about how CNH would reimburse CFEI for warranty repair work, the CNH Dealer Agreement.

Therefore, subsection 18(8) is applicable and CNH is obliged to reimburse CFEI for warranty repair work on defective farm implements in accordance with the terms of that existing agreement. There was no dispute about the reimbursement entitlement under that existing agreement. CNH’s Dealer Agreement did not provide for reimbursement for transportation or travel costs.

The Tribunal concludes that CNH reimbursed CFEI for warranty repair work on defective farm implements in accordance with the terms of the existing CNH Dealer Agreement. The Tribunal also concludes that because of CNH reimbursing CFEI in accordance with the Dealer Agreement, CNH reimbursed CFEI for warranty repair work in accordance with subsection 18(8) of the Act.

The Tribunal finds that CNH did not breach the warranty provisions of section 18 of the Act by refusing to reimburse CFEI for transportation and travel costs.

Returning to the first of the three issues posed as the following question:

Did CNH breach the warranty provisions of section 18 of the Act?

The Tribunal answers “no” to that question.

B. The End of Relationship Issues

1. The Evidence

The parties characterized the end of the relationship differently. CFEI characterized it as a termination while CNH characterized it as non-renewal. Regardless of the characterization, the practical result was the same, the end of the business relationship.

Within a few weeks of appointment to the position of CNH’s Canadian Market Representation Manager in May 2006, Miles Mackow had concluded that CFEI was not performing satisfactorily, particularly in the high-power tractor category where CNH achieved its best profit margins. He discussed CFEI with CNH’s Sales Manager Ralph Walsh and developed the perception that CFEI’s business focus was no longer on farm implements.

By July 2006, Miles Mackow crystallized his view that CNH should not renew CFEI’s Dealer Agreement and he recommended non-renewal to Réal Prefontaine. After receiving the July 2006 sales reports from AEM in August 2006, Mr. Mackow believed that CFEI’s year to date sales results confirmed the appropriateness of his non-renewal recommendation.

Mr. Mackow followed CNH’s internal processes for non-renewal by completing a “Market Rep Action Approval Form”. That form contains boxes to select one of three actions: unilateral termination, product line removal and miscellaneous. Mr. Mackow selected unilateral termination; however, his narrative comment on the form indicated that he was seeking “that this Dealer’s Agreement with CNH Canada Ltd. not be renewed past December 31, 2006.” Two documents attached with the Market Rep Action Form, which were the non-renewal letter dated September 30th, 2006, and a “Package Summary” document both referred to non-renewal. By September 12th, 2006, Mr. Mackow had secured the internal approvals to implement the decision not to renew CFEI’s Dealer Agreement.

Mr. Mackow explained that during his three-year tenure as Market Representation Manager he was involved in the non-renewal of three dealerships and the termination of two dealerships. He testified that he had visited one dealership in each category prior to implementing those decisions. In both cases, his visits were to review curative actions and plans with those dealerships. Mr. Mackow confirmed that he made his non-renewal recommendation without ever visiting CFEI. He confirmed that no curative action plan was prepared for CFEI. He agreed that CNH did not issue CFEI any written notice warning that its dealership might be in jeopardy. He suggested that the monthly visit of Ralph Walsh where he reviewed CFEI’s performance was sufficient for CFEI to know how seriously concerned CNH was about CFEI’s poor performance.

CFEI did not challenge its own sales performance as reported by AEM to CNH but it did challenge the balance of the industry results reported by AEM for the three counties that comprised CFEI’s PMR and for the provincial results. CFEI argued that the AEM data was unreliable and therefore CNH was unreasonable acting on unreliable data to make a business decision not to renew CFEI as a dealer.

CFEI called evidence from Harry Cummings, PhD. Dr. Cummings is a tenured professor at the University of Guelph and teaches market share analysis to graduate and doctoral candidates in Regional Economics and Planning Methods. Dr. Cummings also runs a consulting business focusing on the economic impact of agriculture in Ontario. The discipline of quantifying market share is an area outside the expertise of the Tribunal, therefore, the Tribunal accepted Dr. Cummings as an expert qualified to give the Tribunal opinion evidence as an agriculture economist with knowledge of the quantification of market share.

Dr. Cummings testified that he reviewed AEM’s publicly available policy about its data collecting and reporting procedures but beyond that, AEM refused to respond to his inquiries that would have allowed him to test the efficacy of the AEM processes and results. As a result, he could not be satisfied that the quality of data that dealers reported to AEM was consistent. Further, he could not ascertain if AEM considered local trends, such as the decline in the tobacco industry in Elgin and Oxford counties when determining market share. Dr. Cummings’ opinion questioned the reliability of the AEM market share data.

CNH did not call any expert evidence to the contrary.

2. The Contract

The Dealer Agreement provided at paragraph 22 the following under the heading “DURATION”:

Unless terminated earlier in accordance with the terms hereof, this Agreement shall continue from the date first set forth above until December 31, 2002. This Agreement shall be extended for successive one-year terms unless at least ninety (90) days prior to the expiration date of the original term or any extension term either party notifies the other of its intention not to extend. Upon such notification, the Agreement shall expire on December 31, 2002 or at the end of any such extension period. Dealer understands that this Agreement is of a limited duration and agrees that it has not relied on any representation regarding the continuation of this Agreement or its benefits beyond the initial term or any subsequent term.

That contractual duration term had been a feature of successive Dealer Agreements between CFEI and CNH. The 1990 version of the Dealer Agreement entered into evidence contained a somewhat similar provision under paragraph F “DURATION”.

Unless terminated earlier in accordance with the terms hereof; this Agreement shall continue from the date first set forth above for a two-year term; provided, however, this Agreement automatically shall be extended for successive two-year terms unless at least three months prior to the expiration date either party notifies the other of the intention not to extend.

The effect of the duration term in the current version of the Dealer Agreement is to create successive one-year terms, each commencing January 1st and concluding December 31st. Under that provision, each party has the contractual right not to renew for the next one-year term by giving the other party at least ninety days written notice.

Paragraph 23 of the Dealer Agreement addresses “TERMINATION” and subsection c of that paragraph provides that where a party has breached the Agreement, the other may terminate on thirty days written notice and in some circumstances termination can be immediate.

Miles Mackow was unshaken on cross-examination that despite checking “unilateral termination” on an internal CNH document, his narrative comments on the form as well as all the supporting documentation he prepared, including the September 30th, 2006 letter, all referred to CNH not renewing CFEI’s dealership.

The parties filed case authorities with the Tribunal regarding the contra proferentem rule of construction that any ambiguity in a document must be resolved against the author⁵. However, we did not find any ambiguity in the Dealer Agreement that required us to resort to that rule of construction.

The duration term reflected in paragraph 22 of the Dealer Agreement is unambiguous; either party had a contractual right to end the relationship on 90 days written notice.

The Tribunal is satisfied on a balance of probabilities that CNH made a business decision not to renew CFEI’s dealership under paragraph 22 of the Dealer Agreement rather than terminate the Dealer Agreement under paragraph 23.

The Tribunal is also satisfied on the evidence that CNH’s September 30th, 2006 letter provided CFEI with the required contractual non-renewal notice of 90 days.

However those findings do not end the analysis. The arguments and authorities filed requires the Tribunal to consider if we should disregard the unambiguous language of the contract due to any common law principles that alter the parties’ right to decide not to renew the Dealer Agreement on 90 days written notice.

The arguments focused on the concepts of “good faith” and “unconscionability”.

The law does, however, regulate contractual conduct between individuals through the imposition of three types of standards: unconscionability, good faith and the fiduciary standard. All three standards are points on a continuum in which the law acknowledges a limitation on the principle of self-reliance and imposes an obligation to respect the interest of the other.⁶

We considered both the Dealer Agreement as well as CNH’s decision not to renew against the standard of unconscionability. That begs the question: what is unconscionable? Reviewing the authorities filed reveals the reality that there is no precise definition. The answer to the question flows from the facts of the case.

While it is clear that the Dealer Agreement is a standard form contract and CNH presented it to CFEI with a “take it or leave it” proposition, those two features abound in modern commerce. Car purchases, leases, home purchases, mortgages, and health club memberships are all variations of standard form “take it or leave it” contracts. Commerce would grind to a halt if that was all that was required to establish unconscionability.

CFEI has not satisfied us with proof of “substantial unfairness” in the bargain it made with CNH. CFEI and CNH co-existed under the terms of the bargain for almost two decades. CFEI expanded and grew its business operations during that relationship. The undeniable inference from the facts is the relationship was mutually beneficial. It is counter-intuitive that a long term mutually beneficial relationship would arise from a “substantially unfair” bargain.

We are unable to conclude in all of the circumstances that the bargain between CFEI and CNH was unconscionable in the sense that it is so far from “community standards of commercial morality”⁷ that the Tribunal should interfere under the common law doctrine of unconscionability.

Dealing next with “good faith”, CFEI, relying on the Esmail v. Petro-Canada case contended that the reasonable expectation arising from an automatically renewing agreement was that CNH’s decision not to renew had to be made in good faith. CFEI argued CNH’s decision was made in “bad faith”.

CNH’s September 30th, 2006 letter advising of its non-renewal decision explained that the decision was based on CFEI’s poor performance in sales and market share. CFEI argues that that decision was made in “bad faith” because the sales and market data CNH relied on is suspect or wrong or CNH was not being honest because those were not the real reasons for non-renewal.

As noted previously in these reasons, CFEI did not challenge the data CNH obtained from AEM about its own sales and revenue. It did challenge the balance of the industry results reported by AEM. However, there was no evidence that those industry results were wrong. The only evidence on this point was supplied by Dr. Cummings. Dr. Cummings did not have access to the AEM data and was unable to do any independent testing of the AEM data. Therefore, at its highest, Dr. Cummings’ evidence questioned the reliability of the AEM data. While that evidence was unchallenged by any contradictory expert evidence, it does not follow that the Tribunal can conclude as a finding of fact that the AEM data was wrong. CFEI and CNH contractually agreed to use AEM’s data to determine, among other things, market share results.

We do not find that CNH’s reliance on market data from AEM to be in “bad faith” as a basis for its decision not to renew the Dealership Agreement. The parties governed their dealings for almost two decades relying on the AEM data. While questions about the reliability of the data have been raised, the question for us is not whether CNH’s conclusion that CFEI was performing poorly can be objectively proven correct today. The question is whether at the time the decision was taken did CNH have a good faith belief that CFEI was performing poorly. The evidence from Mackow was that he saw CFEI’s performance had been declining when he became Market Representation Manager in the spring of 2006. He testified that when the July 2006 results confirmed his view of the decline, the non-renewal decision was finalized and implemented. As previously noted, CFEI did not challenge the AEM data about its own sales in units and revenue. That data reflected that for the years 2003, 2004, 2005 and the first six months of 2006, CFEI’s tractor sales, in units had declined from 16 to 10 to 9 to 5. During that same period for hay and forage equipment its unit sales had declined from 8 to 4 to 4 to 1. CFEI’s total sales revenue of CNH products over that same period declined from $1.595 million to $1.317 million to $901,000 to $469,000.

We are unable to find any “bad faith” in these circumstances.

The other “bad faith” element concerned CFEI’s assertion that CNH’s decision was based on a dislike of Dave Chesterman by Réal Prefontaine as a result of some friction between the two from well over a year before the September 30th, 2006 non-renewal letter. While the evidence confirmed the friction that existed in 2005, there was no evidence that friction had anything to do with the non-renewal decision. The evidence satisfies us that it was Mackow that initiated the decision not to renew and not Prefontaine, and that Mackow was unaware of the previous friction between Chesterman and Prefontaine. Therefore, we are unable to find any “bad faith” in these circumstances.

Subject to our comments that will follow about the Act and Ontario Regulation 123/06, the panel does not find that CNH’s non-renewal of the Dealer Agreement breached the contract or the common law.

3. The Act and Ontario Regulation 123/06

Section 35(c) of the Act provides that the Minister of Agriculture, Food and Rural Affairs may make regulations prescribing information to be included in a dealer agreement and setting out legal rights and obligations for parties to the agreement.ⁱⁱⁱ

The Minister prescribed Ontario Regulation 123/06. The Regulation came into force when filed on April 25th, 2006.

The Regulation created mandatory terms that must be included in any dealer agreement and that the Regulation deems are part of any dealer agreement. The Regulation provides that any provision in a dealer agreement contrary to the prescribed mandatory terms is void.^iv

Section 2 of the Regulation entitled “Right to terminate”, focuses on the right to terminate a dealer agreement^v. Subsection 2(1) of the Regulation sets out the distributor’s right to terminate and subsection 2(2) sets out the dealer’s right to terminate. If this had been a termination, the Tribunal would then interpret the contract, as varied by the prescribed mandatory terms from section 2. However, as noted above, CNH did not terminate CFEI’s Dealer Agreement.

Section 3 of the Regulation entitled “Other terms” encompasses a variety of other distributor and dealer rights^vi.

Clause (b) of subsection 3(1), and subsections 3(3), 3(4) and 3(6) specifically apply to the renewal of a dealer agreement.

Since the Tribunal has concluded that it was a “non-renewal” that ended the relationship between CNH and CFEI, those mandatory terms of the Regulation must be read into the Dealer Agreement.

4. Liability for Ending the Relationship

Despite any contractual wording to the contrary, CFEI has a prescribed right to renew the Dealer Agreement by giving CNH that written notice. Both counsel agreed that in this case the Dealer Agreement itself, which contemplated annual “auto-renewal”, would satisfy the requirement from the Regulation for written notice. It is clear from the Dealer Agreement that the annual term starts January 1st and concludes December 31st.

While CNH had a contractual right not to renew the annual term before April 25th, 2006, the effect of the Regulation was to remove CNH’s contractual right not to renew from paragraph 22 of the Dealer Agreement. The Regulation replaced that right with a regulated approval. Therefore, beginning April 25th, 2006, CNH no longer had any right not to renew the Dealer Agreement.

CNH’s September 30th, 2006 letter sought to engage a non-renewal right that CNH no longer enjoyed.

Subsection 3(4) introduces “unreasonableness” as a control over a distributor’s ability to refuse to approve renewing a dealer agreement. The distributor cannot unreasonably withhold renewal approval.

What is unreasonable is determined from the factual context⁸ that in this case includes the following, all of which are findings of fact:

• The parties had a 19 year business relationship

• The Dealer Agreement was drafted by CNH with no input from CFEI

• CFEI premises were subject to inspections and grading by CNH

• CFEI’s business performance was tracked and graded by CNH

• CFEI received CNH’s President’s Prestige Award commending CFEI’s business premises standards for 2004-05 and 2005-06

• CFEI had a substantial investment dedicated to selling and servicing CNH’s products

• Between 2000-2006, CNH sales and service accounted for the majority of CFEI’s business

• CNH’s Market Representation Manager who recommended non-renewal did so without ever visiting CFEI

• No other senior CNH representative visited CFEI before the non-renewal decision

• CNH did not issue CFEI any written warnings that its dealership status was in jeopardy

• CNH did not give CFEI any opportunity to develop a plan for curative measures to address CNH’s concerns

• As illustrated on the Market Rep Action Form, CNH’s processes provide for curative action plans for dealers subject to termination under paragraph 23 of the Dealership Agreement but not for dealers subject to non-renewal

• Between September 30th, 2006 and December 31st, 2006, CFEI was obliged to repay almost $1 million in credit financing that had been extended by CNH’s credit arm

• While the repayment time was eventually extended by CNH, repaying the debt forced CFEI into a distress situation where it had to discount its new and used equipment inventory to generate sales to create cash flow to fund the debt repayment

• The Minister, pursuant to powers granted under the Act, enacted a Regulation removing CNH’s right not to renew the Dealer Agreement and requiring CNH not to unreasonably withhold renewal approval

CNH’s September 30th, 2006 letter was not the written notice of its intention to withhold renewal approval as contemplated in subsection 3(6) of the Regulation. Contrary to the Regulation, that letter communicated a non-renewal right that had effectively become void. In our view, that fact alone is sufficient for us to find that CNH’s ending the relationship pursuant to that letter breached the Regulation.

However, even if we were to treat CNH’s September 30th, 2006 letter as the prescribed written notice, the letter did not provide CFEI with the required period to address the concerns underlying the notional refusal to renew. Debate over what CFEI could or could not have achieved in the prescribed period is academic since CNH failed to comply with the Regulation.

The Regulation recognizes that it is unreasonable to withhold renewal approval without giving a dealer written notice and a chance to address the distributor’s concerns.

Therefore, if we notionally considered the September 30th, 2006 letter as CNH’s required written notice under the Regulation, we find that CNH failed to give CFEI an opportunity to address its concerns. In this hypothetical and the circumstances of this case, we would therefore find CNH to have unreasonably withheld renewal approval and to have breached the Regulation.

CFEI started this proceeding and accordingly, the onus is on CFEI to prove its case, on a balance of probabilities.⁹

The Tribunal is satisfied that CFEI has met the burden and proved that CNH breached Ontario Regulation 123/06 by not renewing the Dealer Agreement contrary to the Regulation.

Returning to the second of the three issues posed as the following question:

Did CNH breach the contract, the Act or Ontario Regulation 123/06 by ending the business relationship in 2006?

The Tribunal answers “yes” to that question.

The consequence flowing from CNH’s liability remains to be determined in the second phase of this proceeding.

ORDER OF THE TRIBUNAL

Therefore, the Tribunal Orders:

1. CFEI’s dispute concerning the section 18 warranty issue is dismissed.

2. CFEI’s dispute concerning the end of the business relationship (liability) is granted.

3. The Tribunal panel remains seized of this matter.

4. A further hearing will be scheduled for the Tribunal panel to hear evidence and argument concerning CFEI’s damages.

5. The costs of the proceeding to date are reserved to the Tribunal panel seized of the matter and will be addressed at the conclusion of the hearing.

6. The intervenors are excused from further participation in this proceeding.

Any party to this hearing may appeal the decision of the Tribunal on a question of law to the Divisional Court of the Superior Court of Justice in accordance with its rules of practice within 15 days from the day on which this decision was served.

Dated at Amherstburg, Ontario this 17th day of March, 2011

18. (1) The distributor of a new farm implement is liable to the purchaser to honour the warranties under sections 12 (power) and 13 (quality). [R.S.O. 1990, c. F.4, s. 18 (1)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f4/latest/rso-1990-c-f4.html#sec18subsec1_smooth).

Idem

(2) The dealer and distributor of a new farm implement are jointly and severally liable to the purchaser to honour the warranty under section 15 (parts supply). [R.S.O. 1990, c. F.4, s. 18 (2)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f4/latest/rso-1990-c-f4.html#sec18subsec2_smooth).

Idem

(3) The distributor who supplies a new repair part is liable to the purchaser to honour the warranty under section 16 (quality of parts). [R.S.O. 1990, c. F.4, s. 18 (3)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f4/latest/rso-1990-c-f4.html#sec18subsec3_smooth).

Idem

(4) If a farm implement is damaged as a result of a breach of the warranty under section 16 (quality of parts), the distributor of the repair part is liable for the cost of repairing the farm implement. [R.S.O. 1990, c. F.4, s. 18 (4)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f4/latest/rso-1990-c-f4.html#sec18subsec4_smooth).

Repairs under warranty

(5) A dealer or distributor making repairs to a farm implement under a warranty provided by this Act shall use new repair parts that are of the standard and size specified by the manufacturer for that farm implement, unless the purchaser and the distributor authorize in writing the use of different parts. [R.S.O. 1990, c. F.4, s. 18 (5)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f4/latest/rso-1990-c-f4.html#sec18subsec5_smooth).

Recall of defective farm implements

(6) If a distributor is or should be aware that a significant percentage of farm implements sold by the distributor exhibit a common defect, the distributor shall notify purchasers of the defect and of the distributor’s obligation to repair the defective farm implements. [R.S.O. 1990, c. F.4, s. 18 (6)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f4/latest/rso-1990-c-f4.html#sec18subsec6_smooth).

Repair

(7) The distributor shall have the defective farm implements repaired at the distributor’s expense or shall reimburse the dealer for the cost of repairing the defective farm implements. [2005, c. 19, s. 4](https://www.canlii.org/en/on/laws/astat/so-2005-c-19/latest/so-2005-c-19.html).

Reimbursement

(8) If the distributor reimburses the dealer for the cost of repairing the defective farm implements, the distributor shall do so in accordance with the terms to which the parties agree. [2005, c. 19, s. 4](https://www.canlii.org/en/on/laws/astat/so-2005-c-19/latest/so-2005-c-19.html).

Cost of repair

(9) If the parties do not agree on terms for the reimbursement of the cost of repair, the cost shall include,

(a) if necessary for doing the repair, the cost of transporting the implements within the dealer’s market area as assigned in the dealership agreement;

(b) the cost of travel incurred by the dealer in having the repair done;

(c) the cost of labour for doing the repair, based on the dealer’s posted shop rate for labour; and

(d) the cost of parts used in the repair. [2005, c. 19, s. 4](https://www.canlii.org/en/on/laws/astat/so-2005-c-19/latest/so-2005-c-19.html).

Reimbursement by manufacturer

(10) If the distributor of a new farm implement or a new repair part is not the manufacturer of it, the manufacturer shall reimburse the distributor for the costs that the distributor incurs to honour the warranties under sections 12 (power), 13 (quality), 15 (parts supply) and 16 (quality of parts), for the cost of repairing defects under subsection (4) and for the cost of notifying purchasers of defects under subsection (6). [2005, c. 19, s. 4](https://www.canlii.org/en/on/laws/astat/so-2005-c-19/latest/so-2005-c-19.html).

33. The rights, duties and remedies provided by this Act are in addition to the rights, duties and remedies under any other Act and the common law. [R.S.O. 1990, c. F.4, s. 33](https://www.canlii.org/en/on/laws/stat/rso-1990-c-f4/latest/rso-1990-c-f4.html#sec33_smooth).

35. The Minister may make regulations,

(c) prescribing information to be included in a dealership agreement and setting out legal rights and obligations for parties to the agreement, subject to subsection 3 (5); 

1. (1) The terms set out in sections 2 and 3 are prescribed as the mandatory terms that must be included in any dealership agreement under subsection 3 (4) of the Act. [O. Reg. 123/06, s. 1 (1)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec1subsec1_smooth).

(2) The mandatory terms set out in sections 2 and 3 are deemed to form part of any dealership agreement even if the agreement fails to include them as required. [O. Reg. 123/06, s. 1 (2)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec1subsec2_smooth).

(3) A provision in a dealership agreement that limits, varies or attempts to waive a term set out in sections 2 and 3 is void. [O. Reg. 123/06, s. 1 (3)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec1subsec3_smooth).

2. (1) The distributor has the right to terminate a dealership agreement if,

(a) the dealer makes an assignment in bankruptcy under the [Bankruptcy and Insolvency Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) (Canada), a bankruptcy order has been made against the dealer or the dealer, being bankrupt, has not been discharged from bankruptcy;

(b) an application is made under the Business Corporations Act to wind up, dissolve or liquidate the dealership or the dealership is being wound up by order of the court under that Act;

(c) a guarantee of the dealer’s accounts payable to the distributor is revoked or discontinued;

(d) the dealer, other than for seasonal fluctuations, ceases or abandons all or part of its operations for 14 consecutive days or longer;

(e) the dealer has been convicted of an offence under the Act; 

(f) the dealer fails to comply with any term of the dealership agreement; or

(g) the dealer has been convicted of an offence under the [Criminal Code](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-46/latest/rsc-1985-c-c-46.html) (Canada) involving fraud, theft or false pretences or convicted of an offence under the Consumer Protection Act, 2002. [O. Reg. 123/06, s. 2 (1)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec2subsec1_smooth).

(2) The dealer has the right to terminate a dealership agreement if,

(a) the distributor makes an assignment in bankruptcy under the [Bankruptcy and Insolvency Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) (Canada), a bankruptcy order has been made against the distributor or the distributor, being bankrupt, has not been discharged from bankruptcy;

(b) an application is made under the Business Corporations Act to wind up, dissolve or liquidate the distributor or the distributor is being wound up by order of the court under that Act;

(c) the distributor, other than for seasonal fluctuations, ceases or abandons all or part of its operations for 14 consecutive days or longer;

(d) the distributor has been convicted of an offence under the Act;

(e) the distributor has been convicted of an offence under the [Criminal Code](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-46/latest/rsc-1985-c-c-46.html) (Canada) involving fraud, theft or false pretences or convicted of an offence under the Consumer Protection Act, 2002; or

(f) the distributor fails to comply with any term of the dealership agreement. [O. Reg. 123/06, s. 2 (2)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec2subsec2_smooth).

(3) The dealership agreement may be terminated with the consent in writing of both the distributor and dealer. [O. Reg. 123/06, s. 2 (3)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec2subsec3_smooth).

3. (1) The dealer has the right, and the agreement shall not be interpreted as interfering with the right of the dealer to,

(a) continue to offer for sale farm implements obtained from the distributor even if,

(i) the dealer has failed to achieve the distributor’s sales targets so long as the failure is not unreasonable,

(ii) the dealer has sought to exercise a remedy under the Act, or

(iii) the dealer has refused to accept delivery of or purchase a farm implement or service from the distributor because the implement or service is not necessary for the operation of the dealership or is not a tool or equipment necessary for the service or repair of farm implements sold under the dealership agreement;

(b) renew or transfer the dealership agreement; 

(c) transfer any interest in the dealership at any time, including upon the death of the dealer, to a related person, a trust established for that related person or a corporation controlled by the related person or to a partner in the dealership; and

(d) assume control of another dealership or amalgamate the dealership with another one. [O. Reg. 123/06, s. 3 (1)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec3subsec1_smooth).

(2) The dealer shall notify the distributor in writing of any change in the dealer’s ownership, management or share structure. [O. Reg. 123/06, s. 3 (2)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec3subsec2_smooth).

(3) A dealer who wishes to renew or transfer a dealership agreement under clause (1) (b) shall notify the distributor in writing of that fact. [O. Reg. 123/06, s. 3 (3)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec3subsec3_smooth).

(4) A renewal or transfer of a dealership agreement under clause (1) (b) is subject to the approval of the distributor, which approval shall not be unreasonably withheld. [O. Reg. 123/06, s. 3 (4)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec3subsec4_smooth).

(5) The approval of the distributor is not required in respect of a transfer under clause (1) (c) or a transaction under clause (1) (d). [O. Reg. 123/06, s. 3 (5)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec3subsec5_smooth).

(6) If the distributor intends to refuse the transfer or renewal of the dealership agreement, the following rules apply:

1. The distributor shall notify the dealer in writing of the reasons for the refusal, within 45 days of receiving the request for approval.

2. If the distributor fails to notify the dealer within the 45-day period, the transfer or renewal is deemed to be approved.

3. The dealer shall be allowed 15 days from receipt of the notice to address the concerns underlying the refusal.

4. After the 15-day period has passed, the distributor may, subject to subsection (3), refuse the transfer or renewal. [O. Reg. 123/06, s. 3 (6)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec3subsec6_smooth).

(7) The distributor has the right to set sales targets that are fair and reasonable. [O. Reg. 123/06, s. 3 (7)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec3subsec7_smooth).

(8) The distributor shall provide the dealer with details of marketing incentives offered to other dealers selling the same farm implements. [O. Reg. 123/06, s. 3 (8)](https://www.canlii.org/en/on/laws/regu/o-reg-123-06/latest/o-reg-123-06.html#sec3subsec8_smooth).

Footnotes

1. 1“Dealer agrees to promote vigorously and aggressively the sale at RETAIL of PRODUCTS in order to assure maximum sales of PRODUCTS and further agrees to obtain a reasonable share of the market in Dealer’s designated PMR and a reasonable total sales revenue for all PRODUCTS which dealer is authorized to sell. It is agreed that a reasonable MARKET SHARE within the designated PMR shall be 90% of the average MARKET SHARE that New Holland PRODUCTS or EQUIPMENT achieve within Dealer’s province.”
2. iLiability for warranties
3. 2Bell ExpressVu Limited Partnership v. Rex 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 26
4. 3Sullivan, Sullivan on the Construction of Statutes, 5th Edition, pp.482-485
5. iiRights, etc., preserved
6. 4Sullivan, Ruth Sullivan on the Construction of Statutes, 5th Ed. P. 300-301
7. 5McKinlay Motors Ltd. v. Honda Canada Inc. [1989] N.J. No. 332; Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co. 1979 CanLII 10 (SCC), [1979] S.C.J. No. 133
8. 6978011 Ontario Ltd. v. Cornell Engineering Co. 2001 CanLII 8522 (ON CA), [2001] O.J. No. 1446 (C.A.) at paragraph 33
9. 7Atlas Supply Co. of Canada v. Yarmouth Equipment Ltd. 1991 CanLII 2552 (NS CA), [1991] N.S.J. No. 178, (N.S.C.A.) a page 20, citing Lambert, J.A. from Harry v. Kreutziger (1978) 1978 CanLII 393 (BC CA), 95 D.L.R. (3d) 231 (B.C.C.A.)
10. iiiRegulations
11. ivMandatory terms
12. vRight to terminate
13. viOther terms
14. 81193430 Ontario Inc. v. Boa-Franc Inc. 2005 CanLII 39862 (ON CA), [2005] O.J. No. 4671 (C.A.) at paragraph 45
15. 9First Capital (Northgate) Corp. v. 137th C.T. Grill Inc. 2002 CarswellAlta 1352 at paragraph 5-6