Agriculture, Food and Rural Affairs Appeal Tribunal
2023 ONAFRAAT 14
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: September 5, 2023 by video conference
Before: Glenn C. Walker, Chair
Parties Present: Eric Gillespie, Counsel for the Applicant Steven Rosenheck, Counsel for the Respondent John May, Counsel for the Applicant (not present) Montana Licari, Counsel for the Respondent (not present)
MOTION DECISION
1This is a motion brought by CLAAS of America Inc. (“CLAAS”) for an order for the production of various financial and other documents of the Applicant Sunova Implement Ltd. (“Sunova”) used in the preparation of the draft expert report of Sunova’s expert Jim Hoare dated June 17, 2021 (the “Hoare Report”) and otherwise relevant to the assessment of Sunova’s alleged damages.
2CLAAS requested certain documents from Sunova by way of discovery. Some documents have been provided by Sunova. CLAAS seeks disclosure of the following documents collectively called the “Outstanding Documents” including:
(i) Any documentation or correspondence related to discussions by Mr. Hoare with Mr. John Van Lierop and Ms. Carmen Van Lierop which were used in the preparation of the Hoare Report;
(ii) Financial statements for the years ended November 30, 2015 to 2016, and year-to-date for 2022;
(iii) Annual wages and benefits for the years 2016 to 2022 including any support for the Hoare Report’s statement that 79.0% of wages and benefits relates to CLAAS products;
(iv) Support for the Hoare Report’s statement that 73.0% of advertising expense relates to CLAAS products;
(v) Support for the Hoare Report’s statement that 81.0% of repairs and maintenance relates to CLAAS products and confirmation that this is based on the 2020 percentage;
(vi) Documentation supporting the cost of sales, broken down by product type (e.g. New CLAAS Tractor, Used Harvesters etc.) including any documentation or details:
(1) Explaining why, as outlined in the Hoare Report, there are several periods where cost of sales for a certain product exceeds revenues (e.g. in fiscal year ended November 30, 2019, total sales of New CLAAS tractors totals $739,500 while cost of sales for New CLAAS tractors equals $783,712;
(2) Explaining why the gross margin for certain product types as per the Hoare Report, fluctuates year over year (ie. revenues less cost of sales, divided by revenues); and
(3) Answering whether the cost of sales attributed to CLAAS products considers freight or warranty claims.
(vii) Sales volumes by unit for CLAAS for the years 2016 to 2022, broken down by product type (e.g. New CLAAS Tractor, Used Harvesters, etc.);
(viii) Any documentation identifying the revenue recognition criteria for recording revenues on sales of new and used equipment;
(ix) Any documentation supporting how CLAAS Quantity and Quality Bonuses are calculated, with any supporting calculations for the actual amounts received from 2016 to 2022;
(x) Any documentation explaining what labour sales relate to documentation supporting CLAAS related labour sales for the years 2016 to 2022;
(xi) Any documentation answering whether Sunova was able to continue selling any CLAAS products (e.g. unsold inventory, used equipment, etc.) after termination of the dealer agreement; and
(xii) Any documentation answering whether Sunova obtained another dealer agreement with another product vendor following termination of the dealer agreement, including details on any subsequent agreements and efforts to obtain same.
Agreed Upon Facts
3The 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:
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”).
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.
The Dealership Agreements could be terminated on reasonable notice.
On February 25, 2020 and September 1, 2020 CLAAS wrote to Sunova to advise that it was terminating the Dealship Agreements.
Sunova’s Agreement with CLAAS terminated on May 1, 2021.
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”).
The Hoare Report was provided to CLAAS on July 20, 2021.
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.
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.
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.
The Position of the Parties
4CLAAS relies upon Rule 24.02 of the Tribunal’s Rules of Procedure which provides that at any stage of a proceeding the Tribunal may order a party to disclose to any other party documents and things relevant to the issues in the proceeding. CLAAS argues that the Outstanding Documents are relevant to the issue of the damages claimed by Sunova.
5Sunova takes the position that the Hoare Report is a draft only and that it is outdated and incomplete and that therefore this motion is premature.
Analysis
6Rule 24.02 gives the Tribunal a broad discretion to order the production of relevant documents.
7Sunova has not proven that any of the Outstanding Documents are irrelevant to these proceedings.
8Sunova’s sole objection to producing these documents now is that Mr. Hoare may not complete the draft report or may not be the expert who provides a completed expert report.
9The fact of the matter is that much of the information requested by CLAAS is relevant to the issue of damages even in the absence of the draft Hoare Report.
10Sunova states that it disclosed the draft report to CLAAS to foster settlement negotiations. However, by doing so it opened the door for the documentation requests now made by CLAAS.
11CLAAS has established that courts and tribunals have held that foundational documents and materials relied upon by an expert to arrive at his or her opinion must be disclosed to enable the opposing party to assess its position and determine whether to retain its own expert. Sunova does not dispute this conclusion.
12Sunova suggests that the Tribunal should adopt Rule 53.03 of the Rules of Civil Procedure with regard to the timing of expert reports as the Rules of Procedure of the Tribunal do not provide for this. We disagree. The Tribunal can deal with this issue on an individual basis by means of Pre-Hearing Conference orders at the request of the parties.
13This application was commenced on September 1, 2022 and the discovery stage has not yet been completed. The applicant’s request to dismiss this motion on the basis that it is premature will further delay this proceeding and may require further motions.
14The purpose of the Rules of Procedure, including Rule 24.02, is to assure the efficiency and timeliness of proceedings; and to assist the Tribunal in fulfilling its statutory mandate.1 It is in the interest of justice that the Outstanding Documents be provided by Sunova now and not sometime in the distant future.
Order
15The motion is granted. Sunova shall provide the Outstanding Documents set out in paragraph 2 of this decision to CLAAS within 45 days of the date of this Order.
16If 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
Released: September 22, 2023