Agriculture, Food and Rural Affairs Appeal Tribunal

Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West

Guelph, (Ontario) N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: AFRAAT@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL:

Chesterman Farm Equipment Inc. v CNH Canada Ltd.

Chesterman Farm Equipment Inc. v. CNH 2014 ONAFRAAT 7

STATUTE:

Farm Implements Act

HEARING:

DATE OF DECISION:

March 24, 2014

2014-07

NEUTRAL CITATION:

2014 ONAFRAAT 7

Chesterman Farm Equipment Inc. v CNH Canada Ltd.

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:

John O’Kane, Vice Chair; Rob Scouller, member

Appearances:

John May, co-counsel for the appellant, CFEI

Eric Gillespie, co-counsel for the appellant, CFEI

Ian Flett, co-counsel for the appellant, CFEI

Natalie Smith, co-counsel for the appellant, CFEI

Dave Chesterman, witness for appellant

Ron Sciannella, expert witness for appellant

Stuart Mackay, counsel for the respondent, CNH

Miles Mackow, witness for respondent

Jim Hoare, expert witness for respondent

DECISION OF THE TRIBUNAL

Table of Contents

Overview

Procedural Background and Context

Motion to Oppose Evidence of Legislative Intent

General Background Evidence

The Issues

A. The End of Relationship Issues

1. The Evidence

2. The Contract

3. Interpreting Legislation

4. The Object and Purpose of the Act

5. The Act and Ontario Regulation 123/06

6. Did the Regulation Alter the Contract Right Not to Renew?

7. Did the Auto Renewal in the Contract Satisfy Ontario Regulation 123/06?

8. Did Regulation 123/06 Require Written Notice and an Opportunity to Cure?

9. Was the Opportunity to Cure Rendered Academic?

10. Are Reasonableness, Unconscionability and Bad Faith Mutually Exclusive?

11. Liability for Ending the Relationship

B. Damages

1. Loss of Profits

2. Obsolete Assets

3. Restocking Fees

4. Non-Returnable Parts

5. Inventory Liquidation

6. Mitigation

7. Contractual Limitation of Liability

8. Pre-Judgment Interest

Order of the Tribunal

Overview

Between 1987 and December 31^st, 2006, Chesterman Farm Equipment Inc. (CFEI) was a farm implement dealer for CNH Canada Ltd. (CNH) or its predecessor corporation. The issues 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 remaining issues that the Tribunal must decide are:

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

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

The Tribunal concluded that CNH had breached the contract and Regulation 123/06 and is liable to CFEI for damages of $139,846.00 plus pre-judgment interest of $60,670.61.

Procedural Background and Context

The Tribunal heard evidence and argument on October 18^th, 19^th, 20^th, 21^st, 22^nd, 25^th and 26^th, 2010 and on February 4^th and 5^th, 2013 and on May 27^th and 28^th, 2013, and on June 17^th and 18^th, 2013 and on June 24^th and 25^th, 2013 and on November 5^th and 6^th, 2013.

Prior to the start of the hearing, the parties agreed to split the issues into two hearing phases. The first phase dealt with liability regarding the end of the business relationship between CFEI and CNH and certain warranty issues that involved not only CFEI and CNH, but also engaged the interests of John Deere Limited and the Association of Equipment Manufacturers, who both became intervenor parties. The second phase dealt with damages related to the end of the business relationship.

The Tribunal released an interim decision regarding liability and warranty issues on March 17^th, 2011. CNH appealed the Tribunal’s liability determination to the Divisional Court and on March 21^st, 2012, the Divisional Court remitted certain aspects of the liability issue to the Tribunal for reconsideration.

The remitted issues flowed from the Tribunal’s interpretation and application of Regulation 123/06. Those issues engaged considerations of statutory interpretation. Therefore, the Tribunal’s consideration of the remitted issues will be addressed as a sub-heading of issue 1.

On September 7^th, 2012, the Tribunal made a procedural order reuniting the hearing of liability and damages. Reuniting the issues was facilitated because the intervenors no longer played any part in the ongoing hearing since their interest in the warranty issue had been determined in the Tribunal’s interim decision.

Just before the hearing resumed in February 2013, one of the original hearing panel members was appointed a Justice of The Peace and that member resigned from the Tribunal. Under subsection 14(6) of the Ministry of Agriculture, Food and Rural Affairs Act¹, the remaining two members of the original hearing panel “constitute a quorum and are sufficient for the exercise of all jurisdiction and powers of the Tribunal”.

As the Tribunal has previously observed, this is a case of first instance and a case of considerable importance to both parties and possibly to others in the industry. The case involved interpreting the CNH Dealer Agreement and certain amendments made to the Farm Implements Act and Regulation 123/06 made under that Act.

This decision incorporates and re-affirms parts of the Tribunal’s findings from the interim decision published on March 17^th, 2011.

The Tribunal commends counsel and the parties for their thorough preparation, their extensive written materials and their able arguments. That hard work on their part and the professional manner of their hearing conduct made the Tribunal’s job considerably easier.

Motion to Oppose Introduction of Evidence of Legislative Intent

At the resumption of the liability hearing on February 4^th, 2013, CNH moved for an order that the Tribunal not consider part of the evidence of Beverly Leavitt and certain excerpts from Hansard transcripts from the Legislature, both addressing the Legislature’s intentions behind the amendments to the Farm Implements Act and Regulation 123/06.

The Tribunal dismissed CNH’s motion and explained why and indicated that explanation would be supplemented in this written decision.

The Divisional Court directed that the Tribunal might consider exercising its discretion to allow the parties to adduce further evidence about legislative intent and implications for entities beyond the parties. The Divisional Court’s reasons referred to a written consent document filed jointly by counsel for the parties addressing new evidence. The second paragraph of that consent of counsel provided:

The parties have agreed in principle that new evidence before the Tribunal will be limited to evidence of legislative intent and implications for entities beyond the current parties to this appeal.

That agreement of counsel before the Divisional Court was eventually embodied in the Tribunal’s pre-hearing conference decision of September 7^th, 2012.

Regarding the Hansard materials, the Tribunal explained why to admit the additional Hansard passages.

1. Portions of Hansard materials, including some same passages that CNH’s motion sought to exclude, were already a part of the evidentiary record before the Tribunal from the evidence heard in 2010. Exhibit 15, Tab 5 had been admitted into evidence and included some same Hansard passages that CNH sought to exclude. That material previously came into the record with no objection from CNH. In that earlier phase of the hearing, CNH had argued those Hansard passages in its arguments about legislative intentions and interpreting the legislative amendments to the warranty provisions of the Farm Implements Act. Therefore, the Tribunal determined it was impractical at this stage to exclude the Hansard passages from the record.

2. The Tribunal accepted Hansard is not reliable evidence about the Legislature’s intentions about the meaning to give to any word or phrase in the legislation because, as counsel for CNH correctly argued, speeches in the Legislature are often part of a political agenda and it is dangerous to consider Hansard alone as evidence of legislative intention. However, courts routinely admit Hansard evidence as part of the broader social, political and historical context to inform the decision maker of the purpose of the legislative enactment. That limited use of Hansard is also recognized in Professor Ruth Sullivan’s text² on statutory interpretation at page 202. It was also recognized by the Supreme Court of Canada in the R. v. Morgentaler³ case at paragraph 31.

Provided that the court remains mindful of the limited reliability and weight of Hansard evidence, it should be admitted as relevant to both the background and the purpose of the legislation.

3. The third reason for admitting the Hansard passages is section 15(1)(b) of the Statutory Powers Procedure Act that gives the Tribunal wide discretionary authority to admit “any document”, even where such document might not be admissible in the courts.

Therefore, while mindful of the care required when considering Hansard materials and informed of its limited use in statutory interpretation, the Tribunal is satisfied that the Hansard materials will provide some helpful and relevant context about the Legislature’s purpose and objectives in the amendments to the Farm Implements Act and Regulation 123/06. While ruling the Hansard materials admissible, the Tribunal left open for determination the weight accorded to the Hansard materials.

Regarding the oral evidence of Beverly Leavitt, the Tribunal explained why to admit her evidence.

1. Section 15(1)(a) of the Statutory Powers Procedure Act permits the Tribunal to receive hearsay evidence that is relevant. From the Tribunal’s review of the Leavitt witness statement it appeared her evidence was relevant to the remitted issues.

2. The Leavitt evidence on the implications for entities beyond the parties to the appeal was not challenged by CNH’s motion and, therefore, the Tribunal determined it would admit the evidence.

3. The Leavitt evidence was admissible for the context of the legislative changes. She was involved in the submissions to the Legislature about amending the Act and that perspective would provide the Tribunal with helpful context.

Regarding all three reasons, the weight attached to the evidence remained to be determined.

Since the Leavitt evidence was a blend of direct and hearsay evidence about the context of the legislative changes and the implications for entities beyond the parties to the proceeding before the Tribunal, the Tribunal determined it would be better informed by hearing all the Leavitt evidence. That decision followed the direction from section 15(1)(a) of the Statutory Powers Procedure Act and Tribunal hearing practice to admit hearsay evidence and deal with that evidence as a matter of weight. Any procedural fairness concerns were alleviated since the parties had agreed before the Divisional Court to introduce such evidence. The Leavitt evidence was summarized in a witness statement delivered well in advance of the hearing resuming, and both sides had an equal opportunity to lead such evidence.

General Background Evidence[^4]

Dave Chesterman, the principal of CFEI, testified 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 it would not renew the existing Dealer Agreement and it would terminate effective December 31^st, 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 he believed his father had read it over before he 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.

The 1987 and 1999 versions 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 the terms. The reality for CFEI was that if it wished to be a CNH dealer, it had to sign the standard form Dealer Agreement with no 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 CFEI’s view some parts of the Dealer Agreement were unfair, it 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 could 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 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 had about ten large tractors and ten large hay implements on its lot. 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 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 needed to improve. Dave Chesterman testified that CFEI received no warnings from CNH their dealership status was in jeopardy.

Dave Chesterman received a letter from CNH dated September 30^th, 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)⁵ 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 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 resign 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 30^th, 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.

Ralph Walsh testified 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 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 dealer performance, 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 from five CNH senior management before implementing the non-renewal decision.

Mr. Mackow also testified there were a number of other CNH dealers that were performing poorly, and one other dealer who 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.

Dave Chesterman testified he feared CFEI faced bankruptcy after losing the CNH dealership. 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, significant price discounts, and a 150-day credit extension from CNH, CFEI sold off most of its new and used equipment inventory and retired its debt to CNH. Dave Chesterman testified there were no other dealership opportunities for CFEI to pursue to replace CNH.

Dave Chesterman testified that after receiving the September 30^th, 2006 letter, CFEI considered several alternatives to survive the CNH departure.

CFEI considered becoming a used farm equipment dealer. However, their analysis concluded that keeping used equipment would not enable CFEI to reduce any expenses. Without the revenue from the CNH sales, parts and service, CFEI believed the business could not survive without shedding expenses. Another consideration was that after December 31^st, 2006, CFEI would lose access to purchasing CNH parts at wholesale prices and lose access to the specialty training, tools and manuals required to continue to service CNH equipment. CFEI anticipated that once the CNH sign came down, it would experience diminished credibility in the marketplace regarding its parts and service business.

Another alternative CFEI considered was remaining a new farm equipment dealer by either continuing with CNH or securing a new distributor. Dave Chesterman pursued remaining with CNH through his dealer representative Ralph Walsh but he was told “no”. Chesterman also proposed a merger with another CNH dealer but received no response from CNH to that overture. Chesterman testified he knew of alternate distributors like John Deere, Case IH, Massey Ferguson and several smaller distributors. However, Chesterman concluded that securing such an alternate distributorship was unlikely given that John Deere and Massey Ferguson both had a dealership within five minutes of CFEI. There was also a Case IH dealer within fifteen minutes of CFEI.

Dave Chesterman had some discussions with Kubota but was advised they were happy with the status quo with the existing dealer.

Dave Chesterman also had discussions with Montana, a farm equipment distributor new to that market and who was willing to sign CFEI as a dealer. Chesterman concluded that because Montana was so new to the market, being a Montana dealer would have been no better than having no farm equipment. His view was prescient as he testified that within a year of meeting with Montana, that brand had disappeared from the market.

Chesterman also considered but ruled out becoming a dealer of other smaller manufacturers. His reasons for ruling those out related to the investment and lead time to develop sufficient income to carry the related expenses. He concluded the business could not survive that lead time.

Chesterman also considered but ruled out becoming a used farm equipment auction house. Part of that consideration was losing access to a credit financing facility such as CNH’s credit arm. Chesterman discussed with CFEI’s banker financing wholesale farm equipment and was turned down because the bank‘s policy did not allow for wholesale equipment financing.

Ultimately, CFEI’s business decision, in response to the September 30^th, 2006 letter from CNH, eliminated the new and used farm equipment lines from its business, eliminated the farm equipment attachment business⁶, eliminated all associated expenses, and looked for any new business opportunities. One such opportunity arose with the downturn in the U.S. economy and, during a two year window, the chance to buy and sell used recreational equipment.

Another opportunity that CFEI pursued was selling cargo trailers that CFEI continues to sell to the present. Another aspect of CFEI’s business today is the indoor motor-cross track that had been in the planning and development stages for over a year before the end of the relationship with CNH. CFEI has continued to sell its non-farm equipment power lines such as Polaris and Cub Cadet.

The Issues[^7]

A. 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 his appointment to the position of CNH’s Canadian Market Representation Manager in May 2006, Miles Mackow had concluded 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 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 30^th, 2006 and a “Package Summary” document, both referred to non-renewal. By September 12^th, 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 he had visited one dealership in each category prior to implementing those decisions. In both cases, his visits reviewed curative actions and plans with those dealerships. Mr. Mackow confirmed he made his non-renewal recommendation without ever visiting CFEI. He confirmed no curative action plan was prepared for CFEI. He agreed that CNH did not issue CFEI any written notice warning 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 challenged 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 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 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. 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 called no 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 duration term in the current version of the Dealer Agreement created successive one-year terms, each commencing January 1^st and concluding December 31^st. 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 and all the supporting documentation he prepared, including the September 30^th, 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 author⁸. However, we found no 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 30^th, 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.⁹

The Tribunal considered both the Dealer Agreement and 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 there is no precise definition. The answer to the question flows from the facts of the case.

While 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 alone established unconscionability.

CFEI has not satisfied the Tribunal 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.

The Tribunal cannot conclude, in all of the circumstances, that the bargain between CFEI and CNH was unconscionable in the sense it is so far from “community standards of commercial morality”¹⁰ 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 30^th, 2006 letter advising of its non-renewal decision explained 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 challenged the balance of the industry results reported by AEM. However, there was no evidence 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 could do no 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 market share results.

The Tribunal does 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 Dealer 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 the Tribunal is not whether CNH’s conclusion that CFEI was performing poorly can be objectively proven correct today. The question is whether when the decision was taken did CNH have a good faith belief that CFEI was performing poorly. The evidence from Mackow was 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.

The Tribunal cannot 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 because of some friction between the two from well over a year before the September 30^th, 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 the Tribunal it was Mackow who initiated the decision not to renew and not Prefontaine, and that Mackow was unaware of the previous friction between Chesterman and Prefontaine. Therefore, the Tribunal cannot find any “bad faith” in these circumstances.

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

3. 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 statutory interpretation decisions encompassed some aspect of the modern approach to statutory interpretation and the parties agreed that the modern approach to statutory interpretation guides us when interpreting the Act and Regulation.

This approach, endorsed by the Supreme Court of Canada, requires us to read the words of the Act and Regulation 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 Legislature¹¹.

Another principle of statutory interpretation guiding the Tribunal is that if we find ambiguity within the wording or meaning of the Act and Regulation, we can then rely on extrinsic aids to assist us in resolving the ambiguity. As will become apparent, the Tribunal found no ambiguity in the Act and Regulation on this issue and, therefore, did not need to resort to any extrinsic interpretive aids.

4. The Object and Purpose of the Act

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.”ⁱ

The Act contains clear language¹² that a dealer agreement, such as the agreement between CFEI and CNH, must be in writing and must contain the information and legal rights and obligations prescribed under the legislation.¹² That same section of the Act prohibits exclusive distributorship agreements¹³ and renders void¹⁴ any provision in a dealer agreement that requires exclusivity.

Farm equipment dealers like CFEI and farm equipment distributors like CNH must be registered under the Act.¹⁵

Despite any agreement or waiver to the contrary¹⁶, when a dealer agreement expires or is terminated, the Act gives a dealer such as CNH the right and imposes an obligation on a distributor such as CNH to repurchase all new farm implement and parts.¹⁷ The Act sets the minimum re-purchase price of implements and parts in such circumstances.

The Minister of Agriculture, Food and Rural Affairs has the authority to make regulations prescribing information to be in dealer agreements and setting out legal rights and obligations for parties like CFEI and CNH¹⁸.

When read in the entire context of the Act, these provisions inform our view that the Act closely regulates the farm implement sector and, particularly, the contractual relationship between dealers like CFEI and distributors like CNH. That close regulation is revealed by requiring registration, by imposing mandatory contractual terms, by imposing mandatory minimum contractual terms and by rendering ineffective or void any contrary contractual terms. From that view of the language of the Act, the Tribunal concludes the object and purpose of the Act supplements contractual rights, duties and remedies of, among others, dealers like CFEI and distributors like CNH.

While the words of the Act alone do not reveal the Legislature’s intentions, a fair and reasonable inference we draw from the words is that the Legislature concluded that some contractual imbalance existed between dealers and distributors to such a degree that some legislative intervention was required. It is no great stretch to further infer the imbalance was in favour of the distributer/manufacturer.

The contextual evidence from the Hansard materials reinforced our conclusions about the purposes and objects of the Act. When the legislation was introduced in its first iteration as Bill 76, the title was “An Act to ensure fairness, to foster competition and consumer choice and to encourage innovation in the farm implement sector”. That title “to ensure fairness” supports our conclusion about the objects and purposes of the Act. The added context that the Hansard debates provided included the following portion from the speech of the opposition critic responsible for agriculture:

It’s important to recognize some of the key elements of this legislation that’s in front of us. This act is going to remove the exclusive term from dealer-distributor agreements, allowing dealers to sell farm machinery from any distributor or manufacturer. It’ll protect dealers from no-cause termination, which currently allows large manufacturers to terminate their business with dealers without any reason.¹⁹

While mindful of the caution with which we should view information gleaned from Hansard, that discussion from the debates reinforced our conclusion about the purpose and object of the Act.

The Tribunal also received into evidence the testimony of Beverly Leavitt, the President and CEO of the Canada East Equipment Dealers Association (CEEDA). Ms. Leavitt has been a CEEDA employee for over fifteen years. CEEDA and its predecessor organization(s) has, since the 1940’s, been the trade association representing farm equipment dealers like CFEI in liaison with other industry stakeholders and provincial and national governments and the general public.

Since the late 1990s, Ms. Leavitt was involved for CEEDA in the efforts, initially by CEEDA but eventually involving many industry stakeholders, including the major manufacturing sector that included CNH and the Ministry of Agriculture and Food, to amend the Act. CEEDA created draft amendments of the Act which were the subject of many stakeholder meetings and discussions between around 2000 and 2005 when the Act was ultimately amended. Several times during her evidence she confirmed that from the CEEDA perspective, the objective in amending the Act achieved “fairness” in the relationship between dealers and distributors.

Ms. Leavitt confirmed in cross-examination that CEEDA is providing the funding for CFEI’s litigation against CNH. She explained that providing such funding is part of CEEDA’s role as a trade association where the outcome impacts the majority of the CEEDA members. Despite CEEDA’s role in funding this litigation, we found Ms. Leavitt to be a credible and genuine witness and the evidence she gave about the historical context that resulted in the amendments to the Act further reinforced our view of the purpose and objects of the Act.

5. 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 in a dealer agreement and setting out legal rights and obligations for parties to the agreement.ⁱⁱ

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

The Tribunal reads and interprets the Regulation through the same “purpose and objects” filter as the Act.

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

Section 2 of the Regulation entitled “Right to terminate”, focuses on the right to terminate a dealer agreement^iv. 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, 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^v.

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

Since the Tribunal has concluded it was a “non-renewal” that ended the relationship between CNH and CFEI, those mandatory terms in section 3 of the Regulation must be read into the Dealer Agreement. [Emphasis added]

6. Did Regulation 123/06, and subsection 3(6) remove or void CNH’s

contractual right not to renew under the Dealer Agreement?

This is the first of the issues remitted by the Divisional Court. This issue engaged considering whether the regulation applied to the CNH Dealer Agreement.

Regulation 123/06 and subsection 3(6), removed CNH’s contractual right not to renew under the Dealer Agreement. Later in these reasons the Tribunal will address the practical impact of this change to the contract terms. Elaborating on the Tribunal’s March 17^th, 2011 Interim Decision, CNH’s “absolute” contractual right not to renew was replaced by a “regulated” renewal approval process that incorporated a reasonableness requirement.

Paraphrasing the portions of section 3 of Regulation 123/06 most relevant to

CFEI’s renewal right:

CFEI has the right, and the Dealer Agreement shall not be interpreted as interfering with the right of CFEI to ... renew the Dealer Agreement ... and the renewal of the Dealer Agreement under clause (1)(b) is subject to the approval of CNH, which approval shall not be unreasonably withheld.

The Regulation applies retrospectively and applies to the CNH Dealer Agreement. The Regulation applies notwithstanding that the CNH Dealer Agreement was four months into the January 1^st, 2006 to December 31^st, 2006 term when the Regulation came into force on April 25^th, 2006. The language of the Regulation is unambiguous in this context regarding its retrospective application and effect.

Retrospective or retroactive application was not pleaded or argued before that issue was remitted to the Tribunal by the Divisional Court.

The starting point of the analysis is section 1 of the Regulation which explains the “mandatory terms” set out in the balance of the Regulation.

The Legislature used the word “any” in both subsection 1(1) and 1(2) when referring to dealer agreements. “Any” in this context is an expansive and all-encompassing word that infers dealer agreements in existence (past) and dealer agreements yet to be made (future).

There is no temporal limitation in the Regulation suggesting applying the Regulation begins with dealer agreements made after the enactment date of April 25^th, 2006.

When considering the wording of the Regulation and particularly using the word “any” in the wording of the Act, several indicia support the retrospective application of the Regulation.

The Legislature used several temporal reference mechanisms in subsections 3(2), 8(9), 23(2) that relate to applying the Act. Using such mechanisms when it intended to provide for a different application of the Act supports the inference that the Legislature intended that the Regulation would apply to dealer agreements with no temporal limitation when it used the word “any” in the Regulation. Had the Legislature intended the Regulation to apply only to dealer agreements made or renewed after April 25^th, 2006, it would have said so by using one of those appropriate temporal mechanisms it used within the Act.

The Tribunal presumes the Legislature knows how to draft legislation and regulations and how to use temporal reference mechanisms in such enactments. Therefore, where, as here, the Legislature used temporal mechanisms within the Act and none in the Regulation, but used the very expansive word “any” in the Regulation to describe dealer agreements, the Tribunal accepts that the Legislature meant a retrospective application of the Regulation.

Some context of the amendments to the Act and Regulation was revealed in the Hansard materials. The title of the amending legislation contains some indication of the purpose behind the amendment: “An Act to ensure fairness, to foster competition and consumer choice and to encourage innovation in the farm implement sector”.

The member who moved second reading of the private member’s bill (Bill 76) in the Legislature made comments including:

If passed, this legislation is designed to protect Ontario’s 300 farm implement dealers from what many consider unfair business practices of large manufacturers.²⁰

The opposition agriculture critic made comments including:

This act is going to remove the exclusive term from dealer-distributor agreements, allowing dealers to sell farm machinery from any distributor or manufacturer. It’ll protect dealers from no-cause termination, which currently allows large manufacturers to terminate their business with dealers without any reason.²¹

A member of the government commented:

Just recently, in the riding next door to me, there’s been a dealership in Stirling, the New Holland dealer, that has closed down. I understand in Renfrew a farm equipment dealer has recently closed down.

These people are indeed being held hostage by these large equipment manufacturers. There’s no question, it’s time to take action. Action is needed so we can ensure fairness, competition and consumer choice. That’s what our government stands for...”²²

The amendments to the Act were still under consideration by the Legislature in 2005 when the bill was re-introduced as Bill 168, under the same title noted above.

The member who then moved second reading made comments that included:

I’m confident that I will hear only supportive, positive comments, as I’m sure everyone here, after reading Bill 168, and the explanatory note, will see the necessity of creating a fairer playing field in the farm implement industry.²³

In his first reading statement, he rightly pointed out these changes are needed to “remove dealer exclusivity as an irritant in dealer/distributor agreements by allowing dealers to sell farm machinery from any distributor or manufacturer.” He also pointed out that dealers need to be protected from contract termination without cause ...²⁴

Appreciating the need for care when considering legislative debate evidence, those passages provide some general context of the “mischief” that the Legislature was attempting to address with the amendments to the Act. Dealer purity or exclusivity clauses were a principle issue that the Legislature considered. The eventual amendment of subsections 3(4), 3(5) and 3(6) in the Act abolished dealer purity clauses.

As referenced in the debates, there were some 300 farm implement dealers in Ontario. In the legislative amendments, there could have been 300 dealer-distributor/manufacturer agreements impacted by the dealer purity provisions of the legislation. Common sense dictates those many agreements would probably have different durations. How was the Legislature to deal with such differences? Would the dealer purity provisions apply uniformly to all dealer agreements from the moment of Royal Assent or would they apply piecemeal as each agreement concluded or was renewed or a new agreement made?

Accepting the title of the Bill signals some Legislative intention, the goals appear to have been “fairness”, “fostering competition”, “increasing consumer choice”, and “innovation” in the sector. Considering those concepts from the title of the Bill, it makes little sense that the Legislature would settle on a piecemeal application of the dealer purity provisions as that would treat different dealers and distributors differently depending on the length of their existing agreements. Such a result would produce “unfairness”. For some period of time linked to the duration of the dealer agreements, it would make some dealers subject to dealer purity and some not. That would cause lessened competition rather than increased competition. Similarly, and using the same example, it would cause less consumer choice where dealer agreements continued for longer terms. However, the Hansard materials inform us that the goals of the Legislature include more competition and more consumer choice. That context militates against interpreting those sections of the Act to achieve a piece meal application.

However, if the dealer purity amendments of subsection 3(4), 3(5) and 3(6) of the Act apply from Royal Assent, the playing field among and between all dealers and distributor/manufacturers is fully levelled regarding that issue. That result fully follows the Legislature’s objectives of “fairness”, “competition” and “choice”.

While this analysis focused on the Act and on the dealer purity amendments, the Hansard passages revealed that dealer terminations were also an issue or “mischief” that the amendments should address.

Beverly Leavitt’s evidence also addressed dealer terminations. She testified she was involved with her organization’s efforts for farm equipment dealers to convince the Legislature to amend the Act to address dealer purity provisions and dealer termination.

Ms. Leavitt described the process that culminated in the amendments to the Farm Implements Act and Regulation 123/06. That process involved dialogue among the stakeholders (both large and small manufacturers and CEEDA representing equipment dealers) that eventually resulted in a joint submission to the Ministry of Agriculture and Food in 2001. Between 2001 and 2005 there were many stakeholders’ meetings where the proposed Act amendments were considered, line by line. She explained that while the stakeholders had submitted a document that proposed amending the Act, the Ministry of Agriculture and Food wanted to separate contractual issues, remove them from the Act, and incorporate them into a Regulation. She described the result as a significant change in format but not the substance of the amendments.

Ms. Leavitt also testified that during all the stakeholder meetings, the amendments applying or not applying to pre-existing dealer agreements was never discussed. Her understanding from attending those meetings was that all dealer agreements would be covered by the amendments.

Ms. Leavitt also testified that based on her polling of the approximately 300 equipment dealers in Ontario that comprise CEEDA’s farm equipment dealer members, the majority reported their dealer agreements auto-renewed, unless either the dealer or manufacturer terminated the agreements. In response to her inquiry, the members reported that none of them gave written renewal notice to the manufacturers before 2005 and since 2005, only a handful had given renewal notice and only when she had advised them to do so. She also reported she polled the CNH dealers from CEEDA’s membership in Ontario and learned that since 2005, none of them had given CNH written notice of renewal of dealer agreements.

Under cross-examination, Ms. Leavitt confirmed that the stakeholders involved in the meetings she had described held a multitude of views and some of the issues between the stakeholders were contentious. She confirmed that no members of the Legislature attended the stakeholder meetings and that she had not produced for the Tribunal the draft amendment proposals presented by the stakeholders to the Ministry of Agriculture and Food.

Ms. Leavitt’s evidence provided corroborative evidence of the Hansard materials that the Legislature’s objective with the amendments addressed dealer purity provisions and dealer termination provisions in farm equipment dealer agreements. Her evidence reinforces the Tribunal’s view about the “mischief” the Legislature addressed in the amendments.

Her evidence also explained why the Legislature amended the Act to address dealer purity in subsections 3(4), 3(5) and 3(6) of the Act but left the dealer termination amendments to the Regulation. Her evidence on that point was unopposed and remained unshaken on cross-examination. The Tribunal found her evidence on that issue to be reliable and persuasive.

The Hansard evidence and the Leavitt evidence confirmed the reality that legislative amendments can take considerable time. The amendment of the Act first introduced in the Legislature in 2001 was then re-introduced and ultimately passed in 2005. The Tribunal takes “judicial” notice that the process to enact regulations can take considerably less time than the amendment of an Act.

Under the Act, the Minister is given significant regulation making authority in section 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);

That same subsection (35(c)), before the 2005 amendments, read :

The Minister may make regulations,

(c) prescribing information to be included in agreements referred to in subsection 3(4);

The Minister’s regulation making authority expanded with the 2005 amendments and included the authority to prescribe legal rights and obligations in dealer agreements with the exception that the Minister cannot by regulation alter the prohibition on dealer purity clauses.

Knowing that regulations can be implemented far quicker than an Act, it makes sense that the Legislature would use regulation, rather than the Act, to re-write contractual terms. Regulations are more flexible to deal with potentially many forms of dealer agreements and flexible enough to respond to rapidly changing circumstances in the farm equipment marketplace, as between dealers and manufacturers/distributors.

Ms. Leavitt’s evidence about her understanding of why the stakeholders’ original “single document” proposal evolved into amendments to the Act and a separate regulation addressing contractual issues, reinforces the Tribunal’s view about the Legislative intentions behind Regulation 123/06.

CNH argued that Regulation 123/06 must be interpreted as applying only to agreements that arise after April 2006. That argument began with Subsection 1(1) of the Regulation that prescribes the mandatory terms that must be in any dealer agreement “under subsection 3(4) of the Act”. The argument then focused on the words of subsection 3(4) of the Act which provide “a dealership agreement shall be in writing, ...”. (emphasis added)

The argument then focused on the direction of the Supreme Court of Canada from Upper Canada v. Smith 1920 CanLII 8 (SCC), [1920] 61, S.C.R. 413. The Court considered the words “shall be in writing” in amendments to the Statute of Frauds providing that commission on the sale of land was not recoverable unless there was an agreement in writing. The Court concluded that “shall be in writing” meant a prospective meaning and not a retrospective meaning and the enactment in the Statute of Frauds did not operate to affect existing oral agreements to pay commission on the sale of land. That case, as with many of the authorities relied on by CNH, turned on the conclusion that legislation does not have retrospective effect unless the Legislature’s intention of retrospective effect is revealed by express words or necessary implication. (emphasis added)

The Tribunal does not take the direction of the Supreme Court in the Smith case as suggesting every time the words “shall be in writing” are used by a legislature or a parliament that means a prospective rather than retrospective application of the legislation. Such a slavish adherence to formalistic rules of construction flies in the face of the nuanced modern approach to statutory interpretation. The Smith case was decided nearly 100 years ago and well before the modern approach to statutory interpretation as expressed by the same Supreme Court in Rizzo Shoes²⁵.

CNH also argued that where ambiguity exists in legislation, the principle against interfering with vested rights supports an interpretation that resolves the ambiguity in favour of the vested rights. Here, CNH argued that the Regulation was ambiguous and, therefore, the Tribunal ought to resolve that ambiguity by determining Regulation 123/06 did not apply to the CNH dealer agreement. CNH provided jurisprudence supporting that argument against interfering with vested rights.

As previously noted, the Tribunal determined that the Legislature, by the express words “any dealership agreement” in the Regulation, communicated an intention of retrospective application of the Regulation. Therefore, in our view, there is no ambiguity in the Act or Regulation that requires resolution by applying the principle against interfering with vested rights. Here, the Legislature understood it was interfering with vested rights by giving the Minister the authority to prescribe “legal rights and obligations”. None of the stakeholder parties could have been surprised by the legislative amendments incorporating some regulatory control over contract terms. The issues of dealer purity and dealer termination had been the matter of legislative debate and stakeholder discussions between at least 2001 and 2005. During that four year period, the CNH-CFEI Dealer Agreement, as an illustration, renewed at least four times. The Tribunal finds it difficult to accept that in that context, dealers, manufacturers and distributors would not understand the contractual landscape was evolving and that “vested rights” might be affected at the moment of any legislative change.

CNH itself used language in its’ Dealer Agreement that supports the inference that CNH appreciated its’ dealer agreements might exist in a regulatory environment where legislators might enact laws impacting vested rights. Paragraph 31 of the Dealer Agreement is entitled “Amendment and Separability” and provides :

... If performance or enforcement of this Agreement is unlawful under a valid law of any jurisdiction where that performance or enforcement is to take place, the performance or enforcement will be modified to the minimum extent necessary to comply with any such law.

The practical impact of this regulated change to the Dealer Agreement is not to void the entire “Duration” paragraph 22 but, rather, to revise that language to incorporate the mandatory terms from the Regulation. This exercise is one of “reading down” or “notional severance” of the otherwise unlawful portions of the contract and as contemplated in paragraph 31 of the Dealer Agreement. As Professor Waddams observed “where ... the agreement offends only by slightly overstepping the mark of what is permissible, severance is more readily made”. ²⁶

A practical example of severance in a contract is the Supreme Court of Canada’s decision in Transport North American Express Inc. v. New Solutions Financial Corp. 2004 SCC 7, [2004] 1 S.C.R. 249. The case considered a credit contract with an interest rate that exceeded the 60 percent maximum interest rate permitted by the Criminal Code. The three relevant factors for notional severance from that case apply in this circumstance. (1) The purpose and policy of the amendments to the Act and Regulation, increasing fairness, competition and choice would not be subverted by severance but rather would be promoted. (2) The evidence satisfies the Tribunal that the agreement was not entered into for any illegal purpose or evil intent. (3) The CNH Dealer Agreement was a “take it or leave it” agreement that CFEI had no part in drafting.

Both counsel submitted examples of how one could revise paragraph 22 of the Dealer Agreement by “reading down” or “notional severance”. The following is the Tribunal’s version of how paragraph 22 of the Dealer Agreement could be read down by notional severance to incorporate the deemed provisions of section 3 of Regulation 123/06.

22. DURATION

Unless terminated earlier under the terms hereof, this Agreement shall continue from the date first set forth above until December 31, 2002.

The Agreement shall renew for successive one-year terms unless the Dealer or the Company gives notice:

For the Dealer, written notice to the Company prior to the end of the original term or any extension term that the Dealer will not renew.

For the Company, written notice to the Dealer at least forty-five (45) days prior to the end of the original term or any extension term setting out the Company’s non renewal reasons.

Upon receipt of such non-renewal notice from the Company, the Dealer shall have fifteen (15) days from receipt of the Company’s notice to address the concerns underlying the Company’s non-renewal notice.

Upon expiry of the fifteen (15) days, the Company may not renew the Agreement; however, the Company’s decision not to renew must not be unreasonable in the circumstances.

This modified language incorporates the essence of the mandatory prescribed terms from the Regulation and the spirit of paragraph 31 of the Agreement, and recognizes the historical reality about renewals as between CNH and CFEI, and reflects the reality in the market as testified to by Beverly Leavitt.

7. Did the auto renewal provision of the Dealer Agreement satisfy the renewal

request requirement of Regulation 123/06?

This is the second issue remitted by the Divisional Court. The short answer as explained below is yes.

The Tribunal finds that the auto renewal provision of the Agreement satisfied the written renewal request requirement of the Regulation, but if it does not, that requirement is academic in this context as will be explained in more detail.

Like retroactive and retrospective legislation, this issue was neither pleaded nor argued before the case was remitted by the Divisional Court.

Our previous determination related to this issue was:

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.

That determination requires some elaboration.

During the hearing on October 26^th, 2010, one of the arguments submitted by counsel for CFEI about the impact of Regulation 123/06 and subsection 3(3), arose from a question from the Tribunal about whether CFEI had given CNH written notice of its intention to renew. Part of CFEI’s responding submission was that the auto-renewal provision of paragraph 22 of the Dealer Agreement satisfied the written renewal notice requirement of subsection 3(3) of Regulation 123/06.

On that same day, counsel for CNH made these submissions:

“You can probably mark a star on this part of your notes because I think it is the first time on an issue that Mr. Gillespie and I may be consistent in terms of our interpretation.”

“Now to be quite honest I believe CNH’s position to be that the Act requires written notice from a Dealer. It (the Act) doesn’t issue a form, it doesn’t require a form and I believe the position of CNH has been that if we have an agreement that has an automatic renewal provision allowing either party to express their desire not to renew that to read it consistent with the Act’s obligations you have a document in writing, the Dealer Agreement, signed by the Dealer, so we have a piece of writing signed by the Dealer expressing year after year after year that unless he changes his opinion he wants to renew it, and you have that same expression from the Distributor. So I’m going to continue my submissions based on that interpretation which I am sure you have noted in yellow or in red that that is the same position taken by Mr. Gillespie on behalf of CFEI.”

The precise words of counsel are reflected from the Tribunal’s bench notes. The Tribunal’s bench notes comprise handwritten notes and a digital recording the Tribunal makes as part of its bench notes. At the start of each hearing the Tribunal advised the parties it uses a digital recorder as part of its bench notes and the bench notes, including the recording, remains the personal property of the Tribunal members. The recording is not made by a certified court reporter and there is no transcript prepared from the recording. The Tribunal uses the digital recording to assist its deliberations and decision writing. Once a proceeding is completed, the Tribunal members are at liberty to destroy their bench notes.

Unlike the court system, the Tribunal does not provide an official court reporter for every proceeding. Under certain legislation, an official court reporter is mandatory. An official court reporter is not mandatory in proceedings under the Farm Implements Act. The Tribunal’s Rules of Procedure allow any party to arrange for an official court reporter’s use at a proceeding. Neither party arranged for an official court reporter during the 2010 portions of the hearing that culminated in the March 17^th, 2011 Interim Decision.

Therefore, the Tribunal’s previous determination, that the auto-renewal provisions of the Dealer Agreement made between CNH and CFEI in 2000 satisfied the written renewal notice requirement of subsection 3(3) of Regulation 123/06, was guided substantially by the submissions of counsel for CFEI and CNH.

In reconsidering this issue as remitted by the Divisional Court, the Tribunal continued to rely on those 2010 submissions of both counsel.

The Tribunal finds that the auto renewal provisions of paragraph 22 (Duration) of the Dealer Agreement, satisfied the written renewal notice requirement of subsection 3(3) of Regulation 123/06. CFEI’s execution of that Dealer Agreement signified a continuing written intention to renew the Dealer Agreement year after year.

However, the Tribunal observes that the requirement in subsection 3(3) of Regulation 123/06 that a dealer give written notice of the intention to renew is not connected to any moment of a renewal term. In the CFEI – CNH relationship, the term was January 1^st, 2006 to December 31^st, 2006. The Regulation gave CFEI the right, within that period, to deliver written notice to CNH that it wished to renew.

However, on September 30^th, 2006, CNH sent CFEI a letter advising it was not renewing the Dealer Agreement. As explained elsewhere in these reasons, that letter did not satisfy CNH’s obligations under Regulation 123/06 because CNH no longer had a contractual right not to renew, and because CNH did not set out its reasons in full, and because CNH did not afford CFEI any opportunity to address its underlying concerns. That September 30^th, 2006 letter pre-empted CFEI from giving written renewal notice while it still had the months of October, November and December 2006 in which it could have delivered the written renewal notice to CNH. In our view, that September 30^th, 2006 letter made any written renewal notice from CFEI academic and relieved CFEI of any requirement to give written renewal notice.

8. Did Regulation 123/06 require that a manufacturer or a distributor give a dealer

written notice it was withholding renewal approval and an opportunity to

cure any defect or address the manufacturer’s concerns?

This is the third issue remitted by the Divisional Court. The short answer to both questions as explained below is yes.

Regulation 123/06 sets out four “rules” in subsection 3(6) for a manufacturer or distributor refusing to renew a dealer agreement. The rules presuppose a dealer having delivered written renewal notice to the distributor.

• Within 45 days of receiving a written renewal notice, a distributor must set out in writing its reasons for refusing to approve the renewal request. (Rule 1)

• If 45 days pass with no written notice from the distributor, the renewal is deemed approved. (Rule 2)

• If the distributor gives written reasons for refusing to approve the renewal, the dealer is allowed 15 days from the receipt of the distributor’s written reasons to address the distributor’s refusal concerns. (Rule 3)

• After the 15 day period has expired, the distributor may refuse to renew the dealer agreement, subject to the “unreasonableness” provision of subsection 3(4). (Rule 4)

The process established by those four rules starts with written notice containing reasons for refusing to renew. That step in the process is a notice step. It is not the refusal to renew which may happen at a later step.

The September 30, 2006 letter from CNH to CFEI cites the “decision not to renew is based upon serious breaches of the New Holland Dealer Agreement” by CFEI. Despite referring to “breaches” the letter focused on CFEI failing to achieve a reasonable market share during the previous four years. While that letter was signed by Real Prefontaine, the evidence confirmed it was prepared by Miles Mackow. The Tribunal finds as a fact that the CNH’s non-renewal decision was made by Mackow. Mackow’s evidence confirmed there were actually four reasons behind CNH’s decision not to renew:

• Poor “high-power” tractor sales performance

• Lack of trained salespeople

• Declining total revenue

• Poor hay and forage equipment sales performance

However, not all of those four reasons for the non-renewal appeared in the September 30^th, 2006 letter from CNH.

The next step in the process is the dealer’s opportunity to address the distributor’s concerns underlying the reasons for the renewal refusal. How a dealer might address a distributor’s concerns in 15 days depends on the concern. If a distributor’s reason for non-renewal was the dealership was not painted to match the distributor’s brand colours, a dealer might re-paint the dealership within 15 days. As another example, if a distributor’s reason for non-renewal was that the dealer did not have sufficient qualified equipment service technicians, a dealer might be unable to hire sufficient staff within 15 days. However, the dealer could in that example and within 15 days, provide the distributor with a commitment to hire the required additional staff and engage a staffing “head-hunter” to locate qualified candidates. The staff might not be hired within the 15 days, but the dealer would have tried to address the distributor’s concerns. Another example, closer to the present fact situation is where a distributor’s reason is dealer sales are $1 million too low. It would be illusory to think that a dealer could address that sort of concern by increasing sales by $1 million within 15 days. However, a dealer might, within 15 days, present the distributor with a business plan to address increased sales over several months or years. The Legislature’s use of the undefined word “address” permits a wide degree of flexibility that adjusts to the context of any distributor concern.

The next and final step, after the 15 day period, is the distributor’s decision to renew or not renew. While not expressly stated, it only makes sense that the distributor’s decision would be conveyed in writing to the dealer.

That final step encompasses Rule 4 or paragraph 4 of subsection 3(6) which requires some explanation since the text of that provision refers to “subject to subsection (3)”. Subsection (3) provides that “a dealer who wishes to renew or transfer a dealership agreement under clause (1)(b) shall notify the distributor in writing of that fact.” Regulation 123/06 contains a drafting oversight in paragraph 4. Paragraph 4 and “subsection (3)” cannot be read together to make any sense of how paragraph 4 could be “subject to subsection (3)”. Reading it that way would produce an absurd and nonsensical result and the Tribunal is mindful of the principle that the Legislature does not draft legislation intending absurd results. In our view, the appropriate reference should be to subsection 3(4) rather than subsection 3(3).

The focus on that drafting error is sharpened when contrasted with our previous paraphrasing of a dealer’s rights under section 3 of Regulation 123/06.

CFEI has the right, and the Dealer Agreement shall not be interpreted as interfering with the right of CFEI to ... renew the Dealer Agreement ... and the renewal of the Dealer Agreement under clause (1)(b) is subject to the approval of CNH, which approval shall not be unreasonably withheld.

Therefore, it makes both common sense and drafting sense that when a distributor refuses approval of a dealer’s renewal notice, that approval “shall not be unreasonably withheld” as provided for in subsection 3(4).

CNH’s September 30^th, 2006 letter was not written notice of refusing to approve CFEI’s renewal request. It was written notice that sought to exercise a right from paragraph 22 of the Dealer Agreement that no longer existed in its original format.

However, if the Tribunal treated CNH’s September 30^th, 2006 letter as the written notice of refusing to approve required by paragraph 1 of subsection 3(6) of Regulation 123/06, it failed to comply with the Regulation. The September 30^th, 2006 letter did not accurately or completely set out the “reasons” behind CNH’s decision not to renew. The letter focused only on market share. One of the purposes behind the amendments to the Act and the Regulation was to achieve “fairness” in the contract relations between dealers and distributors. In our view, it would not be fair of a distributor to decide not to renew and then only communicate some of the reasons behind the decision to the dealer.

The dealer must fully know the reasons for non-renewal for the third step (Rule 3) in the process to be meaningful.

Therefore, if the Tribunal treated CNH’s September 30^th, 2006 letter as a form of written notice contemplated by the Regulation, we find it did not meet the requirements of the Regulation. It did not completely set out CNH’s reasons for non-renewal and, therefore, ignored the Regulation.

Further, since it did not completely set out CNH’s reasons, it neutralized any benefit of the Regulation’s requirement of a 15 day period to address the distributor’s underlying concerns.

Finally, withholding renewal approval or not renewing where CNH kept some of the reasons for that decision from CFEI was unfair, contrary to the policy behind the Regulation, and was unreasonable.

9. Was the opportunity to cure rendered academic due to CFEI’s inability to

address CNH’s underlying concerns, or for some other reasons?

This is the fourth issue remitted by the Divisional Court. The answer as explained below is yes.

It was clear from the evidence that CNH did not afford CFEI any opportunity to address the concerns underlying its decision not to renew.

The evidence of Ralph Walsh, the CNH representative with the most frequent contact with CFEI, and the evidence of Dave Chesterman about the message CFEI received from CNH in monthly visits from Walsh was consistent. Walsh would casually suggest areas where CFEI could improve, but at no time before the September 30^th, 2006 letter was there any hint that CFEI might lose its dealership status. That non-renewal decision came as much as a surprise to Walsh as it did to Chesterman.

The evidence of Miles Mackow was unequivocal that when he took over responsibility for CFEI in the summer of 2006, CFEI was on his radar as underperforming. He formed a determination from sales reports and from discussions with Ralph Walsh that CFEI’s business focus was turning away from farm implements and toward recreational vehicles. Based on the May, June and July 2006 sales results, Mackow decided in July not to renew and recommended that decision to CNH, under CNH’s internal decision approval process.

Mackow testified that when contemplating not renewing CFEI, he considered a “cure” process sometimes used by CNH in a dealership termination. He explained the process sets specific timelines and objectives with the dealer understanding that if it does not achieve the “cure”, it will be terminated. However, based on his discussions with Ralph Walsh and Real Prefontaine, Mackow determined that working with CFEI over an extended “cure” process would not be effective.

That evidence confirmed that CNH never afforded CFEI the required 15 days to address CNH’s underlying concerns and even if CNH had afforded CFEI the required 15 days, the die was already cast because Mackow had concluded such would be ineffective. The CNH decision made by Miles Mackow and implemented by Real Prefontaine considered and ruled out any sort of opportunity for CFEI to address CNH’s concerns.

There was no evidence about what CFEI could have done to address CNH’s underlying concerns, within a 15 day period.

What CFEI might have done is academic given CNH’s determination made during the summer of 2006 that no opportunity to “cure” or address its concerns would have been effective. It was not open to CNH to overlook an entitlement to cure afforded by the Regulation because it believed the cure would be ineffective.

10. Are reasonableness, unconscionability and bad faith mutually exclusive, or does

a finding of one, lead to a finding of the others?

This is the fifth issue remitted by the Divisional Court.

That issue requires some contextual explanation about how unreasonableness, unconscionability and bad faith were pleaded and argued before the Tribunal.

CFEI argued that CNH’s ending the business relationship between CNH and CFEI breached the Dealer Agreement as being unreasonable, unconscionable and in bad faith.

CFEI also argued that CNH’s ending that business relationship breached the Farm Implements Act and more particularly Ontario Regulation 123/06.

As the Tribunal’s previous determination held, the Dealer Agreement and CNH’s decision to end the business relationship was not unconscionable or in bad faith. The previous determination was that, but for the Regulation, CNH’s decision to end the business relationship by relying on market data from AEM was not “unreasonable”. It was not unreasonable because the clear language of paragraph 22 of the Dealer Agreement provided that either party could end the relationship by 90 days written notice of the intention not to extend or renew the term. Reasonableness was no part of paragraph 22 of the Dealer Agreement. The parties ordered their affairs based on that contract wording and it is not the Tribunal’s mandate to re-write terms of a bargain because the terms prove more onerous than a party originally contemplated.

However, as previously discussed, Regulation 123/06 changed the contractual landscape and the contract terms between CFEI and CNH effective April 25^th, 2006 when that Regulation came into effect. While the Tribunal’s mandate is not to re-write the bargain between the parties, the Legislature has the authority to do so, and did with the adoption of Regulation 123/06.

The dealer agreement renewal rules contained in section 3 of Regulation 123/06 introduced process rules about communicating a non-renewal decision and the requirement that a distributor’s renewal approval not be “unreasonably withheld”.

That, in the Tribunal’s view, introduced a “reasonableness” or “unreasonableness” standard into the CFEI and CNH Dealer Agreement about renewal that previously did not exist. The Regulation did not take away CNH’s ability to withhold renewal approval; it just confirmed that a distributor could not “unreasonably” withhold renewal.

When the CNH decision not to renew or the CNH decision to withhold renewal approval is examined, the Tribunal must ask, was that decision by CNH “unreasonable?” In our view, that “statutory” standard of unreasonableness incorporated the common law reasonableness standard.

Therefore, in this context, it is entirely consistent to make findings of no unconscionability and no bad faith but still make a finding of unreasonableness.

11. Liability for Ending the Relationship

Despite any contractual wording to the contrary, CFEI had a prescribed right to renew the Dealer Agreement by giving CNH written notice. Both counsel agreed that the Dealer Agreement itself, which contemplated annual “auto-renewal”, would satisfy the requirement from the Regulation for written notice. We find as a fact that the Dealer Agreement sufficed as CFEI’s written notice of a continuing intention to renew the term annually. It is clear from the Dealer Agreement that the annual term starts January 1^st and concludes December 31^st.

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

CNH’s September 30^th, 2006 letter sought to engage a non-renewal right that CNH no longer enjoyed. CNH did not fully explain why it withheld approval of the renewal. CNH did not afford CFEI a 15 day opportunity to address its underlying concerns.

CNH breached the Regulation and the Dealer Agreement (as amended by the Regulation) by failing to follow the regulated renewal process.

Subsection 3(4) introduced “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 context²⁷ that 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 its dealership status was in jeopardy.

• CNH did not tell CFEI its complete reasons for non-renewal.

• 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 30^th, 2006 and December 31^st, 2006, CFEI had to repay almost $1 million in credit financing 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, under 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 30^th, 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 become void. That letter did not set out in full CNH’s reasons for non-renewal. In our view, those facts are sufficient for the Tribunal to find that CNH’s ending of the relationship, under that letter, breached the Regulation.

However, even if the Tribunal treated CNH’s September 30^th, 2006 letter as the prescribed written notice, CNH did not provide CFEI with the required period to address the concerns underlying the refusal to renew. While that letter did not have to set out that CFEI had 15 days to address CNH’s concerns, CNH had to afford CFEI that opportunity. As previously noted from the evidence of CNH’s witnesses, CNH foreclosed any opportunity by their pre-determination that such an opportunity would not be effective. Therefore, debate over what CFEI could have achieved in the prescribed period is academic since CNH failed to comply with the Regulation.

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

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

CFEI started this proceeding and the onus is on CFEI to prove its case on a balance of probabilities.²⁸

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.

B. Damages

On June 17^th, 2013, at the start of the damages hearing, Counsel for CFEI advised the Tribunal it was not pursuing its claim for punitive, exemplary or aggravated damages, but that it was still seeking interest on any compensatory damage award.

Counsel for both CFEI and CNH agreed that any submissions regarding costs would be deferred until after the Tribunal decided liability and damages.

The CFEI theory of damages was based on the “business valuation model” presented by its expert witness.

CNH’s position was that damages ought to be calculated on a “discounted cash flow” model presented by its expert witness.

The distinction between the two approaches is explained in the literature²⁹ as the “loss of value of the entire business, indefinitely” (the CFEI model) versus “the lost cash flows for a finite period of time” (the CNH model). The differences between the two models presented are dramatic.

CFEI seeks damages from CNH of $940,109.00. That amount comprises:

Loss of Profit: $730,622

Obsolete Assets: $80,310

Restocking Fees: $7,051

Non Returnable Parts: $33,594

Inventory Liquidation: $88,532

CFEI argued that the business line related to CNH was destroyed by CNH’s unlawful termination of the Dealer Agreement. It also argued that the damages calculation should be based on the business valuation model and not predicated on any concept of an appropriate notice period.

CFEI argued that without necessary grounds to terminate the Dealer Agreement, there was no amount of notice that CNH could have given to CFEI to end the business relationship. In this context, CFEI’s use of “necessary grounds” equates to “grounds set out in the Regulation”. In the words of CFEI’s counsel, “there is no basis for any termination” absent evidence that CFEI breached the Regulation.

In the Tribunal’s view, that is too narrow a construction of the Act and Regulation. We do not read the Regulation in isolation. We read the Regulation in the larger context of the Act and in the context of the purpose of the legislation.

Section 33 of the Act provides that “the rights, duties and remedies provided by this Act are in addition to the rights, duties and remedies of any other Act and the common law” (emphasis added).

While section 2 of the Regulation lists seven circumstances where a distributor has the right to terminate a dealer agreement, that right must be read with section 33 of the Act that preserves any “rights, duties and remedies” a distributor may have, for instance, at common law.

In the Tribunal’s view, the Regulation, where it amended the right to freedom of contract as previously discussed, did not legislated that dealer agreements became contracts in perpetuity. The Regulation amended the previous contractual right of CNH to arbitrarily not renew the Dealer Agreement. The Regulation amended the previous contractual right to arbitrarily terminate the Dealer Agreement.

However, the Regulation did not, in the Tribunal’s view, amend the common law right of termination of the Dealer Agreement. Had the Legislature intended to do so, it would have in much clearer and more direct language, including the repeal or amendment of section 33 of the Act.

In the Tribunal’s view, the common law does not recognize a “perpetual” contract. Contracts are terminable under their written terms, or where no applicable written terms, on notice that is “reasonable” in the circumstances. Section 2 of the Regulation “added to” that common law right to terminate a dealer agreement.

That said, a business valuation calculation of damages can still be an appropriate model for determining damages in certain circumstances. However, the Tribunal does not accept CFEI’s position that on the facts, it is the only approach to determining damages.

1. Loss of Profits:

CFEI’s expert on the business valuation was Mr. Ron Sciannella, a Chartered Accountant and Chartered Business Valuator.

Mr. Sciannella’s approach treated the loss arising from CNH’s non-renewal (termination) as the loss of a business line that would otherwise have continued indefinitely. That is a fundamental premise of the business valuation model selected by CFEI.

Mr. Sciannella then looked at a three year period³⁰ of CFEI’s total sales of farm equipment business (equipment sales, parts and service) including manufacturers’ rebates, less the cost of sales of each category to arrive at a gross profit for each category, and then he deducted what he calculated as the expense savings for each category. He then averaged the three years’ profits to arrive at $134,240 as a one year (average) loss. He then capitalized that gross profit by applying a multiplier (x 5 and x 6). He then selected the midpoint ($738,320) between the resulting values, as estimate of lost profit. That figure was then further reduced by $7,698 to a final figure of $730,622, based on evidence from Dave Chesterman that a further expense saving regarding uniforms had been realized as part of losing the CNH business.

Mr. Sciannella’s multiplier was determined by starting from the Government of Canada five year bond rate, described as a “risk free” rate, and then added several risk premiums based on several factors he considered appropriate, to arrive at a multiplier between 5 and 6.

There were several revisions to Mr. Sciannella’s estimate of the CFEI losses between his April 17^th, 2009 report and his evidence at the hearing. That evolution in Mr. Sciannella’s estimates underscores that quantifying such loss is not necessarily precise and scientific, but is subject to the frailties of the accuracy and completeness of the information provided by CFEI.

One of the assumptions that Mr. Sciannella made in his loss calculation was that CFEI would continue to receive dealer incentive payments from CNH, such as volume rebates. CFEI’s internal financial statement data revealed that those incentive payments were an important part of CFEI’s revenue and that for several years, CFEI would have experienced an operating loss if it had not received those incentive payments.

However, Miles Mackow testified that after 2006, those dealer incentive programs (volume bonus program and dealer standards program) changed. CNH ceased making payments for achieving dealer standards for 2007 and subsequent years. Beginning in 2007, the way CNH paid incentives to dealers was based on two components of a new incentive program; a volume bonus and a performance bonus.

CNH increased the sales threshold at which the incentives would begin so that total sales below $1 million did not qualify under the changed program. The Tribunal accepts Miles Mackow’s evidence that CFEI’s performance in the last three years as a CNH dealer would not have qualified CFEI for the CNH incentive programs in 2007 and subsequent years.

Mr. Sciannella testified that when preparing his report and his opinion evidence, he was unaware that the CNH incentive programs would not continue as he had assumed. He also conceded that if the stream of income from the incentive programs would not continue “then it wouldn’t – they shouldn’t do it that way.” By that answer Mr. Sciannella agreed that, to the extent he included an income stream that factually would not continue, he should not have done so.

An expert’s opinion must frequently rest on a foundation of assumed facts provided by the client or counsel. However, for the opinion to be given any weight, those assumed facts must be independently proved in the proceeding. Here, a materially important fact about a significant portion of CFEI’s revenue (rebate income) was not proved.

CFEI’s failure to prove that segment of the income stream would continue, coupled with Mr. Sciannella’s concession, undermines the reliability of his report and his opinion evidence regarding the loss of profit calculation.

That alone would have been enough to give no weight to Mr. Sciannella’s loss calculation; however, in the Tribunal’s view, there is a more fundamental concern over CFEI’s reliance on the business loss valuation model.

When selecting the appropriate damages model, the contract in issue must be considered. As noted in the literature, the “term of a contract and the clauses in a contract are usually very important in determining whether a lost cash flow approach or a business value approach is applicable in a particular scenario.”³¹ Those contract terms are found in the Dealer Agreement, as modified by the Act and the Regulation.

The Dealer Agreement was terminable on reasonable notice. In light of that, the business value approach, which looks at an income stream indefinitely, is not appropriate, in the Tribunal’s view, in circumstances such as these. Therefore, it is the Tribunal’s view that CFEI selected an inappropriate model to calculate lost profits arising from CNH’s breach.

CNH’s expert on the loss calculation was Mr. Jim Hoare, a Chartered Accountant and Chartered Business Valuator.

Mr. Hoare’s approach to calculating CFEI’s loss of profits assumed that the Dealership Agreement was terminable on some period of notice. He did not determine that period, as that was for the Tribunal to determine.

Using CFEI’s financial records, Mr. Hoare developed a picture about CFEI’s business. He noted that in the five years ending on January 31^st, 2006 (fiscal 2005):

• CFEI had generated operating losses in four of five years and was only marginally profitable in each of those five years after inclusion of the other income derived from volume discounts and volume rebates.
• CFEI had little or no growth in sales year over year.
• There was a clear decline in sales of CNH products and a decline in the related gross margin.
• CFEI’s sales of parts and service was not covering all the business’s overhead which Mr. Chesterman has testified was the “ideal” level of overhead “absorption”.
• Looking at comparative previous nine month periods (January – September for 2004, 2005 & 2006), the sales of CNH products were declining.

Mr. Hoare determined a “projected annual gross margin” for CFEI as if there had been no termination of the Dealer Agreement. Simplified, his approach took sales data (CNH farm equipment sales, plus CNH parts sales, plus CNH service sales, plus a percentage of “unallocated” service sales, plus used farm equipment sales), less the costs of sales in each of those categories, to arrive at a projected gross margin.

He made that determination based on the fiscal 2007 (February 1, 2006-January 31^st, 2007) actual information regarding sales and cost of sales. He selected that period because he considered the most recent year to be the most relevant on which to base a prospective loss calculation. He concluded that CFEI’s sales of CNH equipment had been declining and he received no information suggesting CFEI could increase its sales levels to those of prior years.

The Tribunal finds that Mr. Hoare’s analysis and selection of fiscal 2007 as the basis for his projected annual gross margin to be appropriate. CFEI’s sales of CNH equipment had been declining and no evidence satisfied us that CFEI’s sales would have rebounded.

Mr. Hoare explained he used 41% of the unallocated service sales because that was the percentage of CNH equipment sales to total equipment sales. The Tribunal finds that Mr. Hoare’s calculation of the unallocated services sales at 41% to be a reasonable and appropriate calculation since CFEI’s financial records did not indicate what those “unallocated service” sales related to.

Part of Mr. Hoare’s determination of projected gross margin included used farm equipment sales reflected on CFEI’s financial records. However, for fiscal 2007, CFEI’s records reflected a negative gross margin or loss of $65,432. The loss in that category was explained due to CFEI taking an exceptional “write down” in 2007. Mr. Hoare’s approach eliminated the exceptional write down and, instead, use a $10,000 market value reduction he determined that CFEI had used regularly each year in its financial statement adjustments, which resulted in the gross margin associated with used equipment going from ($65,432) to $24,253. The Tribunal finds that Mr. Hoare’s approach in making that adjustment to be appropriate and reasonable in the circumstances.

There was discussion in both Mr. Hoare’s report and his evidence about whether the used equipment sales ought to be included in any loss calculation since the end of the CFEI/CNH relationship did not preclude CFEI from continuing to sell and service used farm equipment. However, Mr. Hoare offered no expert opinion on that issue. He calculated lost profits two ways; one including the used equipment sales; and, one excluding the used equipment sales.

We agree with Mr. Hoare that it is the Tribunal’s role to determine which heads of damages are recoverable. Regarding any head of damages, the Tribunal must determine if the damages are reasonably foreseeable. Reasonable foreseeability is a lens focused not at the time of the breach, but at the time the contract was made.³²

Similar to used farm equipment, CFEI also sold new attachments for farm equipment manufactured by ALO, Horst and Walco.

Common sense tells us there is some basis for a symbiotic relationship between a main line farm equipment dealership and used farm equipment and farm equipment attachment segments of the business. Dave Chesterman testified that in CFEI’s view, without a main line farm equipment distributorship, the used farm equipment and service business would not have profitably survived, and that was the reason CFEI wound down those sides of its business. That rationale for CFEI’s business decision to jettison those business lines also makes common sense to the Tribunal, and is some evidence that confirms that symbiotic relationship.

However, the Tribunal must determine if, when the Dealer Agreement was made, it was reasonably foreseeable that a termination of the Dealer Agreement would cause losing those two other business lines.

The first version of the Dealer Agreement was in 1987 and the current version was in 1999. We have no evidence from those time periods about the expectations of the parties viz a viz the used farm equipment business or the farm equipment attachment business. The Dealer Agreement does not address CFEI’s used farm equipment business or its farm equipment attachment business. In these circumstances and absent evidence on the point, the Tribunal cannot find it was reasonably foreseeable that losing the CNH distributorship would cause losing the used farm equipment business, and result in losing the farm equipment attachment business such as ALO, Horst and Walco.

Therefore, the Tribunal finds CFEI’s projected gross margin loss due to CNH’s breach to be $235,159. We also find that Mr. Hoare’s calculations of the expenses that CFEI saved that should be deducted from the projected gross margin to be reasonable and appropriate. Those expense savings deductions totaled $198,903. CNH is entitled to a credit (deduction) for any gross margin CFEI derived from selling used tractors to mitigate its losses. We accept Mr. Hoare’s calculation of used tractor sales gross margin of $6,488. Therefore, the resulting annual loss of profits is $29,768.00.

The next issue is what, in these circumstances, is a reasonable notice period.

In the Tribunal’s view, the circumstances dictate two years is a reasonable notice period. In determining that two years is a reasonable notice period in these circumstances, the Tribunal was guided by considering the same sixteen factors listed previously in this decision.

The Dealer Agreement was a one sided contract drafted by CNH with no real input from CFEI. It was presented by CNH as a “take it or leave it” proposition. CFEI invested significantly in its business premises to accommodate the CNH portion of its business. As part of CNH’s requirements, those premises were painted to CNH’s colours and much of the selling floor space was devoted to CNH’s products. A significant proportion of the parts and repair space and business related to CNH products. CNH required that CFEI maintain a level of skilled personnel in sales, parts and service. CNH monitored CFEI’s premises and tracked and graded CFEI’s business performance. CFEI achieved CNH’s President’s Prestige Award for successive years. CFEI and CNH had a distributor–dealer relationship that spanned almost two decades. In all these circumstances, the Tribunal finds two years is a reasonable notice period.

Therefore, based on that two year reasonable notice period, CFEI’s loss of profits totals $59,536.00.

2. Obsolete Assets:

This claim was for $80,310 and related to tools and manuals used by CFEI in its farm equipment business no longer of use in its business, and that were not re-purchased by CNH. While the original amount claimed was $81,195, it was revised during the damages evidence.

Mr. Sciannella presented that amount as part of the CFEI losses in his expert report.

CFEI developed that amount based on estimates derived from 2006 pricing or internet information on used tools and manuals. CFEI provided the obsolete asset total to Mr. Sciannella. Mr. Sciannella relied on that information as accurate.

Unlike farm implements and parts, the Act does not require that the distributor re-purchase tools and manuals.

Therefore, to determine if this head of damages is recoverable, the Tribunal must consider if it was reasonably foreseeable (as discussed previously) that CFEI would suffer a loss related to obsolete tools and manuals.

The Dealer Agreement required CFEI to “keep in inventory all special tools required by”³³ CNH to service its products. In this context, we infer the words “special tools” would include both tools and manuals. The Dealer Agreement required that CFEI’s place of business be “equipped to the Company’s sole satisfaction with the tools, equipment and machinery that will enable Dealer to meet its obligations under the Agreement.”³⁴

The evidence of Dave Chesterman satisfies us that CFEI was regularly required to purchase both special tools and manuals that were unique and specific to CNH products, and that once CFEI ceased as a CNH dealer, those required tools and manuals became obsolete.

In these circumstances, the Tribunal finds it was reasonably foreseeable, when the Dealer Agreement was made in 1999 that, on termination, CFEI would suffer a loss associated with obsolete tools and manuals.

CNH tendered no evidence those obsolete tools and manuals had a usefulness following termination as a CNH dealer.

While CNH challenged the accuracy of the estimates that CFEI had developed using current pricing and internet pricing, it produced no evidence demonstrating an alternate value for the obsolete tools and manuals.

Therefore, in these circumstances, the Tribunal finds CFEI is entitled to recover $80,310 for the loss associated with the obsolete tools and manuals.

3. Restocking Fees:

This claim was for $7,051 and related to the CNH parts that CFEI returned to CNH for re-purchase under the Act.

CNH imposed a 15% restocking fee and that fee amounted to $7,051.

The Act provides that when repurchasing parts following the termination of a dealer agreement, CNH must pay CFEI, 85% of the current net price for each new part.³⁵

Therefore, the Act contemplates a 15% restocking fee.

In the Tribunal’s view, CNH is not obliged to pay more for returned parts than the Act provides.

4. Non-Returnable Parts:

CFEI claims $33,594 for parts that CNH refused to re-purchase.

The Act recognizes that a distributor should not be obliged to re-purchase parts in certain circumstances, such as the part is broken or damaged or not clearly identified or not resaleable without repackaging or a part no longer in the distributor’s current parts record keeping system.³⁶

The Dealer Agreement made in 1999 also contemplated that on termination of the dealership, CNH had to repurchase “all new, complete, unused, unsold and undamaged”³⁷ parts. Such re-purchased parts had to be “new, complete and saleable” and “listed in the then-current price and data book or parts price list”, that were “genuine parts”, “returned in correct order multiples”, “in the original Company packaging with the original Company identification label”.

Miles Mackow testified about CNH’s process to receive returned parts from CFEI following the September 30^th, 2006 letter.

The process began with CFEI sending CNH a list of its parts inventory. CNH then analyzed that parts inventory data and then issued an authorization for CFEI to return parts that were returnable. For parts deemed not returnable, CFEI kept those parts.

CFEI then shipped the parts authorized for return to CNH, who inspected the parts to determine if the parts were returnable. For parts that were not returnable after inspection, CNH returned those parts to CFEI.

The parts return process was tracked on paper and when CNH decided a part was not returnable, it assigned a code that explained to CFEI the reason the part was not returnable.

The evidence about CNH’s process for reviewing parts for return and then inspecting returned parts satisfied the Tribunal that CNH followed the Act and the Dealer Agreement. In each case where CNH rejected a part for return, it had a reasonable explanation under the Act or Dealer Agreement.

In these circumstances, the Tribunal is not convinced that CFEI suffered a compensable loss regarding the non-returnable parts.

5. Inventory Liquidation:

CFEI claims losing $88,532 based on its liquidation of inventory. That head of damages was originally $106,000 but was modified during the evidence. That amount includes an accounting entry for inventory write down of $76,562 plus additional losses beyond the accounting entry realized when the inventory was ultimately sold.

CFEI’s theory in this respect is that the September 30^th, 2006 letter from CNH also triggered an obligation to repay almost $1 million in credit financing provided by CNH’s credit division by December 31^st, 2006. CFEI’s theory is that because of that pressure, it was forced to liquidate assets at prices that were lower than they might have otherwise achieved. Because the inventory had to be sold more quickly, CFEI asserts it suffered a loss.

This head of damages relates to the used farm equipment that CFEI had in its inventory on September 30^th, 2006. The loss is the difference between the “book” value that CFEI had assigned that equipment and the price ultimately achieved when the equipment was sold. As an example, if CFEI had a used tractor with a book value of $100 and it sold for $50, CFEI asserts it suffered a $50 loss.

Mr. Sciannella included this amount based on the information given to him by Dave Chesterman about the inventory book value and the ultimate sale price.

Despite the initial demand to repay CNH’s credit division by December 31^st, 2006, CFEI and CNH negotiated an extension of that deadline to afford CFEI a more reasonable time period to pay off the line of credit.

The Dealer Agreement made in 1999 provided that upon termination of the agreement, CFEI was obliged to “promptly” pay CNH “all sums owed by the Dealer to the Company.”³⁸

The Tribunal had difficulty with this head of damages. The problem is the calculation is based on a starting point that CFEI’s “book” value can be relied on. Mr. Sciannella did no independent investigation or analysis to determine if those CFEI “book” values were accurate. Without a satisfactory evidentiary baseline for the accuracy of the book values, determining the loss becomes nothing more than a guess.

As Mr. Hoares’ evidence demonstrated, of the twenty-two tractors that made up part of that inventory, fifteen had been in CFEI’s inventory for more than a year. However, there was no analysis by CFEI or Mr. Sciannella to separate any decline in value in that used inventory prior to September 30^th, 2006.

The Tribunal cannot guess at the loss. It is incumbent on CFEI to prove to us, on a balance of probabilities, that it suffered a loss attributable to CNH’s breach.

Regarding this head of damages, CFEI has failed to discharge that onus and, therefore, the Tribunal is not satisfied that CFEI had proved a compensable loss under this head of damages.

6. Mitigation:

The law imposes a positive obligation on CFEI to take reasonable measures to avoid loss.

The Tribunal is satisfied on Dave Chesterman’s evidence, outlined previously in these reasons, that CFEI took reasonable measures to avoid losses.

The Tribunal is satisfied that CFEI discharged its duty to mitigate its losses and, therefore, we will not reduce the damages we have determined CNH owes.

7. Contractual Limitation of Liability:

CNH relied on paragraph 28 of the Dealer Agreement. That paragraph is entitled “Limitation of Liability”.

The contract language provides that because the agreement has a limited term, neither CNH nor CFEI is entitled to any compensation for loss due to cancellation, non-renewal or termination.

Interpreting contracts, like interpreting legislation, is a context driven exercise.

In the Tercon case, the Supreme Court of Canada directed that “the words of one provision must not be in isolation but should be read in harmony with the rest of the contract and in light of its purpose in commercial context”.³⁹

However, that language from the Dealer Agreement must be read with the Act and the Regulation that amend the Dealer Agreement.

In our view, it would be an absurd result that the Legislature enacted the amendments to the Act and the Regulation to regulate cancellation, termination and non-renewal of a Dealer Agreement, but leave intact a contractual provision that obliterates any consequences to a distributor for cancelling, terminating or not renewing in breach of the Regulation.

In our view, the second paragraph of paragraph 28 of the Dealer Agreement cannot continue to stand in light of the Regulation and, therefore, under subsection 1(3) of the Regulation, that part of paragraph 28 is void.

8. Pre-Judgment Interest:

This Tribunal has previously recognized that the Legislature created in the Tribunal a dispute resolution mechanism that is an alternative to the law courts⁴⁰. Under the Act, following mediation, farm equipment buyers, sellers and manufacturers can come to the Tribunal with their disputes. The Legislature has given the Tribunal the jurisdiction to resolve those disputes.

Section 17.2 of the Statutory Powers Procedure Act recognizes that an order to pay money shall set out both principal and interest, if interest is payable.

Section 33 of the Act preserves common law rights, duties and remedies. The common law recognizes the entitlement to interest on a money award. Therefore, interest is payable on any money award made under the Act.

The Court of Appeal has recognized the authority of decision makers in the administrative justice system making awards of interest.⁴¹

The Act does not dictate the appropriate rate of interest. The Statutory Powers Procedure Act does not dictate the appropriate rate of interest. The Tribunal’s Rules do not dictate the appropriate rate of interest.

The Courts of Justice Act (CJA) establishes the appropriate interest rates (pre-judgment and post-judgment). In these circumstances, we are satisfied that if the CJA applies, the appropriate pre-judgment interest rate applicable from December 30^th, 2006 is 6% per year and the appropriate post-judgment interest rate is 3%.

In our view, to ensure CFEI’s common law right to interest on its losses, in compliance with the authority granted by the Statutory Powers Procedure Act and guided by the direction of the Court in the Billes case, the Tribunal can, in these circumstances, rely on the CJA rates of interest as reasonable and fair interest rates.

Therefore, CFEI is entitled to interest on the amounts awarded at 6% per year to these reasons and thereafter at 3% per year until paid.

CFEI first sent notice of its claim to the Director in December 2006. Therefore, in the circumstances, the Tribunal calculated pre-judgment interest at 6% annually beginning January 1^st, 2007, the month following CFEI’s initial notice of its claim. The damages the Tribunal determined total $139,846.00 producing an annual interest of $8,390.76 or $22.99 per day. Between January 1^st, 2007 and the date these reasons were released is 2,639 days. Therefore, the total pre-judgment interest is $60,670.61.

Order of the Tribunal

1. CNH shall pay to CFEI damages of $139,846.00.

2. CNH shall pay to CFEI pre-judgment interest of $60,670.61.

3. This award shall bear post-judgment interest at the rate of 3% annually from the date

of these reasons until paid.

4. In the event the parties cannot agree on costs within ten days of

the release of these reasons:

a. CFEI shall, no later than fifteen days after the release of these reasons deliver written cost submissions limited to fifteen pages excluding any Bill of Costs, supporting documentation and authorities;

b. CNH shall, no later than fifteen days after the delivery of CFEI’s cost submissions, deliver written cost submissions limited to fifteen pages excluding any Bill of Costs, supporting documentation and authorities;

c. CFEI shall, no later than seven days after the delivery of CNH’s cost submissions, deliver any written reply cost submissions limited to five pages.

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 under its rules of practice within 15 days from the day on which this decision was served.

Dated at Brampton, Ontario this 24^th day of March, 2014

Footnotes

1. 1R.S.O. 1990, Chapter M.16
2. 2R. Sullivan, Construction of Statutes (5^th ed.), (Lexis Nexis, 2008)
3. 3R. V. Henry Morgantaler et al. 1993 CanLII 74 (SCC), [1993] 3 S.C.R. 463
4. 5“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.”
5. 6As represented by sales of equipment such as ALO, Horst and Walco
6. 8McKinlay 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
7. 9978011 Ontario Ltd. v. Cornell Engineering Co. 2001 CanLII 8522 (ON CA), [2001] O.J. No. 1446 (C.A.) at paragraph 33
8. 10Atlas 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.)
9. 11Bell ExpressVu Limited Partnership v. Rex 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 26
10. iRights, etc., preserved 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.
11. 12Subsection 2(4)
12. 13Subsection 2(5)
13. 14Subsection 2(6)
14. 15Section 6
15. 16Subsection 23(3)
16. 17Section 24
17. 18Subsection 35(c)
18. 19June 21, 2001 Official Report of Debates, p. 1764
19. iiRegulations 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);
20. iiiMandatory terms 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). (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). (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).
21. ivRight to terminate 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 (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 (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). (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 (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 (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). (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).
22. vOther terms 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). (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). (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). (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). (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). (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). (7) The distributor has the right to set sales targets that are fair and reasonable. O. Reg. 123/06, s. 3 (7). (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).
23. 20Legislative Assembly of Ontario, June 21, 2001, Hansard p.1761
24. 21Legislative Assembly of Ontario, June 21, 2001, Hansard p.1764
25. 22Legislative Assembly of Ontario, June 21, 2001, Hansard p.1768
26. 23Legislative Assembly of Ontario, February 24, 2005, Hansard p.5367
27. 24Legislative Assembly of Ontario, February 24, 2005, Hansard p.5367
28. 25Re Rizzo and Rizzo Shoes Ltd. 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27
29. 26S.M. Waddams, The Law of Contracts (6^th ed.) (Canada Law Book, 2010) pp.429-431
30. 271193430 Ontario Inc. v. Boa-Franc Inc. 2005 CanLII 39862 (ON CA), [2005] O.J. No. 4671 (C.A.) at paragraph 45
31. 28First Capital (Northgate) Corp. v. 137^th C.T. Grill Inc. 2002 CarswellAlta 1352 at paragraph 5-6
32. 29Cohen, Farley J. and Lobo, Prem M. Business value as a measure of loss in litigation contexts: Reflecting business “reality” over hypothetical “fantasy” 30 Advocates Journal, No. 1, (2011) para.3
33. 302005, 2006 and 2007
34. 31Supra, 30 Advocates Journal No. 1, (2011) para.43
35. 32Fidler v. Sun Life Assurance Co. of Canada 2006 SCC 30, 2006 CarswellBC 1596, at para. 29
36. 33Paragraph 5(f) of the Dealership Agreement
37. 34Paragraph 13(a)(iii) of the Dealership Agreement
38. 35Section 25(1)(b)
39. 36Section 27
40. 37Paragraph 25(a) of the Dealership Agreement
41. 38Paragraph 24(a)(i) of the Dealership Agreement
42. 39Tercon Contractors Ltd. v. British Columbia 2010 SCC 4
43. 40Sharalea Farms Inc. v. Vandenbrink Farm Equipment (2009) and John Vieraitis v. Phair Systems Ltd. (2011)
44. 41Billes v. Parkin Partnership Architects Planners (1983) 1983 CanLII 1810 (ON CA), 40 O.R. (2d) 525
45. 4A large portion of this section has been incorporated from the Tribunal’s March 17^th, 2011 Interim Decision since all this background context remains necessary for this decision.
46. 7The Issues section has incorporated substantial portions of the Tribunal’s March 17^th, 2011 Interim Decision. The considerations of the warranty issues were not incorporated as part of this decision since the Divisional Court did not remit any warranty issues to the Tribunal. The Issues section of this decision has been supplemented by the Tribunal’s consideration of the remitted liability issues.