Sunova Implement Ltd. v. CLAAS of America Inc., 2023 ONAFRAAT 13

2023 ONAFRAAT 13

FILE NO.: 001Sunova22 DATE: 2023/09/22

IN THE MATTER OF the Farm Implements Act, R.S.O. 1990, c. F.4

AND IN THE MATTER OF an application to the Agriculture, Food and Rural Affairs Appeal Tribunal (“Tribunal”) by Sunova Implement Ltd., under Section 5 of the Farm Implements Act regarding a dispute with CLAAS of America Inc.

AND IN THE MATTER OF A Motion held pursuant to Rule 30 of the Tribunal’s Rules of Procedure.

BETWEEN:

Sunova Implement Ltd. Applicant

– and –

CLAAS of America Inc. Respondent

Represented by Eric K. Gillespie and John May

Represented Steven Rosenhek and Montana Licari

HEARD: August 23, 2023 by Video Conference

Before: Glenn C. Walker, Chair

Appearances: Eric K. Gillespie, Counsel for Applicant John and Carmen Van Lierop, Representatives of the Applicant Steven Rosenheck, Counsel for Respondent Montana Licari, Counsel for Respondent Jo-Ann Hanson, Counsel for GJ’s Harvest Centre Inc. John May, Counsel for the Applicant (not present)

MOTION DECISION

1This motion was brought by Sunova Implement Ltd. (“Sunova”) seeking production of the following documentation (“requested documents”) from the Respondent CLAAS of America Inc. (“CLAAS”):

(a) GJ’s Farm Equipment/GJ’s Harvest Centre Inc. (“GJ’s”) sales quotes of any new and or used CLAAS product (excluding combines) that GJ’s quoted on between the dates of January 1, 2017, to December 31, 2022;

(b) Invoices for all sales of CLAAS equipment by GJ’s between January 1, 2017, to December 31, 2022;

(c) Details of all sales including net sell price, trades, and trade difference dollar amounts, together with profit margins, COGS, including PDI, and other work orders against these items;

(d) Copies of GJ’s financial statements and general ledger for the period between January 1, 2017 to December 31, 2022;

(e) A listing of all new customer accounts created in GJ’s database between January 1, 2017, to December 31, 2022, including but not limited to the set-up dates, first transaction dates and total revenues;

(f) A chronology of the ownership of GJ’s Farm Equipment/GJ’s Harvest Centre Inc. from inception to present;

(g) All communications via any method (including by not limited to e-mail, text, WhatsApp) from January 1, 2017 to December 31, 2022 between Nic Murray, Darren Campbell and/or CLAAS. CLAAS employees and/or GJ’s or any other party involved in coordinating the transition of Nic Murray and/or Darren Campbell from Sunova to CLAAS;

(h) All communications via any method (including by not limited to e-mail, text, WhatsApp) from January 1, 2017 to December 31, 2022 between Gary Klein [sic] and/or CLAAS. CLAAS employees and/or GJ’s or any other party involved in informing Sunova’s customers of the transition from Sunova to GJ’s.

Procedural Background

2This motion was originally returnable of May 30, 2023. At that time, it was adjourned on consent to allow the parties to exchange written submissions and argument to August 1, 2023. It was further adjourned on consent and argued on August 23, 2023.

3The Order of June 1, 2023 permitted GJ’s to bring a motion in writing to be added to the application as a party or participant.

4On a motion made by GJ’s in writing to be added as a participant, which motion was not opposed by the parties, the Tribunal ordered that GJ’s be granted participant status on this motion only with its participation to be limited to being entitled to file the affidavit of Gary Klyn, sworn on June 19, 2023, in connection with this motion as well as being entitled to make oral submissions on this motion. Although counsel for GJ’s attended part of the hearing of the Sunova motion, she chose not to make oral submissions.

Agreed Upon Facts

5The parties submitted the following Agreed Upon Facts as factual background for this motion and they were accepted by the Tribunal as being true without the necessity of any party presenting evidence as proof:

1. The applicant Sunova is a farm implements dealer in Lakeside, Ontario. Sunova is a “dealer” pursuant to the Farm Implements Act, R.S.O. 1990, c. F.4 (the “Act”).

2. The respondent CLAAS is a manufacturer of agricultural equipment with dealer locations throughout the United States and Canada. CLAAS is a “distributor” pursuant to the Act.

3. The Dealership Agreements could be terminated on reasonable notice.

4. On February 25, 2020 and September 1, 2020 CLAAS wrote to Sunova to advise that it was terminating the Dealship Agreements.

5. Sunova’s Agreement with CLAAS terminated on May 1, 2021.

6. Sunova retained the services of Jim Hoare of the firm Marcus & Associates Hoare Dalton to calculate the alleged damages suffered by Sunova as a result of termination and prepare a draft written report dated June 17, 2021 (the “Hoare Report”).

7. The Hoare Report was provided to CLAAS on July 20, 2021.

8. At the case conference on December 12, 2022 it was agreed by counsel that the Hoare Report could be filed and referred to at CLAAS’s motion for production.

9. GJ’s Harvest Centre (“GJ’s”) is a company which operates an agricultural parts, service and sales dealership near Woodstock, Ontario offering a variety of products and equipment.

10. Following termination of the Dealership Agreements between Sunova and CLAAS, GJ’s became the successor dealer that assumed the role for the Ontario market that Sunova previously held. CLAAS is a shareholder in GJ’s.

Grounds for the Motion

Rules 24 and 25 of the Tribunal’s Rules of Procedure

6The Tribunal’s Rules of Procedure contain two rules that govern the production of documents by way of disclosure.

7Rule 24.02 provides as follows:

“The Tribunal may at any stage of a proceeding order a party to disclose to any other party documents and things relevant to the issues in the proceeding.”

8Rule 25.01 provides that:

“On a motion by a party, the Tribunal may order any party to provide to any other party and the Tribunal such further particulars, information or documents as the Tribunal considers necessary to enable the other party or the Tribunal to obtain a full and satisfactory understanding of the subject of the proceeding.”

9Rule 30.02 of the Rules of Civil Procedure informs the Tribunal’s interpretation of these rules so that any document sought must be or has been in the possession, control or power of a party to the action.

10The issue then is whether the requested documents which Sunova seeks are in the possession, control or power of CLAAS.

11This documentation certainly is within the possession, control of power of GJ’s. Sunova argues firstly that GJ’s is a shareholder of CLAAS and that because of this relationship it is in possession of the documentation or has the power to acquire it from GJ’s. Secondly, it submits that the Dealership Agreement between CLAAS and GJ’s would require GJ’s to provide this documentation to CLAAS.

12CLAAS takes the position that the requested documents are not within the possession, control or power of CLAAS and further that the Tribunal has no jurisdiction to order production from a non-party.

13The evidence provided by Sunova shows that the CLAAS Group, which appears to be the parent company in Germany, is a 100 per cent owner of CLAAS of America Inc. of Omaha, Nebraska¹ and that GJ’s Harvest Centre Inc. of Ontario, Canada is an Associate accounted for using the equity method² with a 34.5 per cent shareholding.

14The Corporate Profile of GJ’s shows that 2 of the Directors of GJ’s are from Omaha, Nebraska³.

15The evidence provided begs the question of the actual corporate relationship between GJ’s and CLAAS. Does CLAAS of America Inc. or the CLAAS Group hold a 34.5 percent interest in GJ’s.

16It is unclear whether GJ’s is partly owned by the parent company CLAAS Group or by CLAAS of America Inc. Even if CLAAS of America Inc. is a part owner, it holds no more than a 34.5 percent interest. The Ontario Business Corporations Act⁴ provides that a corporate body is only deemed to have control of a subsidiary if it holds 50 percent of the voting shares.

17The Tribunal rules do not contain any authority giving it the power to order production from a non-party.

18The Tribunal finds that based on the evidence and submissions, it cannot find that CLAAS has the requested documents in its possession, control or power with the exception of items set out in subparagraphs 1(g) and 1(h) above and which will be dealt with later under the heading Relevancy.

Disclosure Pursuant to the Dealership Agreement

19Sunova submits that the requested documents are available to CLAAS pursuant to the terms of the Dealership Agreement between CLAAS and GJ’s. No copy of that agreement was in evidence before the Tribunal and the Tribunal is unable to find that any of the requested documents are available to CLAAS pursuant to the terms of the agreement based on the evidence provided.

GJ’s is a Participant

20Sunova further submits that because GJ’s has been made a participant to this motion it is subject to Rule 24.02 and can be ordered to produce the requested documents.

21A participant to a proceeding is not a party to a proceeding⁵.

22The role of a participant is circumscribed by the provisions of Rule 8.07 and may be further restricted by order of the Tribunal⁶ as it was in the order of June 1, 2023.

23As GJ’s is not a party to the proceeding, the Tribunal finds that it is not subject to Rule 24.02 or Rule 25.01.

24Rule 1.08 of the Tribunal’s Rules of Procedure does not assist the applicant. The rule provides that the rules are to be liberally interpreted in order to obtain the most just, most expeditious and most cost-effective determination of any matter before the Tribunal. A liberal interpretation does not extend to equating a participant with a party. Rule 8 explicitly defines a party and a participant and specifies their roles before the Tribunal.

Application of the Rules of Civil Procedure

25Where any matter of procedure is not provided for by the Tribunal’s Rules of Procedure, the Rules of Civil Procedure may be followed where the Tribunal determines they are appropriate.⁷ The application of the Rules of Civil Procedure is discretionary.

26The applicant relies upon Rules 30.02 and 30.10 of the Rules of Civil Procedure which address the production of documents in the power, possession and control of a party and documents in the power, possession and control of third parties.

Rule 30.02

27The relevant portions of Rule 30.02 state as follows:

30.02 (1) Every document relevant to any matter in issue in an action that is or has been in the possession, control or power of a party to the action shall be disclosed as provided in rules 30.03 to 30.10, whether or not privilege is claimed in respect of the document.

(4) The court may order a party to disclose all relevant documents in the possession, control or power of the party’s subsidiary or affiliated corporation or of a corporation controlled directly or indirectly by the party and to produce for inspection all such documents that are not privileged.

28As discussed above, the applicant has not established that GJ’s is a subsidiary of CLAAS either through the lack of evidence of that relationship or non-compliance with the definition of subsidiary in the Business Corporations Act. Nor has it proven that CLAAS has direct or indirect control over GJ’s.

29GJ’s is not an affiliated corporation of CLAAS as pursuant to the Business Corporations Act, they must either be subsidiaries of each other or subsidiaries of the same corporation or each of them is controlled by the same person.⁸ There is no evidence before the Tribunal that this is the case.

30The Tribunal notes that these definitions in the Business Corporations Act are for the purposes of that Act, but the applicant has not referred the Tribunal to any other definitions and the Tribunal finds that it can rely upon these definitions in the context of this motion.

31Accordingly, the Tribunal finds that Rule 30.02(4) is of no assistance to the applicant.

Rule 30.10

32The applicant also relies upon Rule 30.10(1) which provides that:

The court may, on motion by a party, order production for inspection of a document that is in the possession, control or power of a person not a party and is not privileged where the court is satisfied that,

(a) the document is relevant to a material issue in the action; and

(b) it would be unfair to require the moving party to proceed to trial without having discovery of the document.

Relevancy of the Requested Documents

33One of the issues to be determined in this proceeding is the issue of damages should the Tribunal find that the respondent did not give sufficient notice of the termination of the Dealership Agreement to the applicant.

34Sunova submits that it requires disclosure of the requested documents for the purpose of pursuing “a further method of calculating its losses based on commercially reasonable practices”.⁹ Sunova did not provide details of or caselaw to support a proposed method of calculating damages based on the historical financial data of the successor dealership.

35CLAAS contends that if Sunova was entitled to a longer notice period it is entitled to an award of damages representing the profits it would have earned during any such reasonable notice period and it has directed the Tribunal to a number of cases which support a damage calculation method based on the applicant’s past financial performance.

36In JMT Phillips (1986) Inc. v. Medieval Glass Industries Ltd.¹⁰ the Court addressed the issue of quantifying damages as a result of a lack of reasonable notice for the termination of an agreement between a manufacturer and a distributor. Calculation of damages was based on past financial performance. At paragraph 48 it stated:

In determining the quantum of damages if reasonable notice is not given, the measure should be an amount equal to prospective profits the distributor would have earned during the time period that would have been considered as reasonable notice.

37This same principle was followed in 2287913 Ontario Inc. v. ERSP International Enterprises Ltd.¹¹ and again in 1193430 Ontario Inc. v. Boa-Franc (1983) Ltee¹²

38This evidentiary approach was accepted by this Tribunal as the correct one in Chesterman Farm Equipment Inc. v. CNH Canada Ltd.¹³ where the Tribunal based its damages award on past financial performance data.

39There is in evidence on this motion a draft report prepared by James Hoare for Sunova. The Tribunal notes that it was prepared using the past financial performance method. Although it could have, Sunova did not provide evidence through its expert to support another methodology based on the prior financial performance of the successor dealership.

40Sunova seeks disclosure of financial records from GJ’s for the period of January 1, 2017 to December 31, 2022. Sunova’s agreement with CLAAS terminated on May 1, 2021. The relevance of data predating May 1, 2021 is even more questionable than financial information postdating GJ’s successorship.

41If the applicant intends to put forward at the hearing another method to calculate damages other than the past performance approach, it was incumbent upon it to explain to the Tribunal as part of this motion what that method is, how the requested documents would be used in applying that method and that it would be an appropriate method to apply in these circumstances. It is not sufficient to state only that there are other methods of calculating damages.

42Sunova has failed to explain the relevance of the communications requested concerning Nic Murray, Darren Campbell and Gary Klein [sic] referred to in subparagraphs 1(g) and 1(h) of these reasons as they relate to either the liability or damages issue. Nor did Sunova address the relevancy of the chronology of ownership of GJ’s from inception to present.

43The Tribunal therefore finds for the purposes of this motion that none of the requested documents or information is relevant to these proceedings.

Unfairness

44It is not unfair to require Sunova to proceed to a hearing without the disclosure that it seeks in this motion. The Tribunal agrees with the respondent’s submission¹⁴ that there is no jurisprudential support for Sunova’s implicit submission that in the circumstances where a new distributor replaces the terminated distributor, the sales and profits of the new distributor are relevant to the quantum of the terminated distributor’s damages and that requiring Sunova to proceed to a hearing without the documents would be “unfair” as required by Rule 30.10.

45Rule 30.10(2) requires a moving party who seeks production from a non-party to serve that non-party with notice of the motion. GJ’s was not served with the motion, but having come to its attention in some manner, it brought a motion for participant status. The Tribunal ordered that GJ’s could make oral submissions at the hearing of the motion and file the affidavit of Gary Klyn to be considered as part of the motion.

46In his affidavit Mr. Klyn, a principal of GJ’s, stated:

The information and documents requested by Sunova are confidential and proprietary and would provide a competitive advantage to a competing enterprise such as Sunova. While I do not know the full extent of Sunova’s current operations or future business plans, Sunova still does repair work and maintenance on CLAAS equipment. Sunova is serving the same customer base, as it is located within a 30 minute drive of both GJ’s locations near Woodstock and Milverton.¹⁵

47In Dennis v. Sarnia(City)¹⁶ ,where a party sought an order requiring the other party’s employer to disclose the incomes of other of its independent contractors, the court dismissed the motion and found that the information sought was in the nature of a type of communication which is privileged in accordance with the Wigmore doctrine.¹⁷

48Where a competitor sought proprietary and confidential information from other dealers in Chuang v. Toyota Canada Inc.¹⁸ the court held any unfairness to the plaintiff in being denied access to that information was outweighed by the unfairness to the dealers.

49The Tribunal finds that, even if the requested documents were relevant to the issues in this application, the prejudice to GJ’s in disclosing information such as sales quotes, invoices, details of sales and customer lists to a competitor (Sunova) is significantly greater than the prejudice to the applicant in proceeding to a hearing without that information.

Conclusion

50The Tribunal declines to make an order against CLAAS for production of documents which have not been proven to be in its possession, control or power pursuant to its own disclosure rules or Rule 30.02 of the Rules of Civil Procedure.

51The Tribunal declines to make an order against GJ’s as a party because it is not a party but a participant to these proceedings.

52The Tribunal declines to make an order against GJ’s as a non-party as the production requested of it has not been proven relevant to the issues in this proceeding and the unfairness of ordering it to disclose confidential and proprietary information to a competitor outweighs the unfairness of requiring Sunova proceed to a hearing without having access to this information.

Order

53The motion is dismissed.

54If costs are sought, counsel should refer to Rule 34 of the Tribunal’s Rules of Procedure.

Glenn C. Walker, Chair Agriculture, Food and Rural Affairs Appeal Tribunal

Footnotes

1. 1Affidavit of Carmen Van Lierop affirmed May 17, 2023, Exhibit A (List of Shareholdings) (paragraph 45)
2. 2Ibid (paragraph 65)
3. 3Ibid Exhibit B
4. 4Business Corporations Act, R.S.O. 1990, c. B.16, section 1(5)
5. 5Tribunal’s Rules of Procedure, Rule 8.06
6. 6Ibid, Rule 8.05
7. 7Ibid, Rule 1.10
8. 8Business Corporations Act, R.S.O. 1990, c. B.16, section 1(4)
9. 9Reply of the Applicant, paragraph 8
10. 102002 CanLII 20782 (Ont. S. J.)
11. 112021 ONSC 6756
12. 122003 CanLII 47647 (ON SC), [2003] OJ No 5138 (S.C.J.); damage assessment confirmed on appeal 2005 CanLII 39862 (ON CA), [2005] OJ 4671 (C.A.)
13. 132014 ONAFRAAT 7, var’d on other grounds 2016 ONSC 698 (Div. Ct.). aff’d 2018 ONCA 637
14. 14Responding Submissions of CLAAS of America Inc., paragraph 18
15. 15Affidavit of Gary Klyn sworn June 19, 2023, paragraph 6
16. 162008 CanLII 68236 (ON SC)
17. 17Ibid, Paragraph 11
18. 182013 ONSC 3235