Chesterman Farm Equipment Inc. v. CNH Canada Ltd., 2016 ONSC 698

CITATION: Chesterman Farm Equipment Inc. v. CNH Canada Ltd., 2016 ONSC 698

DIVISIONAL COURT FILE NO.: 14-0033-00

DATE: 20160307

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MOLLOY, HACKLAND and HAMBLY JJ.

BETWEEN:

CHESTERMAN FARM EQUIPMENT INC. Applicant /Respondent on Appeal)

– and –

CNH CANADA LTD. Respondent/Appellant

COUNSEL:

Eric Gillespie, John May and Ian Flett, for the Applicant/Respondent on Appeal

Stuart R. MacKay, for the Respondent/Appellant

HEARD: October 20, 2015 in Brampton, and in writing in November, 2015

REASONS FOR JUDGMENT

TABLE OF CONTENTS

HAMBLY J. AND HACKLAND J.:

• Overview (paras 1-2)
• Analysis (paras 3-21)
• Conclusion and Order (paras. 22-24)

MOLLOY J. (dissenting in part):

• A. INTRODUCTION (paras. 25-33)
• B. JURISDICTION and STANDARD OF REVIEW (paras. 34-50)
• C. THE RELEVANT PROVISIONS OF THE DEALER AGREEMENT (paras. 51-56)
• D. THE RELEVANT PROVISIONS OF THE ACT AND REGULATION 123/06 (paras.57-60)
• E. FACTUAL BACKGROUND – THE PURPORTED NOTICE OF TERMINATION (paras.61-64)
• F. THE PROCEDURAL HISTORY OF THIS CASE (paras. 65-70)
• G. THE REASONS OF THE TRIBUNAL ON DAMAGES (paras. 71-93)
  • (i) Applicability of Regulation 123 (paras. 71-75)
  • (ii) Incorporating Regulation 123 into this Dealer Agreement (paras. 76-82)
  • (iii) Invalidity of the Non-Renewal Notice by CNH (paras. 83-84)
  • (iv) Opportunity to Address Concerns (para. 85)
  • (v) Unreasonableness (paras. 86-87)
  • (vi) Finding of Breach (para. 88)
  • (vii) Damages for Loss of Profits (paras. 89-90)
  • (viii) Damages for Obsolete Assets (para. 91)
  • (ix) Other Heads of Damages (para. 92)
  • (x) Pre-Judgment Interest (para. 93)
• H. ANALYSIS: DAMAGES DECISION (paras. 94-176)
  • (i) Does Regulation 123 Apply to the Dealer Agreement? (para.96)
    • The presumption against retrospectivity (paras. 97-105)
    • No express language requiring retrospective interpretation (paras. 106-110)
    • Retrospective application as a necessary implication (paras. 111-127)
  • (ii) Incorporating Regulation 123 into the CNH/Chesterman Agreement (paras. 128-133)
  • (iii) Validity of Non-Renewal by CNH (paras. 134-150)
    • Reliance on contractual provision that “does not exist” (para. 137-143)
    • Reasons for non-renewal (paras. 144-147)
    • Opportunity to address concerns (paras. 148-150)
  • (iv) Reasonableness of Refusing to Renew (paras. 151-160)
  • (v) Breach of Contract and Damages (para. 161-176)
    • Damages for Obsolete Items (paras. 162-167)
    • Cross-Appeal: Loss of Profits (paras. 168-170)
    • Interest (paras. 171-176)
• I. ANALYSIS: COSTS DECISION (paras. 177-193)

HAMBLY J. AND HACKLAND J.:

Overview

[1] Our colleague Justice Molloy has set out a comprehensive summary of the history of this proceeding and of the legal and factual issues arising in this appeal. For that reason, we will only refer to the matters necessary to explain our decision, which is based on the jurisdictional limitations of this Court in dealing with this appeal. We agree with Justice Molloy and indeed with the Agriculture, Food and Rural Affairs Appeals Tribunal (“the Tribunal”), that Ontario Regulation 123/06 made under the Farm Implements Act, R.S.O. 1990, c F4[^1] (“the Act”) came into force on April 25, 2006, with retrospective effect, so as to apply to the Dealer Agreement between the parties Chesterman Farm Equipment Inc. (“Chesterman”) a farm equipment dealer and CNH Canada Ltd. (“CNH”), a manufacturer and distributor of farm equipment.

[2] The Tribunal, after a lengthy hearing in which extensive evidence was called, held that CNH had improperly terminated the Dealer Agreement between the parties and awarded damages to Chesterman in the sum of $60,000 for lost profit, $80,000 for obsolete assets and $60,000 in pre-judgment interest. Costs were also awarded to Chesterman in the amount of $376,338.05. CNH appeals that decision and Chesterman cross-appeals for an increase in the damages awarded.

Analysis

[3] Pursuant to s. 5(7)-(9) of the Act an appeal lies to this court, but solely on a question of law. This important jurisdictional limitation must be respected. It means that this court is precluded from reviewing the reasoning and findings of facts of the Tribunal to the extent that the matters in issue are either purely factual or are mixed questions of fact and law. In this case, CNH refused to renew its Dealer Agreement with Chesterman upon its expiry on December 31, 2006. The Tribunal had the statutory mandate under Regulation 123/06 to inquire into and determine whether the distributor’s (CNH) approval for renewal was “unreasonably withheld”. The Tribunal analyzed the Dealer Agreement and the relevant dealings between the parties and concluded CNH had unreasonably withheld its approval to renew. That decision was within the Tribunal’s specific mandate and the considerations were fact and credibility based for the most part. Accordingly, we are of the opinion that this Court lacks the jurisdiction to hear an appeal from the Tribunal’s finding as to the reasonableness of CNH’s decision.

[4] It is common ground that for the purposes of Regulation 123/06, Chesterman is a “dealer” and CNH is a “distributor”. This regulation imposed mandatory terms into dealer agreements. The Regulation provides:

Mandatory 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.

(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.

(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.

[5] For purposes of this appeal, the relevant terms imposed by the Regulation, under s. 3 provide:

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

b) renew or transfer the dealership agreement;

(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.

(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.

(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.

(7) The distributor has the right to set sales targets that are fair and reasonable.

(emphasis added)

[6] As noted, we agree with Justice Molloy’s analysis and her conclusion that the Tribunal was correct in holding that this regulation applied retrospectively to this Dealer Agreement and others throughout the province. The retrospectivity issue is a pure question of law involving issues of statutory interpretation and is not dependent on the factual matrix between the parties in this case.

[7] However, having found that Regulation 123/06 applied to the Dealer Agreement between the parties, it was necessary for the Tribunal to modify the existing notice and renewal provisions to comply with the Regulation. In doing so, the Tribunal held the right not to renew in paragraph 22 of the Dealer Agreement was void and was therefore removed and based on agreement of counsel, the automatic renewal clause was deemed to constitute the notice of intent to renew contemplated by the Regulation.

[8] We agree with Justice Molloy’s holding that the manner in which the Tribunal applied Regulation 123 to the Dealer Agreement in this case is a mixed question of fact and law and is not subject to review by this Court.

[9] The Tribunal went on to find the September 30, 2006 notice of non-renewal was void as it breached the Regulation because; (1) it was based on the void automatic renewal provision, (2) it did not give Chesterman the required period to address the concerns raised and (3) it did not adequately set out the reasons for the non-renewal. The Regulation provided that if the distributor intends to refuse the renewal, it must give 45 days notice to the dealer stating the reasons for the refusal. The dealer then has 15 days to address the identified concerns.

[10] The Tribunal was not satisfied that CNH’s letter of September 20, 2006 complied with the requirement of the Regulation that the distributor provide written reasons for the refusal to renew so that the dealer could then address the concerns within the allowable 15 days. We are of the view that the nature and adequacy of the reasons for non-renewal provided by CNH are matters of fact arising from the dealings between the parties and clearly do not engage questions of law. They are likewise not subject to review by this Court.

[11] The Tribunal in its reasons under the heading “11. Liability for Ending the Relationship” summarized the reasons for its conclusion that CNH had not met its burden to prove on the balance of probabilities that it did not unreasonably withhold renewal approval. The Tribunal stated (referring to Chesterman as “CFEI”) at pages 32-33:

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 context (see 1193430 Ontario Inc. v. Boa-Franc Inc., [2005] O.J. No. 4671 (C.A.) at para 45) 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.

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.

[12] The Tribunal stated in the section of its reasons quoted above that “what is reasonable is determined form the factual context” and further observed that the numerous considerations listed are “findings of fact”. We agree with the Tribunal. The considerations leading the Tribunal to its decision are not, in any event, questions of law, and therefore, this Court has no jurisdiction to intervene.

[13] This Court must follow the governing jurisprudence from the Supreme Court of Canada in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235[^6] and the Supreme Court’s more recent decision in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, 2014 SCC 53[^4], both of which discuss the distinction between questions of law and questions of mixed law and fact.

[14] Sattva dealt with the right of appeal from the decision of an arbitrator engaged in the interpretation of a commercial contract. The applicable legislation provided, as in the present case, for a right of appeal only on a question of law. The issue in Sattva was the meaning of “market price” in the contract, as that would in turn determine Sattva’s share entitlement by way of a finder’s fee provided for in the agreement. The Court held that this was a question of mixed fact and law and confirmed that, in future, contractual interpretation would normally be viewed as a question of mixed fact and law. The Court disapproved the historical approach which was to view issues of contractual interpretation as questions of law.

[15] In Sattva, the Court outlined the policy basis for the important distinction between questions of law and questions of mixed fact and law:

51 The purpose of the distinction between questions of law and those of mixed fact and law further supports this conclusion. One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute. It reflects the role of courts of appeal in ensuring the consistency of the law, rather than in providing a new forum for parties to continue their private litigation. For this reason, Southam identified the degree of generality (or "precedential value") as the key difference between a question of law and a question of mixed fact and law. The more narrow the rule, the less useful will be the intervention of the court of appeal:

a) If a court were to decide that driving at a certain speed on a certain road under certain conditions was negligent, its decision would not have any great value as a precedent. In short, as the level of generality of the challenged proposition approaches utter particularity, the matter approaches pure application, and hence draws nigh to being an unqualified question of mixed law and fact. See R. P. Kerans, Standards of Review Employed by Appellate Courts (1994), at pp. 103-108. Of course, it is not easy to say precisely where the line should be drawn; though in most cases it should be sufficiently clear whether the dispute is over a general proposition that might qualify as a principle of law or over a very particular set of circumstances that is not apt to be of much interest to judges and lawyers in the future. [para. 37]

52 Similarly, this Court in Housen found that deference to fact-finders promoted the goals of limiting the number, length, and cost of appeals, and of promoting the autonomy and integrity of trial proceedings (paras. 16-17). These principles also weigh in favour of deference to first instance decision-makers on points of contractual interpretation. The legal obligations arising from a contract are, in most cases, limited to the interest of the particular parties. Given that our legal system leaves broad scope to tribunals of first instance to resolve issues of limited application, this supports treating contractual interpretation as a question of mixed fact and law.

[16] The Court also advised that the concept of extricable questions of law would have extremely limited application:

53 Nonetheless, it may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law (Housen, at paras. 31 and 34-35). Legal errors made in the course of contractual interpretation include "the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor" (King, at para. 21). Moreover, there is no question that many other issues in contract law do engage substantive rules of law: the requirements for the formation of the contract, the capacity of the parties, the requirement that certain contracts be evidenced in writing, and so on.

54 However, courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation. Given the statutory requirement to identify a question of law in a leave application pursuant to s. 31(2) of the AA, the applicant for leave and its counsel will seek to frame any alleged errors as questions of law. The legislature has sought to restrict such appeals, however, and courts must be careful to ensure that the proposed ground of appeal has been properly characterized. The warning expressed in Housen to exercise caution in attempting to extricate a question of law is relevant here:

a) Appellate courts must be cautious, however, in finding that a trial judge erred in law in his or her determination of negligence, as it is often difficult to extricate the legal questions from the factual. It is for this reason that these matters are referred to as questions of "mixed law and fact". Where the legal principle is not readily extricable, then the matter is one of "mixed law and fact" ... . [para. 36]

[17] We find no extricable questions of law in the Tribunal’s ruling as to the unreasonableness of CNH’s decision not to renew. The Tribunal’s decision was based on a consideration of the historical relationship of the parties and the events and communications surrounding the decision not to renew. This specialized Tribunal’s assessment of reasonableness in all the circumstances is entitled to deference. In any event, there is no right of appeal on these matters as they are not questions of law.

[18] We agree with Justice Molloy’s opinion that the Tribunal erred in law in awarding damages in the sum of approximately $80,000 for the value of special tools and materials Chesterman had purchased from CNH. Neither the Regulation nor the terms of the Dealer Agreement imposed any such repurchase obligation on CNH. The fact that this loss was “reasonably foreseeable” in the Tribunal’s view, does not provide a legal basis for this award in the context of the contractual relationship between the parties. There was no legal basis for this award and it must be set aside.

[19] Similarly, the issue of the Tribunal’s power to award prejudgment interest is a question of law and we would share Justice Molloy’s opinion that the Tribunal had such power for the reasons she has provided. We also agree that this Court ought not to interfere with the Tribunal’s exercise of discretion in determining the applicable rate of interest.

[20] We further agree that the Tribunal’s disposition of costs reflects errors of law in several respects as discussed comprehensively in Justice Molloy’s reasons, and must be remitted to the Tribunal for reconsideration in accordance with this Court’s ruling.

[21] Chesterman’s cross-appeal relates to the quantum of damages awarded and does not engage any question of law. Accordingly, the cross-appeal is dismissed.

Conclusion and Order

[22] For the Reasons set out above, the decision of the Tribunal dated March 24, 2014 is upheld except with respect to the award for obsolete assets, which is set aside. The appeal by CNH is otherwise dismissed and the cross-appeals by Chesterman are dismissed.

[23] The costs decision of the Tribunal dated June 9, 2014 is quashed. The issue of costs is remitted to the Tribunal to be reconsidered in light of this Court’s rulings as to the jurisdiction for awarding costs and the relevant factors to be taken into account, as well as the Tribunal’s Rules and s. 17.1 of the SPPA.

[24] The costs of the appeals to this Court shall be dealt with in writing. The submissions of CNH, supported by dockets or docket summaries, shall be forwarded to the Court within 30 days of the release of these Reasons. Chesterman shall deliver its responding submissions, including its own dockets or docket summaries, within 15 days of the delivery of the CNH submissions. CNH shall then have a brief write of reply, if it sees fit, to be delivered within 7 days of the Chesterman submissions.

HAMBLY J.

HACKLAND J.

MOLLOY J. (dissenting in part):

A. INTRODUCTION

[25] This is an appeal from decisions of the Agriculture, Food and Rural Affairs Appeals Tribunal (“the Tribunal”). In a decision dated March 24, 2014, the Tribunal held that CNH Canada Ltd. (“CNH”) had improperly terminated a dealer agreement with Chesterman Farm Equipment Inc. (“Chesterman”) and awarded $200,516.61 in damages to Chesterman (being approximately $60,000 for lost profit, $80,000 for obsolete assets, and $60,000 in pre-judgment interest). For Reasons dated June 9, 2014, the Tribunal awarded partial indemnity costs to Chesterman in the amount of $376,338.05.

[26] CNH appeals from both the damages and costs decisions. Chesterman cross-appeals from the damages award for lost profits, submitting that this head of damages was wrongly calculated and should be higher.

[27] Chesterman is a family-owned and run business, located in Tilsonburg, Ontario, and sells farm equipment and implements. CNH manufactures and then distributes farm implements throughout Canada. CNH (and its predecessor company, New Holland) supplied farm implements to CNH, which CNH then resold to the public. The relationship between Chesterman and CNH was governed by a Dealer Agreement executed in December 1999 and to take effect on January 1, 2000. The agreement provided for a two-year initial term with automatic one-year extensions thereafter unless, at least 90 days prior to the expiry of the term, one party gave the other notice of its intent not to extend.

[28] On September 30, 2006, CNH gave written notice that it would not be extending the agreement for the 2007 year. There is an issue as to whether that notice was effective to terminate the agreement.

[29] Meanwhile, on April 25, 2006, Ontario Regulation 123/06, made under the Farm Implements Act[^1] came into force. The Regulation prescribed certain mandatory terms that must be included in any farm implement dealership agreement, including terms dealing with the renewal of such agreements. There is an issue as to whether, and in what manner, the Regulation applied to the ongoing agreement between CNH and Chesterman.

[30] The Tribunal held that the Regulation should be given retrospective effect and applies to the agreement between CNH and Chesterman. My two colleagues and I agree, although not for the same reasons as expressed by the Tribunal. We also agree that the manner in which the Tribunal incorporated Regulation 123 into the agreement between CNH and Chesterman is a question of mixed fact and law and not reviewable by this Court.

[31] The Tribunal further held that the September 30 notice delivered by CNH under the Dealer Agreement was invalid and constituted a breach of contract. The Tribunal also found that the September 30 notice failed to give Chesterman an opportunity to address the concerns raised and that this termination was unreasonable. My colleagues are of the view that these are questions of mixed fact and law and are not reviewable by this Court. On these issues, we disagree. For the reasons that follow, I believe that the Tribunal erred in law when it held that the September 30 notice was invalid and also erred in law in finding that it failed to give CNH an opportunity to respond. I would therefore have set aside the Tribunal’s finding of breach of contract, and its award of damages and costs. My colleagues, however, uphold the breach of contract finding.

[32] The parties raised three issues with respect to the Tribunal’s award. CNH challenges the basis for the Tribunal’s award based on obsolete items (such as tool and manuals purchased by Chesterman over the years that were of no use to Chesterman once the dealership agreement was at an end. My colleagues and I agree that the Tribunal erred in law in making this award and that it must therefore be quashed.

[33] On the remaining issues, the Panel is unanimous. We find the Tribunal does have jurisdiction to include interest in any damages award it makes. The manner of calculating that interest is not a question of law and we would not interfere. The cross-appeal by Chesterman (with respect to the quantum of the award for loss of profits) is dismissed as it does not raise a question of law, but rather a question of mixed fact and law. Finally, we are all of the view that the Tribunal erred in law with respect to the basis upon which it awarded costs. In the result, the Tribunal’s decision dated March 24, 2014 is upheld in its entirety. The Tribunal decision dated June 9, 2014 is set aside and the issue of costs is remitted to the Tribunal for its reconsideration based on the directions set out herein.

B. JURISDICTION and STANDARD OF REVIEW

[34] An appeal lies to this Court from decisions of the Tribunal pursuant to s. 5(7)-(9) of the Farm Implements Act (the “Act”), but solely on a question of law. This Court is empowered to make “any order that it considers proper” or may refer the matter back to the Tribunal with directions.

[35] The parties agree that a standard of correctness applies to the legal questions raised on this appeal.

[36] The result in this appeal hinges on the distinction between what can be characterized as a question of law, as opposed to a question of mixed fact and law. It is not an easy issue to resolve. It is on this point, and only on this point, that I disagree with my two colleagues.

[37] The Supreme Court of Canada dealt with this vexing issue in Canada (Director of Investigation and Research, Competition Act) v. Southam Inc.[^2], (“Southam”) stating as follows (at para. 35):

. . . Briefly stated, questions of law are questions about what the correct legal test is; questions of fact are questions about what actually took place between the parties; and questions of mixed law and fact are questions about whether the facts satisfy the legal tests. A simple example will illustrate these concepts. In the law of tort, the question what “negligence” means is a question of law. The question whether the defendant did this or that is a question of fact. And, once it has been decided that the applicable standard is one of negligence, the question whether the defendant satisfied the appropriate standard of care is a question of mixed law and fact. I recognize, however, that the distinction between law on the one hand and mixed law and fact on the other is difficult. On occasion, what appears to be mixed law and fact turns out to be law, or vice versa.

[38] In Southam, the Supreme Court also reiterated (at para. 37) the governing principle that “as the level of generality of the challenged proposition approaches utter particularity, the matter approaches pure application, and hence draws nigh to being an unqualified question of mixed fact and law.” Iacobucci J. (writing for the unanimous Court) then stated:

Of course, it is not easy to say precisely where the line should be drawn; though in most cases it should be sufficiently clear whether the dispute is over a general proposition that might qualify as a principle of law or over a very particular set of circumstances that is not apt to be of much interest to judges and lawyers in the future.

[39] In elaborating on this principle, the Court in Southam referred to its earlier decision in Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557[^3] and made a point that is particularly apt for the case now before this Court – there is a distinction between applying a legal test to the words of a contract (which is a question of mixed fact and law) and applying the same legal test to the same words but where those words are contained in a statutory provision (which is a question of law). Iacobucci held (at para. 36):

For example, the majority of the British Columbia Court of Appeal in Pezim, supra, concluded that it was an error of law to regard newly acquired information on the value of assets as a “material change” in the affairs of a company. It was common ground in that case that the proper test was whether the information constituted a material change; the argument was about whether the acquisition of information of a certain kind qualified as such a change. To some extent, then, the question resembled one of mixed law and fact. But the question was one of law, in part because the words in question were present in a statutory provision and questions of statutory interpretation are generally questions of law, but also because the point in controversy was one that might potentially arise in many cases in the future: the argument was about kinds of information and not merely about the particular information that was at issue in that case. The rule on which the British Columbia Securities Commission seemed to rely -- that newly acquired information about the value of assets can constitute a material change -- was a matter of law, because it had the potential to apply widely to many cases. [emphasis added]

[40] The Supreme Court in Southam also noted another example of a question that might look like a question of mixed fact and law, but is actually a question of law. It is not enough for the Tribunal to accurately state the applicable law. It must actually apply that law by considering all of the relevant factors required by the applicable law. Iacobucci J. provided the following helpful example of this principle (at para. 39):

. . . After all, if a decision-maker says that the correct test requires him or her to consider A, B, C, and D, but in fact the decision-maker considers only A, B, and C, then the outcome is as if he or she had applied a law that required consideration of only A, B, and C. If the correct test requires him or her to consider D as well, then the decision-maker has in effect applied the wrong law, and so has made an error of law.

And further, (at para. 41):

. . . If the Tribunal did ignore items of evidence that the law requires it to consider, then the Tribunal erred in law. Similarly, if the Tribunal considered all the mandatory kinds of evidence but still reached the wrong conclusion, then its error was one of mixed law and fact.

[41] Another important case dealing with the distinction between a question of law and a question of mixed fact and law is the Supreme Court of Canada’s more recent decision in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633, 2014 SCC 53[^4], which involved an appeal from a commercial arbitration award as to the quantum of a finder’s fee payable to Sattva by Creston under a private agreement between the two companies. The parties agreed that Sattva was entitled to a finder’s fee of US$1.5 million and was entitled to be paid this fee in shares of Creston, cash or a combination thereof. However, they disagreed on which date should be used to price the Creston shares and therefore the number of shares to which Sattva is entitled. The arbitrator’s decision turned on the interpretation of the term “market price” as defined in the contract between the parties.

[42] The applicable legislation provided a limited right of appeal from the arbitration decision, but only on a question of law, with leave. In the first instance a judge of the British Columbia Supreme Court denied leave on the basis that the issue raised was one of mixed fact and law and not subject to appeal. The British Columbia Court of Appeal reversed the lower court, finding the issue to be a question of law, and granted leave.

[43] The Supreme Court of Canada ruled that leave to appeal should not have been granted because the issue raised was a question of mixed law and fact. In coming to that conclusion, the Supreme Court referred to the historical approach to issues of contract interpretation, which was to treat such issues as questions of law, and then specifically decided to abandon that approach in light of two developments in the law.

[44] The first legal development cited by Rothstein J. (for the unanimous Court) is the more modern approach to contract interpretation, which is to take into account the factual matrix, considering all of the surrounding circumstances, with a view to determining the intention of the parties to the contract. This, the Court noted, is not driven by the absolute meaning of the words used, but by what the parties intended. Rothstein J. held:[^5]

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.

[45] The second legal development cited by the Court in Sattva is derived from more recent Supreme Court of Canada decisions as to the nature of a question of law, which, Rothstein J. noted, do not fit well with the historical approach to contract interpretation. In particular, Rothstein J. referred to the decision in Southam (to which I referred above) and to the Court’s landmark decision on standards of appellate review in Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33[^6].

[46] In discussing Southam, the Court emphasized the underlying rule that the more particular an issue is to the parties, the more it will be characterized as a question of mixed fact and law. On the other hand, issues that have a broad general application are more likely to be treated as questions of pure law. He stated as follows (at para. 51):

The purpose of the distinction between questions of law and those of mixed fact and law further supports this conclusion. One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute. It reflects the role of courts of appeal in ensuring the consistency of the law, rather than in providing a new forum for parties to continue their private litigation. For this reason, Southam identified the degree of generality (or “precedential value”) as the key difference between a question of law and a question of mixed fact and law. The more narrow the rule, the less useful will be the intervention of the court of appeal. [emphasis added]

[47] The Court in Sattva, applying Housen, referred to the importance of deference to fact-finders as “promot[ing] the goals of limiting the number, length, and cost of appeals, and of promoting the autonomy and integrity of trial proceedings” and held that, for the same reasons, it is important to accord deference to fact-finders determinations of contractual interpretation. In coming to that conclusion, the Court reasoned that, “The legal obligations arising from a contract are, in most cases, limited to the interest of the particular parties."[^7]

[48] The Court in Sattva also endorsed its previous ruling in Housen that where a court is engaged in determining a question of mixed fact and law, pure questions of fact may nevertheless be extricable. It is only where the legal principles and findings of fact are inextricably interwoven that the issue will be regarded as a question of fact and law from which there is no appeal.

[49] Rothstein J. held (at para. 53):

Nonetheless, it may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law (Housen, at paras. 31 and 34-35). Legal errors made in the course of contractual interpretation include “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor” (King, at para. 21). Moreover, there is no question that many other issues in contract law do engage substantive rules of law: the requirements for the formation of the contract, the capacity of the parties, the requirement that certain contracts be evidenced in writing, and so on.

[50] Thus, where a legal issue can be extricated from the facts, it is subject to appeal. Further, in the course of contract interpretation, legal errors can be made, including: applying an incorrect principle; considering a factor that is not legally relevant; failing to consider a relevant factor; and failing to consider an aspect of the correct legal test. All such errors, are subject to appeal. Finally, a distinction must be made between questions of broad application, including statute interpretation (which are questions of law), and questions of contract interpretation that affect only the particular parties involved (which are questions of mixed fact and law).

C. THE RELEVANT PROVISIONS OF THE DEALER AGREEMENT

[51] The Dealer Agreement was executed by the parties on December 3, 1999. It took effect on January 1, 2000 and was stipulated to continue to December 31, 2002, unless terminated by either party earlier.

[52] Under the Dealer Agreement, Chesterman could sell farm implements anywhere, but its primary area of responsibility (“PMR”) was stipulated to be Elgin, Oxford and Haldimand-Norfolk Counties. Chesterman agreed under Clause 4 of the Agreement that it would “promote vigorously and aggressively” the retail sales of CNH’s products and agreed to obtain a reasonable share of the market in its PMR for CNH products. Further, in the same Clause, the parties agreed that a reasonable market share would be 90% of the average market share that CNH products achieve in Ontario or in a regional sales area, it being the sole discretion of CNH whether such performance would be based on sales in the regional sales area or the province as a whole.

[53] Under the Dealer Agreement, Chesterman was required to perform warranty and policy service and was obligated to keep in inventory all special tools, equipment and machinery needed to service CNH’s products.

[54] The Dealer Agreement provided various grounds upon which CNH can terminate it for cause without notice, none of which apply here. In addition, paragraph 23(c) provided that in the event “that a party has failed to fulfill any of that party’s responsibilities” under the Agreement, the other party may terminate by giving 30 days written notice.

[55] The Agreement specifically provided for automatic one-year extensions after December 31, 2002 “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.” The Agreement further stated that, upon such notification, the Agreement would expire on December 31, 2002 or at the end of any such extension period. This is set out in paragraph 22 of the Dealer Agreement, which is a pivotal provision in this appeal. It states:

22. 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. The 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, this Agreement shall expire on December 31, 2002 or at the end of any such extension period. The Dealer understands that this Agreement is of a limited duration and agrees that it has not relied on any representation regarding the continuation of the Agreement or its benefits beyond the initial term or any subsequent term. [emphasis added]

[56] The Dealer Agreement was automatically renewed for the years 2003, 2004, 2005 and 2006. The 2006 term would expire on December 31, 2006 unless, at least 90 days before that, written notification was given by one of the parties that it did not intend to renew. The notice by CNH given on September 30, 2006 was more than 90 days prior to the expiry of the term. If otherwise effective, the Agreement would expire at the end of its term on December 31, 2006.

D. THE RELEVANT PROVISIONS OF THE ACT AND REGULATION 123/06

[57] The Farm Implements Act regulates aspects of the relationships between manufacturers, distributers, dealers and buyers of farm implements. The Act stipulates in s. 33 that the rights, duties and remedies provided are “in addition to the rights, duties and remedies under any other Act and the common law.” The Act first came in force in 1988 and has been amended from time to time. There were significant amendments in 2005, including ** and imposing minimum buy-back provisions. Also, prior to 2005, the power delegated to make regulations was limited to “prescribing information to be included in agreements referred to in subsection 3(4). This was amended to include the power to “set out legal rights and obligations for parties to the agreement.”

[58] Regulation 123 under the Act was enacted pursuant to the expanded regulation-making power and came into force on April 25, 2006. The Regulation provided for certain mandatory terms that must be included in dealer agreements. Within the wording of the Regulation, Chesterman was a “dealer” and CNH was a “distributor.” Section 1 provides that the terms are mandatory. It states as follows:

Mandatory 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.

(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.

(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.

[59] For purposes of this appeal, the relevant terms imposed by the Regulation under s. 3 provide:

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

(b) renew or transfer the dealership agreement;

(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.

(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.

(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.

(7) The distributor has the right to set sales targets that are fair and reasonable.

[60] Upon termination or expiration of an agreement, sections 23 to 30 of the Act impose a number of provisions with respect to the distributor’s obligation to buy-back certain products from the dealer and the prices at which that is to be done. The Act specifies (at s. 23(2)) that these provisions “apply to a dealership agreement that is in effect on or after January 1, 1990.”

E. FACTUAL BACKGROUND – THE PURPORTED NOTICE OF TERMINATION

[61] In May 2006, CNH hired a new Market Representation Manager, Mr. Mackow. As part of his responsibilities, Mr. Mackow conducted a review of dealer performance. Chesterman came up on his radar as a poor performer. More detailed reports were compiled, reviewing sales figures and market share for the current year, as well as for the three prior years. For those four years, Chesterman was significantly failing to meet its required sales level of 90% of the average market share for CNH products in Ontario. A review of the figures in July 2006 showed further poor performance. As a result, CNH decided not to extend the Dealer Agreement beyond December 31, 2006.

[62] On September 30, 2006, CNH gave written notice to Chesterman that it would not be extending the Dealer Agreement beyond its expiration date of December 31, 2006. The notice stated that the decision not to renew was based on “serious breaches” of s. 4(a) of the Dealer Agreement by failing to meet a reasonable market share as required under the Agreement. The notice specified that the sales levels were “severely deficient” during the period of the past four years and provided a chart demonstrating the persistent failure of Chesterman to achieve the required market share.

[63] The Tribunal found that there was no basis to reject the data set out in CNH’s notice. Chesterman’s sales figures were significantly below its required market share target and were declining year after year from 2003 to 2006.

[64] During the 92 days from the notice of non-renewal and December 31, 2006, Chesterman did not propose any plan to CNH as to how it could address its sales performance. Mr. Chesterman testified before the Tribunal that he asked his dealer representative if CNH would change its mind and was told “no”, and also testified that he received no response from CNH when he proposed a merger with another CNH dealer.

F. THE PROCEDURAL HISTORY OF THIS CASE

[65] The proceedings were initiated with a complaint by Chesterman against CNH for improperly ending the Dealer Agreement. Mediation was not successful and the matter proceeded before the Tribunal. There were initially three issues: (1) a warrant issue; (2) liability for breach of contract; and (3) damages. The Tribunal decided to hear the case in two phases: Phase 1 would deal with the warranty and breach of contract issues; and Phase 2 would deal with damages. The Phase 1 hearing proceeded before the Tribunal for seven days commencing October 18, 2010. The Tribunal’s written decision on these issues was delivered on March 17, 2011.

[66] The warranty issue, which involved a number of intervenors, was dismissed.

[67] The Tribunal found in Chesterman’s favour on the breach of contract issue. Its Reasons were brief. The Tribunal held that:

(a) Regulation 123 applied to the Dealer Agreement with the result that the right to not renew in paragraph 22 was removed and was void.

(b) Based on the agreement of counsel, the automatic renewal clause was deemed to be the notice of intent to renew under the Regulation.

(c) The September 30, 2006 notice by CNH was based on paragraph 22, which was void, and therefore breached the Regulation.

(d) Even if the September 30, 2006 letter was treated as CNH’s refusal to approve Chesterman’s requested renewal, it did not comply with the regulations because it did not give Chesterman the required period to address the concerns raised.

(e) Therefore, CNH breached the contract.

[68] CNH appealed to the Divisional Court from the March 17, 2011 decision. CNH sought to adduce fresh evidence before the Divisional Court to the effect that its counsel either did not, or did not intend, to concede before the Tribunal that the automatic renewal clause satisfied the requirement to give notice of intent to renew.

[69] The Divisional Court remitted the matter to the Tribunal with directions. The Court gave oral reasons in which Aston J. stated that one of the reasons for remitting the matter to the Tribunal was the inability of the Court to determine what was agreed to by counsel at the initial hearing. In addition, the Court stated that the Tribunal should have the opportunity to deal with issues not expressly addressed in its Reasons, including: (1) whether Regulation 123 has retroactive or retrospective effect; (2) notwithstanding the agreement of counsel, whether the interplay between the Regulation and paragraph 22 needed to be interpreted consistently, rather than finding paragraph 22 valid as notice of intent to renew for Chesterman but void and unenforceable for the non-renewal by CNH; (3) whether the Regulation required CNH to give written notice it was withholding approval of renewal and an opportunity to cure any defect or address the concerns raised; (4) whether the opportunity to cure was rendered academic by Chesterman’s inability to address the concerns or by some other reason; and (5) whether CNH’s actions could be said to be unreasonable although not unconscionable or in bad faith.

[70] The hearing then proceeded again before the Tribunal,[^8] between February and November, 2013, for ten days of evidence and submissions on the issues remitted by the Divisional Court and the issues of damages. The Tribunal’s decision on these issues was released on March 24, 2014, and is the subject of this appeal. Subsequently, the Tribunal received written submissions as to costs and released its written decision on costs on June 9, 2014, which is also the subject of this appeal.

G. THE REASONS OF THE TRIBUNAL ON DAMAGES

(i) Applicability of Regulation 123

[71] The Tribunal held that Regulation 123 applied retrospectively to the Dealer Agreement in this case, notwithstanding that the Agreement was four months into the 2006 term when the Regulation came into force. The Tribunal identified the starting point of its analysis as being the language used in s. 1 of the Regulation, and in particular that both ss. 1(1) and 1(2) provide that the mandatory terms apply to “any” dealer agreement. The Tribunal stated (at p. 19):

“Any” in this context is an expansive and all-encompassing word that infers dealer agreements in the 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, 2006.

[72] The Tribunal contrasted the word “any” in the Regulation with various sections of the Act (ss. 3(2), 8(9) and 23(2)) that use temporal reference mechanisms and concluded that the absence of such language in the Regulation meant that the Legislature did not intend to limit its application temporally.

[73] The Tribunal rejected the applicability of the reasoning of the Supreme Court of Canada in Upper Canada v. Smith, [1920] 61 S.C.R. 413[^9] in which the Court considered the words “shall be in writing” in amendments to the Statute of Frauds as being prospective and therefore not operating to affect pre-existing oral agreements to pay commission on the sale of land. The Tribunal reasoned that the Supreme Court was not suggesting that every time the words “shall be in writing” are used, a statute must be given a prospective interpretation and also noted that this decision was made in 1920, prior to the more modern approach to statute interpretation subsequently taken by the Supreme Court in cases such as Re Rizzo and Rizzo Shoes Ltd., [1998] 1 S.C.R. 27 [“Rizzo Shoes”][^10].

[74] The Tribunal held (at p. 24) as follows:

As previously noted, the Tribunal determined that the Legislature, by the express words “any dealership” 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-Chesterman] 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.

[75] In the result, the Tribunal found that Regulation 123 applied retrospectively and that the mandatory terms must be read into the CNH/Chesterman Dealer Agreement.

(ii) Incorporating Regulation 123 into this Dealer Agreement

[76] The Dealer Agreement in this case already gave greater renewal rights to the dealer than were required, in some respects, under the new Regulation. Under paragraph 22 of the Dealer Agreement, the Agreement renewed automatically unless one of the parties gave 90 days’ notice of its intention not to renew it. Under the Regulation, a dealer is required to give written notice that it wishes to renew a dealer agreement. Such a renewal is subject to the approval of the distributor, but s. 3(4) provides that approval shall not be unreasonably withheld. If the distributor intends to refuse the renewal, the distributor must give 45 days’ notice to the dealer stating the reasons for the refusal. The dealer then has 15 days to address the concerns underlying the refusal.

[77] The Dealer Agreement in this case contemplated the possibility of its terms being contrary to legislation and provided as follows in Clause 31:

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 such law.

[78] One option for the Tribunal would have been to apply s. 1(3) of the Regulation which states that any provision in a dealership agreement that limits or varies a term set out in s. 3 is void. Section 3 contains the mandatory renewal terms. Applying s. 1(3) of the Regulation, the renewal term in the Dealer Agreement (which “varies” the terms of the mandatory provisions) would be void and would be replaced by the mandatory terms in the Regulation. Therefore, the process would be started by written notice from Chesterman that it intended to renew the Dealer Agreement. Chesterman did not give such a notice. Therefore, the Agreement would simply expire on December 31, 2006.

[79] The Tribunal did not take that approach. Instead, it held that it was appropriate to “read down” the language in the Agreement, or apply “notional severance.” Therefore, the Tribunal rewrote paragraph 22 of the Dealer Agreement as follows:

22. DURATION

Unless terminated earlier under the terms hereof, this Agreement shall continue form 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.

[80] The Tribunal found that this would meet the purpose and policy of the amendments (increasing fairness, competition and choice in the industry) and was in accordance with the “spirit” of paragraph 31 of the Dealer Agreement. Further, the Tribunal stated that such an approach “recognizes the historical reality about renewals as between CNH and [Chesterman] and reflects the reality in the market.” The historical reality between CNH and Chesterman was that their Agreement was renewed automatically every year without Chesterman needing to do anything. The “reality in the market” referred to by the Tribunal was based on the evidence of Barbara Leavitt, the President and CEO of the Canada East Equipment Dealers Association (“CEEDA”), a trade association representing farm equipment dealers such as Chesterman in liaison with industry and government. Ms. Leavitt testified that she polled approximately 300 equipment dealers in Ontario that comprise CEEDA’s membership and the majority of them reported that their dealer agreements auto-renewed, unless terminated by one of the parties. Further, the members reported that none of them had given notice of an intent to renew prior to 2005 and only a handful had given such a renewal notice after 2005, and only then when she advised them to do so.

[81] With respect to the requirement under the Regulation that Chesterman provide notice of its intent to renew, the Tribunal held that the auto-renewal clause in the Dealer Agreement constituted written notice by the dealer of its intent to renew, as required under the Regulation. The Tribunal relied on the concession of CNH’s counsel in the 2010 hearing that the auto-renew clause constituted notice of intent to renew. The Tribunal did not deal with when such a notice would be deemed to have been given, so as to trigger the distributor’s right to refuse.

[82] The Tribunal also held (at p. 27) that in the particular circumstances of this case, the September 30, 2006 letter sent by CNH to Chesterman (indicating its intention not to renew) pre-empted Chesterman from giving its written renewal notice, made any renewal notice requirement from Chesterman “academic” and “relieved Chesterman of any requirement to give written notice.”

(iii) Invalidity of the Non-Renewal Notice by CNH

[83] The Tribunal held that Regulation 123 required CNH to give Chesterman written notice that it was withholding renewal approval and an opportunity to address the concerns raised. However, the Tribunal found that the September 30, 2006 notice was not a written refusal to approve Chesterman’s deemed notice of renewal, but rather an attempt to exercise a right under paragraph 22 of the Dealer Agreement that no longer existed in its original format. The Tribunal provided no explanation for that conclusion. It also did not address the specific concern raised by the Divisional Court in October 2011 as to the inconsistency in finding paragraph 22 valid for purposes of being notice of renewal, but void in respect of notice of non-renewal.

[84] The Tribunal went on to hold that even if it treated the CNH September 30 letter as the written notice of refusal required under s. 3(6) of the Regulation, it failed to comply with the Regulation. The Tribunal noted that the letter stipulated that the reason for non-renewal was the failure to achieve market share over a four-year period in breach of the Agreement. The Tribunal held that the actual decision not to renew this Agreement was made by Mr. Mackow, although it had been approved at senior levels and was signed by The Regional Sales Director, Real Prefontaine. Mr. Mackow testified at the hearing and in the course of his evidence stated four reasons behind CNH’s decision not to renew: (1) poor “high power” tractor sales performance; (2) lack of trained salespeople; (3) declining total revenue; and (4) poor hay and forage equipment sales performance. The Tribunal therefore concluded that because these four reasons were not specified in the September 30, 2006 letter, the notice did not comply with the Regulation which requires a refusal to renew to specify the reasons for that decision. The Tribunal stated (at p. 45), “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.”

(iv) Opportunity to Address Concerns

[85] The Tribunal also found CNH’s notice to be invalid because it failed to provide Chesterman with the required 15 days to address CNH’s underlying concerns. The Tribunal pointed out that no warning was given to Chesterman prior to the September 2006 letter. Further, the Tribunal found that CNH had already made up its mind that there was no “cure” possible for Chesterman’s poor performance. The Tribunal held (at p. 31):

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

What Chesterman could 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.

(v) Unreasonableness

[86] The Tribunal reiterated its previous conclusions from 2011 that it had found CNH’s decision not to renew the Dealer Agreement was not unconscionable, unreasonable or in bad faith, within their contractual relationship. However, the Tribunal clarified that this did not mean that CNH’s conduct was reasonable within the terms of the Regulation, which provided that the distributor’s refusal to consent to a renewal request by the dealer could not be unreasonably withheld.

[87] Further, for many of the same reasons given for finding CNH’s notice ineffective, the Tribunal found its conduct to be unreasonable under the Regulation; e.g. purporting to exercise a non-renewal right that no longer existed; failure to set out all of the reasons for non-renewal; and failure to provide Chesterman with an opportunity to address the concerns raised. In coming to that conclusion, the Tribunal acknowledged that there is no requirement under the Regulations for CNH to advise Chesterman that it had 15 days to address the concerns raised. However, again, the Tribunal ruled (at p. 33) that “CNH foreclosed any opportunity by their pre-determination that such an opportunity would not be effective.” The Tribunal also referred to a number of other factors such as: the 19-year business relationship; the fact that it was a standard-form agreement drafted by CNH with no input from Chesterman; and the absence of any prior written warnings to Chesterman that its dealership was in jeopardy.

(vi) Finding of Breach

[88] Accordingly, the Tribunal held that CNH had breached the Regulation by not renewing the Dealer Agreement in accordance with the terms of the Regulation.

(vii) Damages for Loss of Profits

[89] Chesterman presented expert evidence on loss of profits based on a business valuation approach. The Tribunal rejected that evidence because the expert overlooked a key factor and because it failed to take into account that the Dealer Agreement was terminable on reasonable notice. As such, the business value approach, which looks at an income stream indefinitely, was found to be inappropriate.

[90] The Tribunal concluded that in all of the circumstances, including the long-standing business relationship between the companies spanning almost two decades, a two-year notice period was appropriate. Based largely on the expert witness called by CNH and the two-year notice period, the Tribunal awarded damages of $59,536.00 for loss of profits.

(viii) Damages for Obsolete Assets

[91] The Dealer Agreement required Chesterman to purchase special tools and manuals specific to CNH products. CNH tendered no evidence that these tools and manuals had any usefulness to Chesterman following termination as a CNH dealer. Chesterman claimed damages of $80,310 for these obsolete assets, based on estimates derived from 2006 pricing or internet information. The Tribunal held that it was reasonably foreseeable that Chesterman would suffer a loss in respect of these tools upon termination of the agreement. The Tribunal noted that CNH had disputed the valuation put on these items by Chesterman as being based on current prices, but that CNH presented no alternate value for the obsolete assets. The Tribunal awarded damages as claimed for the obsolete assets, in the amount of $80,310.

(ix) Other Heads of Damages

[92] The Tribunal dismissed Chesterman’s claims for damages based on restocking fees, parts that were determined by CNH to be non-returnable, and losses caused as a result of the requirement to liquidate inventory. No appeal is taken from those rulings.

(x) Pre-judgment Interest

[93] The Tribunal held that it was set up as a dispute resolution process that was an alternative to the courts. Accordingly, it concluded that it had jurisdiction to award interest on the damages and that it would be appropriate to apply Courts of Justice Act pre-judgment interest rates for that purpose. Based on the Courts of Justice Act rate in December 2006 when Chesterman first sent notice of its claim, the Tribunal awarded interest at 6% per year from January 1, 2007 to March 24, 2014, for a total interest award of $60,670.61.

H. ANALYSIS: DAMAGES DECISION

[94] In my view, the Tribunals’ conclusion that CNH breached the Dealer Agreement cannot stand. For the detailed reasons that follow, I would find as follows:

(i) The Tribunal erred in law in its analysis of whether Regulation 123 applied to the Dealer Agreement, in particular by failing to apply a presumption against retrospective application and by finding that the Regulation expressly applied retrospectively. However, even applying the presumption against retrospective effect, such an interpretation arises by necessary implication given the nature and intent of the legislation and the effect of applying the provisions only prospectively. Therefore, the Tribunal reached the correct conclusion that Regulation 123 applied.

(ii) The manner in which the Tribunal applied Regulation 123 to the contract in this case is a mixed question of law and fact and is not subject to review by this Court. Alternatively, if it is a question of law, I find no legal error.

(iii) Assuming the auto-renewal clause constituted notice of intent to renew by the dealer, the notice of September 30, 2006 by the distributor can only reasonably be interpreted as a rejection of that deemed notice of intent to renew. The Tribunal erred in law by finding that CNH could not refuse to renew because paragraph 22 of the Agreement was no longer in existence.

(iv) The September 30, 2006 letter from CNH set out the grounds for the non-renewal. There is no legal requirement that every possible ground for refusing a renewal be listed and the Tribunal erred in law in so finding. The Tribunal further erred in law by finding that Chesterman was not given an opportunity to respond to the concerns raised.

(v) The onus was on Chesterman to respond in some way to the concerns stated by CNH and its failure to do so was fatal to its claim that CNH had breached the Regulation. The Tribunal erred in law by finding to the contrary.

(vi) There is no need for an inquiry as to the reasonableness of CNH’s refusal in light of Chesterman’s failure to even attempt to address the concerns raised. However, on their face the grounds stated by Chesterman are reasonable given that they demonstrate a fundamental breach of a key term of the agreement going back four years – the failure to meet the market share requirement. The Tribunal erred in law in considering reasonableness at all. Further, in its consideration of reasonableness, the Tribunal erred in law by: (a) failing to take into account relevant factors (such as the longstanding breach of the market share terms of the agreement and the absence of any evidence that Chesterman did, or even could have, done anything to address those concerns); and (b) taking into account irrelevant and legally invalid factors (such as the failure of CNH to comply with the Regulation, CNH’s reliance on a non-renewal clause that was void, the failure of the notice to set out all the grounds for non-renewal, and the failure to give Chesterman an opportunity to respond).

[95] I would, therefore, have set aside the March 24, 2014 decision of the Tribunal and determined that CNH was not in breach of its contract with Chesterman.

(i) Does Regulation 123 Apply to the Dealer Agreement?

[96] Although I agree with the conclusion of the Tribunal that Regulation 123 applied to the Dealer Agreement in this case, the Tribunal made a number of legal errors in its analysis that need to be addressed. The Tribunal accepted that its interpretation of the Regulation resulted in its having retrospective effect. It did not, however, apply the presumption against that interpretation, which ought to have been its starting point. The Tribunal erroneously found that the language of the Regulation constituted an express direction, in clear and unambiguous language, that it be given retrospective effect. I do not agree. I find the language of the Regulation to be ambiguous as to whether it would apply to contracts already in existence. However, the Tribunal then went on to look at the legislative history and intent of the Regulation. Based on that analysis, and the impact of applying a rigid prospective interpretation of the Regulation, I am of the view that a retrospective application of the Regulation arises by necessary implication and that the Regulation does apply to the circumstances before the Tribunal.

The presumption against retrospectivity

[97] First, I agree with the submissions of the appellant CNH that the Tribunal erred in starting its analysis of the retrospectivity issue from the wrong perspective. The Tribunal should have started its analysis by considering whether applying Regulation 123 to this Dealer Agreement in the fall of 2006 would interfere with vested rights of the parties. If so, the Tribunal should then have started from the presumption that the Regulation did not apply and then considered whether that presumption had been rebutted.

[98] The Tribunal did not take that approach. The Tribunal started its analysis by stating that the Regulation had retrospective effect. Even if that statement is taken as a pre-statement of its conclusion, with the analysis to follow, the Tribunal failed to consider the presumption against retrospectivity. Rather, the Tribunal merely examined the language used in the Regulation to determine the intention of the Legislature. That is an incorrect legal approach and a fundamental error of law.

[99] It is well-established that a statute with retrospective effect is one that takes away or changes tangible rights that have vested in a party. In Épiciers Unis Métro-Richelieu Inc., division "Éconogros" v. Collin, [2004] 3 S.C.R. 257, 2004 SCC 59[^11] at para. 46, citing E. A. Driedger, “Statutes: Retroactive Retrospective Reflections” (1978), 56 Can. Bar Rev. 264, at pp. 268‑69, the Supreme Court of Canada adopted the following explanation by Professor Dreidger as to what retrospectivity entails:

A retroactive statute is one that operates as of a time prior to its enactment. A retrospective statute is one that operates for the future only. It is prospective, but it imposes new results in respect of a past event. A retroactive statute operates backwards. A retrospective statute operates forwards, but it looks backwards in that it attaches new consequences for the future to an event that took place before the statute was enacted. A retroactive statute changes the law from what it was; a retrospective statute changes the law from what it otherwise would be with respect to a prior event. [Emphasis in original.]

[100] In Épiciers, Lebel J. stated (at para. 48) that “the signing of a contract usually creates rights and obligations, which are considered vested rights and which, generally speaking, remain subject to the former legislation.” He concluded (at para. 47) that the legislation at issue in that case had retrospective effect because “[i]t applies to an event that has already happened, namely the signing of the suretyship contract, but governs only the future effects of the contract.”

[101] Those principles apply in this case. Chesterman and CNH were parties to a contract entered into in 1999. The current term of the contract was for one year commencing January 1, 2006. Each of the parties had vested rights under it. One of the vested rights enjoyed by Chesterman was that the contract would renew automatically for successive one-year periods unless terminated or unless one party gave 90-day written notice of an intention to not renew it. The ability to give such a notice so as to prevent the renewal of the contract was also a vested right, in this case one which was particularly important to CNH. It is apparent that, but for Regulation 123 which came into force in April 2006, CNH could have ended the Dealer Agreement by delivering the notice it did in September 2006. Thus, applying the reasoning of the Supreme Court in Épiciers: (a) the parties had vested rights and obligations under the Agreement; and (b) the Regulation would have retrospective effect if it applied to the event that had already happened (whether it be the renewal of the Dealer Agreement for 2006 or the initial signing of the Agreement in 1999), and governed its future effects (in this case, how and under what terms it could be renewed or not renewed after the Regulation came into force).

[102] It is also well-established that there is a presumption that a statute or regulation must “not be construed as having retrospective operation unless such a construction is expressly or by necessary implication required by the language of the Act."[^12]

[103] Further, the presumption against retrospectivity is even stronger for delegated powers (such as regulations). Ruth Simpson in Sullivan on the Construction of Statutes[^13] describes it this way:

It is presumed that the legislature does not intend to delegate a power to legislate retroactively, retrospectively or to interfere with vested rights. As Southin J.A. put it in Casamiro Resource Corp. v. British Columbia (Attorney General), such a delegation would be out of keeping with Canadian notions of decent legislative behaviour.

In practice, this means two things: (1) regulations and other forms of delegated legislation are presumed only to apply prospectively and not to interfere with vested rights; and (2) delegated legislation that claims to have retroactive application or to interfere with vested rights is presumed to be invalid. Both presumptions are rebuttable.

[104] As stated by the Supreme Court of Canada in British Columbia (Attorney General)v. Parklane Private Hospital Ltd., [1975] 2 S.C.R. 47[^14] (at para. 16):

If intra vires, Order in Council 4400 would serve to extinguish retrospectively the entire claim of Parklane, but in my view it fails to have that effect. The Lieutenant Governor in Council is empowered to enact regulations for the purposes of carrying into effect the provisions of the Act, but nothing expressly or by necessary implication contained in the Act authorizes the retrospective impairment by regulation of existing rights and obligations.

[105] These general principles were also applied by the Federal Court of Appeal in Apotex Inc. v. Merck Frosst Canada & Co., 2011 FCA 329[^15], in which Stratas J.A. held (at paras. 30-31):

Merck is correct that the making of retroactive or retrospective regulations or regulations that interfere with vested rights on substantive matters must be authorized by the regulations’ enabling provisions: R. Sullivan, Sullivan on the Construction of Statutes, 5th ed. (Markham, Ont.: LexisNexis, 2008) at pages 670 and 727; Attorney General for British Columbia v. Parkland Private Hospital Ltd., [1975] 2 S.C.R. 47 at page 60; Ass’n Internationale des commis du détail v. Commission des Relations de Travail du Québec et al., [1971] S.C.R. 1043 at page 1048.

Merck is also correct that subsection 55.2(4) of the Patent Act does not authorize the making of such regulations. The wording of subsection 55.2(4) is silent on the creation of regulations that have retroactive or retrospective effects or an interference with vested rights. Given its silence, subsection 55.2(4) must be interpreted as not authorizing such effects: Smith v. Callander, [1901] A.C. 297 at page 305.

[emphasis added]

No express language requiring retrospective interpretation

[106] The Tribunal accepted that the Regulation affected vested rights, but found that this was intended by the Legislature. The Tribunal’s main reason for concluding that the Regulation was intended to have retrospective effect was the use of the word “any” to modify “dealer agreements” in ss. 1(1) and 1(2) of the Regulation, which the Tribunal described as “an expansive and all-encompassing word that infers dealer agreements in existence (past) and dealer agreements yet to be made (future).” I do not agree with the tribunal that the word “any” constitutes a clear and unambiguous expression requiring such a broad application. If the word “any” in the regulation is a clear and unambiguous direction that the Regulation is to have retrospective effect, I would expect the same language to appear in the delegating power. I note, however, that the delegation in s. 35(c) of the Act 35 does not use that same language. It states:

35. The Minister may make regulations,

(c) prescribing information to be included in a dealership agreement and setting out rights and obligations for parties to the agreement [emphasis added]

[107] The Tribunal reasoned that the Legislature used the word “any” as opposed to “a” in the Regulation as a clear and unambiguous expression of its intention that the Regulation would have retrospective effect. Reading the word “any” in the manner suggested by the Tribunal would render the entire Regulation invalid. Applying that same analysis to the delegating power in the statute would mean that the use of the word “a” rather than “any” would not grant the power to create regulations with retrospective effect. To interpret the Regulation in a manner consistent with the powers granted under s. 35(c) of the Act would require interpreting “any” in the Regulation as the equivalent of “a” or “the” in the delegating section of the Act, which in my view is in keeping with the ordinary meaning of those words in any event. Thus, if the Regulation is to have retrospective effect, it cannot be because of the use of the word “any” in the Regulation. To do so would create invalidity.

[108] Another basis relied upon by the Tribunal in giving the Regulation retrospective effect is the lack of any temporal references in the Regulation. The Tribunal contrasted this with temporal references in various provisions of the Act and reasoned that if the Legislature meant for the Regulation to be temporally limited, it would have said so.[^16]

[109] Usually, the absence of temporal modifiers in a regulation means that the regulation will be prospective, applying only to the future and not changing any vested rights. The Tribunal erred in law by coming to the opposite conclusion. Again, the failure to apply the presumption against retrospective effect is the root of the problem.

[110] The provisions of the Act relied upon by the Tribunal were ss. 3(2), 8(9) and 23(2). Subsection 3(2) and sections 24 to 30 are long-standing provisions in the legislation, and were not part of the 2005 amendments to the Act and Regulations. In my view, an examination of these provisions of the Act does not support the Tribunal’s conclusion as to restrospective effect. However, I do not consider the existence of some temporal limitations in the Act to be fatal to the Tribunal’s ultimate findings on retrospectivity. That is because the provisions containing temporal limits must be considered in their historical context and in light of the legislative intent (a point to which I will return).

Retrospective application as a necessary implication

[111] The Regulation is assumed not to have retrospective effect, a presumption that can be rebutted by express language, or where it arises by necessary implication. As discussed, the use of the word “any” cannot be sufficient to constitute express language rebutting the presumption, nor is there any other express language capable of rebutting the presumption. The case law is clear that where the words of a statute are clear and unambiguous, there is no need to look to external sources to determine their meaning. Although holding that the words of this Regulation statute were clear and unambiguous, the Tribunal nevertheless looked at external sources as to the intent of the Legislature to assist its interpretation, perhaps as an alternative to its findings on the language being unambiguous.

[112] Unlike the Tribunal, I find that the use of the word “any” is not a clear expression that the Regulation is required to be given retrospective effect. On the contrary, I consider “any” to be ambiguous. Most dictionary definitions equate “any” with the word “every.” Arguably, this is broader than the article “a” before the modified noun, but it does not necessarily involve a reference to the past. Because this is not completely clear, in my view it is relevant to consider the legislative history and the purpose of the legislation to determine whether retrospective effect was the necessary intention of the drafters. In this regard, I agree with the ultimate decision of the Tribunal that the intention was to give retrospective effect to Regulation 123.

[113] The modern approach to statutory interpretation is now well-established and is conveniently summarized by LaForme J.A. in 1392290 Ontario Ltd and Riocan Holdings Ltd. v. Corporation of the Town of Ajax, 2010 ONCA 37[^17], as follows (at paras. 9-10):

The modern approach to statutory interpretation, first set out in E. A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983) is well-settled:

Today there is only one principle or approach, namely, the words of an Act are to be read 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 Parliament.

The first step of statutory interpretation is to determine the meaning that "would be understood by a competent language user upon reading the word in their immediate context." The immediate context consists of as much of the text surrounding the words to be interpreted as is needed to make sense of those words and usually consists of the section in which the words appear: see R. Sullivan, Statutory Interpretation, 2nd ed. (Toronto: Irwin Law, 2007) at 50-51. Although the use of the past tense in s. 447.70(21)(c) is consistent with a retrospective application, in this case, a textual analysis is not necessarily conclusive. I accordingly turn to the appellant’s three submissions, which speak to the legislative scheme and intention of the legislature.

[114] In Riocan, the Court of Appeal considered whether amendments to property tax legislation should be given a retrospective effect. The Court noted that the text of the provision contained the past tense, but found this was not conclusive and that an examination of the scheme and intent of the legislation was required. So too in the case before me; I do not see the use of the word “any” to be conclusive and an examination of the intent of the Legislature is therefore necessary.

[115] In Riocan, one of the issues considered by the Court was the motivation of the legislation, which was to rectify a taxation system that was seen as being “grossly out of date and, as a result, extremely unfair” because taxpayers in similar situations were paying very different taxes.” The motivation of the Legislature to rectify this unfairness was seen by the Court as a factor supporting the application of the legislation in a retrospective manner.[^18]

[116] In the case now before this Court, it is clear from the legislative history that the Legislature was concerned about the power imbalance between large manufacturers and distributers of farm implements on the one hand and farm implement dealers on the other. The Legislature sought to ensure greater fairness for dealers and to foster competition and increased consumer choice by prohibiting exclusivity (or dealer purity) clauses in dealer agreements. Previously, many dealer agreements required dealers to carry the stock of only one manufacturer and prohibited them from selling other brands. The Legislature sought to remedy this situation by a provision added to the Act itself, through the 2005 amendments, which states:

3. (5) A dealership agreement shall not require that the dealer,

(a) offer no farm implements or parts for sale at retail other than those manufactured by the manufacturer specified in the agreement; or

(b) not make a dealership agreement with any other distributor.

[117] The Tribunal makes a compelling argument for why this provision must have been intended to apply retrospectively, as to do otherwise would create a great unfairness to existing dealers who were restricted by exclusivity or purity clauses, as compared to new entrants into the dealer markets who would have no such encumbrances.

[118] That is not a full answer to this question, however, as the Regulation deals with termination and renewal of dealer agreements, not dealer purity clauses. It does not necessarily follow that because some provisions in the Act are retrospective, the same interpretation must be given to the Regulation. Nevertheless, there is a link between these amendments in the Act and the enactment of Regulation 123. They were part of the same set of reforms meant to protect dealers who were subject to what were perceived to be unfairly one-sided agreements. Although not strictly speaking necessary for its analysis given its finding of clear and unambiguous language, the Tribunal heard evidence on this point and considered the history and intent of the amendments, through other sources such as Hansard. The Tribunal held that the reforms were also directed towards termination of dealer agreements by distributors and that unfairness in this process was part of the “mischief” that the amendments were meant to address. The Tribunal also found that all of the reforms were originally intended to be part of the same legislative amendments, but that it was then decided to deal with the contractual terms for terminations and renewals in a regulation instead, which would be both quicker and more flexible than putting such provisions in the Act itself. The Tribunal’s factual findings in this regard are squarely within its area of expertise and are entitled to considerable deference.

[119] Given the motivation of the Legislature to level the playing field and remedy unfairness to dealers, it would not make sense to provide such relief only to dealers who were entering into new agreements with distributors, to the obvious detriment of dealers who were already parties to agreements and therefore labouring under the very unfairness the Legislature was seeking to redress.

[120] As I have already mentioned, the 2005 amendments to s. 3 of the Act included the addition of s. 3(5) to prohibit exclusivity clauses in dealer agreements. At the same time, changes were made to s. 3(4) of the Act. Previously, s. 3(4) merely stipulated that a dealership agreement “shall be in writing and shall contain the information that is prescribed. As a result of the amendment, dealership agreements were also required to contain the prescribed rights and obligations of the parties. A similar amendment was made to the delegating power in s. 35(c). It is useful to look at the amendments of these two provisions side by side. They are set out below with the 2005 amendments underlined for emphasis.

3. (4) A dealership agreement shall be in writing, shall contain the information that is prescribed and shall contain the legal rights and obligations that are prescribed for the parties to the agreement, subject to subsection (5).

4. 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);

[121] CNH submits that the language of s. 3(4), and in particular the words “shall be in writing,” indicates that the section is to be given a prospective, rather than a retrospective interpretation. CNH relies on the Supreme Court of Canada’s 1920 decision in Upper Canada v. Smith in which the Court considered similar language in the amendments to the Statute of Frauds. The amendment in that case stipulated that agreements to pay commissions for the sale of lands “shall be in writing.” The Supreme Court held that in the absence of express words or necessary implication, the statute was not to be given retrospective effect and that the amendments therefore did not operate to prevent recovery of commissions based on oral agreements that preceded the amendments. CNH made this same argument before the Tribunal and the Tribunal stated that “it did 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 parliament that means a prospective rather than retrospective application of the legislation.” I agree. The Supreme Court did not hold that the words “shall be in writing” created a prospective effect. It held that there is a presumption against retrospectivity in the absence of clear language or a necessary implication to the contrary. Therefore, the Smith case does not assist in the interpretation of the subject Regulation or Act here, except with respect to these basic principles.

[122] Chesterman relies on the 1915 decision of the Alberta Supreme Court in Chapin v. Matthews (1915), 24 D.L.R. 457 (Alta.S.C.)[^19]. Interestingly, the Chapin v. Matthews case involves a provision of Alberta’s Farm Machinery Act which stipulated that no condition in “any agreement” shall be binding upon a purchaser of farm machinery if a judge determines it to be unreasonable. The plaintiff had entered into such an agreement and purchased a farm tractor before the enactment of the legislation, which tractor broke down after the legislation came into effect. The issue was whether the trial judge could apply the legislation and disregard a condition in the agreement he considered to be “unreasonable.” On appeal, the Alberta Supreme Court noted that the Legislature had found that agreements for the sale of farm machinery often contained conditions that were “plainly unfair and unjust”, which was the reason for the enacting the legislation. The Court held (at para. 19):, “When the legislature was confronted with the facts that unreasonable conditions were being continually inserted in such agreements, it seems to me quite contrary to reason to suppose that it intended to allow all unreasonable conditions created in the past to continue to operate, as they certainly did, with unfairness and injustice, and to withhold from the Court the new power of disregarding them while not extending the power and jurisdiction only to agreements thereafter entered into.” Although this decision is not recent, it continues, in my view, to have resonance.

[123] Likewise, the decision of the Supreme Court of Canada in Acme (Village) School District No. 2296 v. Steele Smith, [1933] S.C.R. 47[^20], although decided in 1933, continues to be relevant and analogous to the case at hand. In that case, the Alberta School Act was amended in 1931 to provide that except in the month of June, no notice terminating a teacher’s engagement could be given without the prior approval of a school inspector. In July 1931, the School Board gave notice of termination to Mr. Steele, relying on a clause in the employment contract signed in 1929, which provided that the agreement would continue in force from year to year unless terminated on 30 days’ notice. Thus, the contract was prior to the amendment and provided for automatic one-year renewals subject to 30 days’ notice of termination. The question was whether the legislative amendment, which was subsequent to the contract being formed but prior to the termination, had any application to the termination – precisely the issue in this case. The Supreme Court of Canada held that the amendment applied, relying upon the intention of the legislation. Crockett J., writing for the majority, held:

To confine the words to future contracts only would be, if not entirely to defeat the remedial object of the enactment, to at least render it ineffective for years to come in the great majority of schools of the province. There would, of course, be no contracts to which it would apply in any way at the time the Act was passed or at the time it came into force, and after that it would only be as existing contract were cancelled and new ones substituted here and there that the legislation could begin to speak.

[124] Although the Supreme Court of Canada’s landmark decision in Rizzo Shoes did not involve the retrospective application of a statute, it nevertheless turned on a principle of direct application in this case – the interpretation of legislation so as to prevent inequality of its application and promote its underlying remedial purpose. At issue were the provisions of the Ontario Employment Standards Act, which stated that “no employer shall terminate the employment of an employee” without giving mandated periods of notice depending on length of service. The question that arose was whether these provisions applied if the employment was terminated by a creditor petitioning the employer into bankruptcy. The Ontario Court of Appeal had held that because the termination was caused by the act of bankruptcy, not by the employer, the statutory provisions did not apply and employees terminated at that point did not have a claim in the bankruptcy for termination pay and severance pay. The Supreme Court of Canada disagreed, restoring the decision of the trial judge, Farley J., that the employees affected were entitled to make those claims in the bankruptcy.

[125] Farley J. had ruled that denying the claims of employees terminated as a result of the bankruptcy would lead to the arbitrary and unfair result that an employee whose employment was terminated just prior to the bankruptcy would be entitled to termination and severance pay, whereas an employee whose termination resulted from the bankruptcy itself would not. The Supreme Court of Canada agreed, pointing out (at para. 28) that the absurdity of this consequence was particularly evident in a unionized workforce where seniority determines the order of lay-offs, such that it would be the most senior personnel who had been employed the longest and entitled to the largest amounts of severance pay who would be most likely denied any payment at all. The Supreme Court held (at para. 25) that this would be contrary to the “objects of the termination and severance pay provisions themselves [which] are broadly premised upon the need to protect employees.” The Court held, further, (at para. 27) that this would be contrary to the principle of statutory interpretation that the Legislature does not intend to produce absurd consequences, defining as absurd interpretations that would be “extremely unreasonable or inequitable” or “incompatible . . . with the object of the legislative enactment.”

[126] On the argument advanced by CNH, the provisions mandated to be part of dealer agreements would only apply to agreements entered into after the Regulation came into effect on April 2005. This would create inequality between those dealers whose contracts were already in existence at the time of the enactment, and those dealers who enter into agreements after April 2005. It is hard to understand how the Legislature could have meant to benefit only dealers in the future and to oblige existing dealers to continue under what the Legislature considered to be the very unfair provisions the Regulation was meant to address. In my opinion, those existing dealers are in the same position as senior personnel at Rizzo Shoes, in circumstances most deserving of relief, but cut out of legislative provisions meant to remedy the very mischief they are now facing. The result of not applying the Regulation to existing contracts would largely defeat the intent of the Regulation, and require it to be implemented bit by bit as new dealers enter the market. That is not consistent with the remedial intent of the Regulation.

[127] Accordingly, I agree with the Tribunal that the Regulation applies to the Agreement between CNH and Chesterman, although not for the primary grounds advanced by the Tribunal. On a fair reading of the Tribunal’s Reasons, I consider the “necessary implication” rationale for giving retrospective effect to the legislation to be an alternative basis for the Tribunal’s decision. Even if that is not the case, since this Court has the discretion to substitute its decision for that of the Tribunal on a question of law, I would hold that the Regulation must be given retrospective effect on the basis I have described above and that it applies to the agreement at issue in this case.

(ii) Incorporating Regulation 123 into the CNH/Chesterman Agreement

[128] Regulation 123 provides in s. 1(3) that a provision in a dealership agreement that “limits, varies or attempts to waive a term set out in sections 2 and 3 is void.” Given that the Dealer Agreement in this case has quite different provisions with respect to renewals than are provided for in s. 3(3) of the Regulation, the first question is whether those provisions of the Dealer Agreement are simply void.

[129] The Tribunal rejected such an approach for reasons I consider valid. The Regulation provides that where a dealer wishes to renew an agreement, the dealer is required to give notice in writing to the distributor. Chesterman’s long-standing Agreement with CNH provided that it renewed automatically unless one of the parties gave 90 days’ notice to the contrary. If the renewal clause is declared void, then Chesterman would have failed to deliver written notice of its intention to renew and would lose the right to do so. The Tribunal recognized the unfairness in that situation, as well as the fact that this would be contrary to the expectation of both parties. Further, the Tribunal heard evidence that 50% of the dealers in Ontario have similar auto-renewal clauses and none of those surveyed had felt it necessary to deliver written notices of an intent to renew after the Regulation came into effect.

[130] In those circumstances, the Tribunal elected to revise the contract language so as to make it compatible with the Regulation. That is consistent with the intention of the Regulation, principles of contract interpretation, and the agreement between the parties which provided (in paragraph 31) that if performance was unlawful, it should be “modified to the extent necessary to comply with the law.” It was open to the Tribunal to apply this legal principle as opposed to a rigid application of the statutory provision finding the contractual terms void.

[131] In my view, the modifications proposed by the Tribunal, as set out in paragraph 39 above (p. 25 of the Tribunal’s Reasons) are appropriate, reasonable, and in keeping with both the spirit of the legislation and the terms of the Agreement itself.

[132] Under this scenario, given the auto-renew clause, the Agreement itself is deemed to be written notice by Chesterman of its intent to renew. The Agreement would then renew automatically unless CNH gives written notice to Chesterman at least 45 days prior to the end of term (which would be mid-November) setting out its reasons for non-renewal. Chesterman would then have 15 days to address the underlying concerns. At the expiry of the 15 days, CNH may elect to not renew the contract, but its refusal to renew must not be unreasonable in the circumstances.

[133] For the most part, this is a mixed question of fact and law. There is a preliminary legal issue as to whether the Tribunal had the option of incorporating the Regulation into the Agreement by essentially re-writing the terms of the Agreement or whether it was obliged to find the auto-renew clause to be void. In my view, the Tribunal was correct in law when it held that this re-writing option existed. The Tribunal’s decision to take that route, and manner in which it incorporated the Regulation into the Agreement, are questions of mixed fact and law, and not subject to appeal. Alternatively, if they are questions of law, I agree with the Tribunal’s conclusion. I find no error.

(iii) Validity of Non-Renewal by CNH

[134] The Tribunal held that Chesterman was not required to deliver a written notice that it intended to renew on the grounds that the auto-renewal clause in the Dealer Agreement satisfied the written renewal request requirement in the Regulation. I find this to be correct in law regardless of whether it was conceded by counsel, regardless of whether that concession was clear, and regardless of whether counsel could or did withdraw such concession. In all of the circumstances, including the express terms of the Agreement that it should be modified only to the extent necessary to make it lawful, the automatic renewal of the contract should continue year after year. It follows that unless Chesterman expresses a contrary intention, it intends to renew, and that intention is embodied in the written Agreement between the parties.

[135] I also accept the Tribunal’s reasoning that any requirement to deliver a written notice to renew was obviated in any event by the notice delivered by CNH on September 30, 2006, stating that it was not renewing the Agreement at the end of its term.

[136] The Tribunal then held that the September 30, 2006 notice from CNH was invalid because: (1) it purported to exercise a right to non-renewal under paragraph 22 of the Dealer Agreement that did not exist in its original format; (2) it did not comply with the Regulation by setting out the reasons for non-renewal; and (3) it did not give Chesterman an opportunity to address the concerns raised. In my view, all of these findings are errors of law and cannot stand. In this regard, I part company with the views of my two colleagues who would characterize these issues as questions of mixed fact and law.

Reliance on a contractual provision that “did not exist”

[137] With respect to the first ground, the Tribunal found that the September 30 letter from CNH could not be considered a written refusal to approve Chesterman’s deemed notice to renew, but rather an attempt to exercise a right under paragraph 22 of the Dealer Agreement “that no longer existed.” This is an error of law. The Tribunal had already determined that it would not treat paragraph 22 of the Agreement as void for non-compliance with the Regulation. Having made that determination, the Tribunal must act judicially and treat each of the parties to the Agreement in an even-handed manner.

[138] The Tribunal held that the Agreement would continue to automatically renew, even though the paragraph that contained the renewal clause was inconsistent with the Regulation. The Tribunal also held that the requirement under the Regulation for the dealer to deliver a written notice of intent to renew, thereby triggering the obligations of the distributor and time limits for performance under the Regulation, was satisfied by the mere existence of paragraph 22 without the dealer having to do anything further. In effect, the Tribunal deemed Chesterman to have delivered a written request to renew, by virtue of paragraph 22 of the Agreement. These are interpretations that are generous to the dealer and I have no difficulty with that.

[139] However, the Tribunal cannot find that paragraph 22 survives and operates to the benefit of the dealer with respect to automatic renewal and written notice of renewal, and at the same time find that that paragraph 22 no longer exists as far as the distributor is concerned. In fact, paragraph 22 does continue to exist, although now interpreted by the Tribunal in a manner consistent with the Regulation. The Tribunal itself ruled this to be the case. Both the Regulation and the rewritten paragraph 22 provide the distributor with a right to reject the dealer’s written request to renew. To hold otherwise, is an incorrect interpretation of the rights and obligations flowing to the parties under the Regulation.

[140] The Tribunal fails to address this very concern which was raised by the Divisional Court in its oral Reasons delivered on March 12, 2012 by Aston J., as follows (at p.4):

In addition, we are of the view that the tribunal should have the opportunity to consider issues not expressly addressed in its reasons. The tribunal’s understanding of the agreement between counsel may have obviated the tribunal’s need to address the appellant’s contentions on appeal that, first, the interplay between the new regulation and paragraph 22 of the dealer agreement cannot be inconsistent, that is to say void and unenforceable for the appellant [CNH], but valid and enforceable for the respondent [Chesterman]; and secondly, whether the regulation has retrospective or retroactive effect.

We are not directing the tribunal to consider these issues, but rather affording the tribunal an opportunity to do so if it chooses.

[141] As noted by Aston J. on the last occasion in the Divisional Court, this was an opportunity for the Tribunal to consider this issue, not a direction. Nevertheless, the issue raised is a serious one and the Tribunal’s failure to address it is quite problematic. The Tribunal has adopted an approach that is inconsistent, in which the Agreement means one thing for one party, and something quite different for the other party. For example, the Tribunal held that: the CNH letter “sought to engage a non-renewal right that CNH no longer enjoyed” (p. 32); that the letter “communicated a non-renewal right that had become void” (p. 33); and (at p. 29) that the letter “was not written notice of refusing to approve [Chesterman’s] renewal request,” but rather, notice “that sought to exercise a right from paragraph 22 of the Dealer Agreement that no longer existed in its original format.” An impartial decision-maker cannot re-write an agreement to generously extend the rights of one of its provisions for the benefit of one party, and then declare that same paragraph void as against the other party. This is an irrational interpretation that cannot be accepted.

[142] Under the modified paragraph 22, Chesterman was deemed to have delivered its written notice to renew and the Agreement would then automatically renew unless: (1) CNH gave “written notice to the Dealer; (2) at least forty-five (45) days prior to the end of the . . . extension term; (3) setting out [CNH’s] non-renewal reasons.” These are the very words that the Tribunal itself wrote into the Agreement.[^21] In this case: (1) CNH gave written notice; (2) it gave that notice on September 30, 2006, substantially more than the 45-day notice period before December 31, 2006; and (3) in that letter, CNH stated, “The decision not to renew is based upon serious breaches of the [Dealer Agreement]”.

[143] It is beyond question that the September 30, 2006 notice from CNH falls squarely within the notice of non-renewal by the distributor under the Agreement as modified by the Tribunal, and within the meaning of Regulation 123, which requires the distributor to “notify the dealer in writing of the reasons for the refusal.” In my view, the Tribunal’s conclusion to the contrary is wrong in law. This is not a question of contractual interpretation of concern only to the parties themselves. The intention of the parties and the surrounding circumstances in which they entered into their original contract are irrelevant. This is a statutory term that was incorporated into the contract between the parties by operation of law, and one that is extraneous to whatever may have been in the minds of the parties when they first entered into their contract. The terms of the Regulation, and their interpretation, apply to every agreement between farm equipment dealers and distributors and/or manufacturers in Ontario. As such, it has a broad application that goes well beyond the interests of these two parties. Further, even if one considers the Agreement itself, the Tribunal’s interpretation in this case is not merely an interpretation of the contract between the parties, but rather of the contract as re-written by the Tribunal to incorporate the requirements of the Regulation. This was a standard form agreement imposed by the distributor, and the Tribunal itself found that 50% of the dealers in Ontario were operating under agreements with similar auto-renewal clauses. As such, even if regarded as a question of contractual interpretation, the issue is one of law rather than mixed fact and law because it establishes a legal principle affecting the rights of all dealers and distributors, rather than being of limited application to anyone beyond the parties. Applying the rationale expressed by the Supreme Court of Canada in Southam and Sattka, this is a question of law, not one of mixed fact and law. To the extent there is a factual context, it is easily extricable from the general legal principle, within the Supreme Court’s reasoning in Housen.

Reasons for non-renewal

[144] The second reason given by the Tribunal for finding CNH’s notice to be invalid was that the notice failed to properly set out the reasons for the refusal to renew. In its notice, CNH stated that the reason for the non-renewal was repeated breaches of the Dealer Agreement. It set out, in full, the paragraph of the Dealer Agreement alleged to be breached, dealing with maintaining market share. It then set out a grid showing the performance of Chesterman with respect to four product categories and how it had failed to meet the contractual requirements for the years 2003, 2004, 2005 and the year to date (up to July of 2006). Finally, it stated that the Dealer Agreement would not be renewed because of “these long-standing and continued breaches.”

[145] The Tribunal found the notice to be invalid because Mr. Mackow, who testified for CNH at the hearing, gave four “other” reasons for termination, being: poor high-power tractor sales performance; poor hay and forage equipment sales performance; declining total revenue; and a lack of trained salespeople. The Tribunal held that because not all of these reasons were in the September 30, 2006 notice, the notice was invalid. That is a conclusion that is so irrational and without foundation on the evidence as to amount to an error of law. Poor high-tractor sales and poor hay and forage equipment sales are quite obviously examples of the failure to meet the market share targets. Likewise, declining total revenue is an offshoot of declining sales and declining performance in meeting market share. The lack of trained salespeople might be an explanation for that decline, or not. It is irrelevant. This is not a situation in which the distributor gave one reason in writing, but where the reasons given were a subterfuge for the real reasons for termination. All of the reasons relate to the poor performance of Chesterman in selling CNH’s products, which performance fell far below the targets it was required to meet in its Dealer Agreement. A conclusion that is made arbitrarily, in the absence of any absence whatsoever to support it, is an error of law.

[146] In any event, the Tribunal erred in law by interpreting the Agreement and/or the Regulations as requiring the distributor to state every single reason it could think of for not renewing the Agreement. That is not a requirement. The distributor is required to state its reasons. Those are the only reasons the dealer is required to address. If the distributor has other reasons, but fails to state them, the distributor will be without recourse if the dealer is able to address the concerns raised in the notice. It may also be the case that if the dealer states reasons that turn out to be wrong (which is not the case here), the dealer will not be able to rely on additional reasons not stated as grounds for not renewing (also not the case here). However, by requiring a distributor to set out 100% of its reasons for not continuing an agreement, in default of which its notice would be invalid, the Tribunal gave an interpretation to the Agreement and to the Regulation that neither can bear as a question of law. Further, it based its decision of invalidity on a wholly irrelevant factor, which also constitutes an error of law.

[147] Again, this is a question of law as to the content required under the Regulation for a refusal to renew. For the reasons I stated above, the ruling that a distributor’s refusal will be invalid if the distributor fails to provide a comprehensive list of every single one of its reasons, is one that will apply to every distributor giving such a notice under the Regulations. It is a matter of general principle that will have broad application for all distributor/dealer agreements throughout Ontario. Based on the reasoning of the Supreme Court in Southam and Sattka, this is a question of law and therefore subject to review by this Court.

Opportunity to address concerns

[148] Finally, the Tribunal held that the CNH notice was invalid because it failed to give Chesterman an opportunity to address the concerns raised. The Regulation requires the distributor to give the dealer 45 days’ notice of the reasons for refusal, following which the dealer is allowed 15 days to address the underlying concerns set out in the notice. Under paragraph 22 of the Agreement, as modified by the Tribunal to conform to the Regulation, CNH was required to give written notice at least 45 days prior to December 31, whereupon the Chesterman would have 15 days to address the concerns raised. The Tribunal accepted that it was not incumbent on CNH to specifically advise Chesterman of its right to address the concerns raised. I agree. The period of notice given by CNH on September 30, 2006 was twice as long as was required under the Agreement or the Regulation. Notwithstanding that, the evidence is quite clear, Chesterman did absolutely nothing to attempt to address the issue raised by CNH. Under the terms of the Agreement and the Regulation, in the absence of a response by the dealer, the distributor may refuse the renewal. That, in my opinion, is the end of the analysis.

[149] The Tribunal, however, held that any attempt by Chesterman to address the concerns would be “academic” because CNH had already decided that no cure would be effective. That finding is made without any evidence whatsoever to support it and is nothing more than speculation and conjecture. As such it is an error of law.

[150] It can likely be assumed that in any situation in which a distributor elects not to renew a relationship with a dealer because of performance concerns, it is because the distributor has formed the view that this is the appropriate course of action, rather than reviewing options to address the performance concerns. The fact that CNH may have held such a view prior to hearing any proposal for remedying the problems from Chesterman is irrelevant. After the concerns are set out, the onus is on Chesterman to address them in some manner, e.g. by disputing that the concerns are accurate; by seeking an extension of time to gradually build up the business; by committing to increased advertising or sales personnel; or by presenting a business plan to demonstrate how sales can be improved. If Chesterman had done something of this nature, the onus would be on CNH to demonstrate why refusing to renew was nevertheless reasonable. But Chesterman did nothing. The Tribunal erred in law by holding there was no requirement on Chesterman to abide by the terms of the Agreement and the Regulation based on the Tribunal’s subjective, looking-into-the-future, and wholly speculative view that no matter what Chesterman proposed, CNH would refuse. No such conclusion or view was communicated by CNH to Chesterman. CNH merely delivered the notice and, hearing nothing from Chesterman, communicated nothing further. That was its right under the Regulation and the Agreement. The Tribunal erred in law by not recognizing the rights of CNH under the scheme.

(iv) Reasonableness of Refusing to Renew

[151] In its initial decision dated March 11, 2011, the Tribunal held, “Debate over what [Chesterman] could or could not have achieved in the prescribed period is academic since CNH failed to comply with the Regulation.” Except for the fact that CNH did comply with the Regulation, that was a reasonable position to take. Moreover, the same reasoning applies to the analysis of whether CNH’s refusal to renew was reasonable. Debate over whether CNH should or should not have proceeded with the non-renewal in light of Chesterman’s response is academic since Chesterman failed to comply with the Regulation by addressing the concerns raised. Moreover, Chesterman did not present any evidence at the hearing as to how it would have been able to address any of the concerns raised by CNH. The Tribunal found this to be the case, and found that Chesterman had consistently failed to meet the sales targets required in the Agreement. However, notwithstanding Chesterman’s failure to address the concerns raised at any time after receipt of the notice, and notwithstanding Chesterman’s failure to present any evidence at the hearing as to how it could have addressed the concerns raised if it had attempted to so do, the Tribunal went on to consider whether CNH had acted reasonably.

[152] In its earlier March 11, 2011 decision, and repeated essentially verbatim in its March 24, 2014 decision, the Tribunal rejected arguments by Chesterman that the contract and/or the non-renewal by CNH were either unconscionable or in bad faith. The Tribunal noted that this was a standard-form Agreement, but that the parties had worked within it for two decades in a mutually beneficial relationship, such that it could not be said to be unconscionable. The Tribunal also rejected the arguments that CNH’s decision to terminate had been made in bad faith. Although Chesterman argued before the Tribunal that the data relied upon by CNH was “suspect” or “wrong,” the Tribunal held that there was no evidence to support the argument that these numbers were wrong. The Tribunal rejected Chesterman’s argument that CNH’s decision was based on some personal dislike or animosity between Dave Chesterman and CNH’s sales manager, Real Prefontaine, and held that there was no evidence that this friction “had anything to do with” the decision not to renew. That decision, it held, was made by Mr. Mackow who was completely unaware of the friction between the two. The Tribunal was satisfied that CNH’s decision was made based on market data and Chesterman’s poor performance measured against that data, as provided for in the Agreement. The Tribunal held (at p. 14-15):

The Tribunal does not find that CNH’s reliance on market data from AEM [Association of Equipment Manufacturers] 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 [Chesterman] was performing poorly can be objectively proven correct today. The question is whether when that decision was taken did CNH have a good faith belief that [Chesterman] was performing poorly. The evidence from Mackow was he saw [Chesterman’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, [Chesterman] did not challenge the AEM data about its own sales in units or revenue. That data reflected that for the years 2003, 2004, 2005 and the first six months of 2006, [Chesterman’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. Chesterman’s 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.

[153] I see no error of law in those findings. The conclusion that there was no bad faith and no unconscionability is amply grounded in the factual findings of the Tribunal.

[154] Nevertheless, in its 2011 decision, the Tribunal found, without much elaboration, that CNH’s decision not to renew was unreasonable. One of the questions referred back to the Tribunal by the Divisional Court in its October 6, 2011 Order was whether reasonableness, unconscionability and bad faith were mutually exclusive, or whether a finding of one, leads to a finding of the others. The Tribunal addressed this issue at pp. 31-32 of its Reasons, holding that “but for” the Regulation, CNH’s non-renewal was not unreasonable because it was authorized under the terms of the Dealer Agreement, and in particular paragraph 22 thereof. However, the Tribunal reasoned that the Regulation brought the concept of reasonableness back into play because it took away CNH’s absolute right to not renew and stipulated that CNH could not withhold its consent to a renewal “unreasonably.” The Tribunal held (at p. 32) that when the CNH decision to withhold renewal approval was examined, the Tribunal must ask whether the decision was “reasonable,” and that “this statutory standard of reasonableness incorporated the common law reasonableness standard.”

[155] The Tribunal found that it was therefore not inconsistent to “make findings of no unconscionability and no bad faith but still make a finding of unreasonableness.” I agree that is a correct statement of the applicable legal principles.

[156] Unfortunately, when the Tribunal turned to consider the issue of whether CNH acted unreasonably in refusing to renew, it based its decision largely on its view that the September 30, 2006 notice was invalid because paragraph 22 of the Agreement was void, that the letter did not set out all of the reasons for non-renewal and that Chesterman was not given an opportunity to address CNH’s concerns. The Tribunal concluded (at p. 34):

Therefore, if the Tribunal notionally considered the September 30^th, 2006 letter as CNH’s required written response under the Regulation, we find that CNH failed to fully explain its non-renewal decision, and it also failed to give [Chesterman] 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.

[157] I agree that if there had been a failure by CNH to comply with the terms of the Regulation in its notice refusing renewal, that would render its decision unreasonable and it would be in breach of the Regulation, and in breach of the Dealer Agreement as those terms are incorporated into the Agreement. However, CNH was in full compliance with the Regulation; it was Chesterman that did not comply with the Regulation. In those circumstances, and in the absence of any finding that CNH did not have valid grounds to refuse to renew, there is no basis for concluding, in law, that CNH acted unreasonably.

[158] By basing its conclusion on irrelevant factors, and incorrect legal principles, the Tribunal erred in law. Further, as previously stated, these are principles of general application because these were statutory terms, not contractual terms freely negotiated by the parties. These are principles of broad application and are therefore more in the nature of questions of law.

[159] I do note, however, that the Tribunal listed a number of factors that it considered could be part of a reasonableness analysis. A careful reading of the decision shows that the Tribunal did not actually take any of those factors into account in its analysis of reasonableness. I consider that to be legally correct in light of the lack of any response by Chesterman. However, if Chesterman had made any kind of proposal to address the concerns of CNH, and if CNH had then refused to renew, it would have been relevant to look at the reasonableness of CNH’s refusal in light of Chesterman’s proposal, along with other factors including a number of factors listed (but not applied) by the Tribunal at pp. 32-33, notably:

• The parties had a 19-year business relationship.
• Chesterman’s premises were subject to inspections and grading by CNH.
• Chesterman’s business performance was tracked and graded by CNH.
• Chesterman received CNH’s President’s Prestige Award commending Chesterman’s business premises standards for 2004-05 and 2005-06.
• Between 2003-2006, CNH sales and services accounted for the majority of Chesterman’s business.
• CNH did not issue Chesterman any written warnings its dealership status was in jeopardy.

[160] Had the circumstances been appropriate to conduct such an analysis of reasonableness, and if the Tribunal had considered relevant factors such as these, I would agree that this was a question of mixed law and fact. However, the threshold question (the failure of Chesterman to provide any response to CNH’s valid stated grounds for refusing to renew) is an extricable question of law. Further, the failure to consider relevant factors and taking into account irrelevant factors are both errors of law. I therefore do not agree that this finding by the Tribunal is a question of mixed fact and law. It is a legal error and subject to appeal before this Court.

(v) Breach of Contract and Damages

[161] The Tribunal committed fundamental legal errors in reaching its conclusion that CNH breached the contract. For the reasons I have stated above, CNH did not breach the contract or the Regulations. I would, therefore, have considered it was not liable for any damages. From my perspective, that would have been sufficient to dispose of this appeal. However, my colleagues disagree that these are errors of law subject to review by this Court and are of the view that the Tribunal’s conclusion of breach of contract must stand. I will therefore review the various other grounds of appeal raised by the parties.

Damages for Obsolete Items

[162] The Tribunal awarded damages of approximately $80,000 for the various manuals and specialized tools and equipment which Chesterman was required to purchase over the years and which are now useless to Chesterman. CNH submits that the Tribunal erred in law by awarding damages for these items. I agree.

[163] The Tribunal correctly held (at p. 40) that, unlike farm implements and parts, the Act does not require the distributor to repurchase tools and manuals. The Tribunal, however, went on to hold that it was “reasonably foreseeable” that once Chesterman ceased to be a CNH dealer, the special tools and manuals it had purchased from CNH and which were unique and specific to CNH products, would be obsolete. The Tribunal reasoned further that it would therefore be “reasonably foreseeable” to CNH that Chesterman would suffer a loss in respect of those tools and manuals. The Tribunal therefore held that Chesterman was entitled to damages in respect of the obsolete assets and accepted Chesterman’s evidence as to their value, based on estimates derived from 2006 pricing or internet information.

[164] The Tribunal erred in law by applying concepts of “reasonable foreseeability” rather than looking to the terms of the Dealer Agreement itself. As such, it failed to consider a relevant factor (the terms of the Agreement) and took into account an irrelevant factor (foreseeability). Both, as confirmed in Sattva, are errors of law.

[165] Section 25 of the Dealer Agreement specifies the property that CNH will repurchase upon expiration or termination of the Agreement. The Agreement specifies that CNH will only repurchase product, which is a defined term under the Agreement, and which does not include tools and manuals. Indeed, such items are specifically excluded under paragraph 25 of the Agreement.

[166] Further, there was expert evidence before the Tribunal that the cost of manuals and tools were expensed by Chesterman as a cost of doing business and not recorded as an asset in its books. Accordingly, those expenses would have been written off against income. In awarding damages for these items in addition to lost profit, the Tribunal improperly permitted double-recovery. This also, is an error in principle on a question of law.

[167] In my view, there was no basis in law for awarding any damages for these items. I would have set aside the award for obsolete items.

Cross-Appeal: Loss of Profits

[168] Chesterman cross-appealed the Tribunal’s award with respect to loss of profits. Chesterman submits that the Tribunal erred in basing its loss of profits award on the theory that the contract could be terminated upon reasonable notice, which it found in the circumstances to be two years. There is no error of law in that finding. Chesterman was not entitled to an award of damages based on the theory that this contract would continue into perpetuity. That is particularly the case given that the Tribunal found that the non-renewal was based on a breach of a term of the contract, the particulars of which were not refuted.

[169] The Tribunal made findings of fact as to the appropriate model for damages in the circumstances and on the expert evidence it found was best supported by the evidence. The Tribunal made express findings of fact as to the unreliability of the basis for Chesterman’s expert’s calculation of the losses.

[170] The quantum of damages is a question of fact, not reviewable by this Court. There is no basis for this Court to intervene.

Interest

[171] The Tribunal awarded interest on the damages, calculated pursuant to the Courts of Justice Act. CNH argues that the Tribunal has no jurisdiction to award interest.

[172] The Tribunal reasoned that the disputes it is called upon to adjudicate would otherwise be determined in the courts and the parties should be entitled to recover from the Tribunal what they would obtain in the courts, which would include an award of interest on any damages.

[173] I agree. Section 33 of the Act stipulates that the rights, duties and obligations under the Act “are in addition to the rights, duties and remedies under any other Act and the common law.” The parties before the Tribunal in this case were engaged in a dispute as to the application of the Act and Regulations. That dispute was referred to the Tribunal which is empowered by s.5(6) to “decide the issue that is before it for a hearing.” If one of the parties to this dispute would have been entitled to damages at common law, the tribunal is empowered to award those damages. At common law, and before the courts under the Courts of Justice Act, the parties would be entitled to interest on any award of damages, in the discretion of the Court. In those circumstances, I see no jurisdictional obstacle to the Tribunal awarding interest on any damage award it might make. That would simply be one aspect of compensating a party for what it has lost; a matter that is squarely within the Tribunal’s jurisdiction.

[174] Although the Court of Appeal’s decision in Billes v. Parkin Architects Planners (1983), 40 O.R. (2d) 525 (C.A.)[^22] dealt with the power of arbitrators to award interest, the same general principles apply. The Court of Appeal held that although no specific clause empowered the arbitrator to award interest, such jurisdiction flowed from the power to award damages. The Court endorsed the following statement from the Alberta Court of Appeal:

If the matter is at large and to be resolved as a question of policy, I would strongly favour permitting arbitrators to award interest. I can think of no valid reason why arbitrators deciding a claim should be powerless to grant a remedy that a judge hearing the same claim would be bound to grant. The claimant before the arbitrator would be severely prejudiced in this day of high interest rates. I can think of no good reason why the arbitrator should not be able to give him a complete remedy. An award in a commercial case that does not take into account the cost of money will not do justice between the parties because it will have disregarded a major cost of most enterprises.

[175] In my view, the same reasoning applies to the Tribunal. A specific statutory grant of the power to award interest is not required in order to vest jurisdiction in the Tribunal to award interest on damages awards designed to compensate a party for a loss.

[176] CNH also objected to the rate of interest applied by the Tribunal, which was 6% throughout notwithstanding considerable fluctuations in the Courts of Justice rate since 2006. If the Tribunal is attempting to track what a court would award in interest, it may wish to consider that courts will typically take the average interest rate in those circumstances. However, the Tribunal’s choice of interest rate is not an error of law; it is an exercise of discretion on a question of fact. I would not intervene.

I. ANALYSIS: COSTS DECISION

[177] The Tribunal invited the parties to provide written submissions as to costs. Chesterman sought costs in the amount of $639,340. CNH opposed any costs award, but submitted that if costs were to be awarded, the Tribunal should adopt an approach similar to that applied by an Assessment Officer under the Rules of Civil Procedure.

[178] CNH submits that the Tribunal erred in law and exceeded its jurisdiction in awarding costs in this case. I agree.

[179] The Tribunal correctly held that s. 17.1 of the Statutory Powers Procedure Act (SPPA)[^23] sets out two statutory prerequisites to the Tribunal’s jurisdiction to award costs. That section provides:

Costs

17.1 (1) Subject to subsection (2), a tribunal may, in the circumstances set out in rules made under subsection (4), order a party to pay all or part of another party’s costs in a proceeding.

Exception

(2) A tribunal shall not make an order to pay costs under this section unless,

(a) the conduct or course of conduct of a party has been unreasonable, frivolous or vexatious or a party has acted in bad faith; and

(b) the tribunal has made rules under subsection (4).

Amount of costs

(3) The amount of the costs ordered under this section shall be determined in accordance with the rules made under subsection (4).

Rules

(4) A tribunal may make rules with respect to,

(a) the ordering of costs;

(b) the circumstances in which costs may be ordered; and

(c) the amount of costs or the manner in which the amount of costs is to be determined.

[180] One precondition[^24] is that before a Tribunal can order costs, it must have enacted Rules with respect to costs, and it must award those costs only in accordance with those Rules. The Tribunal does have Rules governing awards of costs in proceedings before it, thus satisfying that precondition.

[181] The second precondition[^25] is that the conduct of the party has been “unreasonable, frivolous or vexatious or a party has acted in bad faith.”

[182] This same language is tracked in the Tribunal’s own Rules. Rule 28.01 provides:

Where a party believes that another party has acted clearly unreasonably, frivolously, vexatiously or in bad faith considering all of the circumstances, it may ask for an award of costs.

[183] Under the heading “Circumstances in which Costs Order May be Made”, Rule 28.04 provides as follows:

28.04 Clearly unreasonable, frivolous, vexatious or bad faith conduct can include, but is not limited, to:

a. Failing to attend a hearing event or to sending a representative when properly given notice, without contacting the Tribunal;

b. Failing to give notice or adequate explanation or lack of co-operation during pre-hearing proceedings, changing a position without notice, or introducing an issue or evidence not previously mentioned;

c. Failing to act in a timely manner or to comply with a procedural order or direction of the Tribunal where the result was undue prejudice or delay;

d. Conduct necessitating unnecessary adjournments or delays or failing to prepare adequately for hearing events;

e. Failing to present evidence, continuing to deal with issues, asking questions or taking steps that the Tribunal has determined to be improper;

f. Failing to make reasonable efforts to combine submissions with parties of similar interest;

g. Acting disrespectfully or maligning the character of another party; and

h. Knowingly presenting false or misleading evidence. The Tribunal will consider the seriousness of the misconduct. If a party requesting costs has also conducted itself in an unreasonable manner, the Tribunal may decide to reduce the amount awarded. (The Tribunal will not consider factors arising out of a mediation or settlement conference except where, for example, it finds that a request for change to a settlement is unreasonable.)

[184] Ordinarily, courts will only impose extreme costs sanctions based on the conduct of the party in the litigation. A similar interpretation applies to the type of conduct that will attract a costs award under s. 17.1 of the SPPA and, indeed, under the Tribunal’s own Rules. It is apparent from the list of circumstances under Rule 28.04 that the behavior contemplated is conduct within the hearing itself, not conduct in relation to the initial dispute between the parties. This is reinforced by the Tribunal’s own commentary as to its Rules, which is published on its website, as follows:

A cost order may be made if a party requests it, if one party has in the Tribunal's opinion acted inappropriately, as in Rule 28.04. Such orders and the amount awarded are to discourage conduct that wastes a great deal of the Tribunal's and parties' time as well as other resources. Note that for matters under the Drainage Act, costs are awarded only as provided in that Act.

An order for costs is very rare. Recovery of costs is not standard as in court proceedings. It is only where the Tribunal finds that a party wrongly brought the appeal or participated unacceptably in preparation or hearing events, that an award of cost will be made.

[185] Although the website commentary does not have binding effect in the same manner as the Rules themselves, the commentary is fully consistent with the Rules and with s. 17.1(2(a) of the SPPA. Decisions of the Agricultural, Food, and Rural Affairs Appeal Tribunal in other cases have been to the same effect.[^26]

[186] The Tribunal in this case did not adhere to the restrictions set out in s. 17.1(2)(a) of the SPPA, or its own Rules, or its own published commentary on those Rules, or its own case authority. In awarding costs against CNH, the Tribunal relied upon its previous finding that CNH’s conduct in ending the Dealer Agreement with Chesterman was “unreasonable”, which it said satisfied the second criteria. That is a legal error. Conduct that relates to the subject matter of the proceeding (i.e. breach of contract) is not a basis for an award of costs under the Tribunal’s Rules or s. 17.1 of the SPPA.

[187] The Tribunal also relied on s. 33 of the Act which preserves common law rights and remedies as authority to apply the “common law principle of costs following the event.” There is no such principle at common law. Courts order costs under statutory power to do so and have developed jurisprudence to the effect that the successful party will normally have its costs. That does not in any way confer power on a Tribunal to do the same. The Tribunal, as a creature of statute, has only the jurisdiction specifically conferred upon it. Its jurisdiction to award costs is restricted by statute and by its own Rules.

[188] The Tribunal pointed to the fact that Chesterman had claimed costs in its pleadings before the tribunal and noted that if the parties had litigated this matter in the courts they would have expected to pay costs. The Tribunal therefore held that it was “unreasonable” for CNH to expect that CNH would be entitled to recover its costs before the Tribunal. First of all, the reasonable expectation of the parties does not confer jurisdiction where there is none. Secondly, what would be in the reasonable expectation of the parties is that the Tribunal would adhere to its own Rules, particularly given its published commentary on its own website, along with those Rules, explaining to the public that “an order for costs is very rare” and that “recovery of costs is not standard as in court proceedings.”

[189] The Tribunal pointed to only two factors that could be seen to be related to the conduct of the proceedings by CNH, those being CNH’s change in position with respect to whether it conceded that the auto-renewal clause could be treated as the written notice of intent to renew required by Regulation 123, and the argument about retrospective or retroactive effect. The latter point is a legal issue that arises from the legislation and the factual record. Even if not raised by the parties it should have been addressed by the Tribunal, and was addressed by the Divisional Court. Indeed, in the appeal before this Panel, we required the parties to file further facta on this issue. Regardless of the change in position or the retrospective/retroactive issue, the Divisional Court in 2011 would have returned the matter to the Tribunal for further consideration on how Regulation 123 interacted with the Dealer Agreement. The cost of the second hearing cannot be laid entirely at the feet of CNH.

[190] The Tribunal was clearly frustrated by the degree to which a proceeding that was meant to be inexpensive and expeditious became as complex as commercial litigation in the courts. The Tribunal pointed to the fact that there was a claim for damages of $1 million, hundreds of documents, multiple expert witnesses, multiple lawyers, and a hearing that involved 17 hearing days spread over three years. All of that is true, and obviously makes it a rare case for the Tribunal. However, the fact that it is a rare case does not mean that costs are therefore warranted against CNH. CNH did not advance a $1 million damages claim. Chesterman did that, and only recovered a small fraction of that amount. Chesterman had five lawyers working on the case and was financed throughout by its association, CEEDA, as this was regarded as a test case. Again, that cannot be laid at the feet of CNH.

[191] The Tribunal considered whether this was the kind of case in which substantial indemnity costs would have been warranted against CNH if this had been a court proceeding, and held that only partial indemnity costs would have been appropriate. For those very same reasons, the Tribunal ought to have found that there was no conduct of a nature to attract a costs award at all, or if there was one, it would only have been related to any additional costs resulting from CNH’s change in position on the effect of the auto-renewal, which was minimal.

[192] Finally, in my view, proportionality is always a relevant factor in determining costs. A failure to take into account is an error of law.

[193] Given these errors of law, the costs award cannot stand.

MOLLOY J.

Released: March 7, 2016

[^1]: Farm Implements Act, R.S.O. 1990, c. F4 [^2]: Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., [1977] 1 S.C.R. 748 [^3]: Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557 [^4]: Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 SCR 633, 2014 SCC 53 [^5]: Sattva, supra, at para. 48, citing with approval the decision of Lord Hoffman in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 at p. 115(H.L.) [^6]: Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33 [^7]: Sattva, supra, Note 4, at para. 52, citing Housen supra Note 6 at paras 16-17. [^8]: By February 2013, one of the original three members of the Panel had been appointed as a Justice of the Peace and resigned from the Tribunal. The hearing proceeded before the remaining two members, which is provided for in the legislation and not the subject of any dispute. [^9]: Upper Canada v. Smith, [1920] 61 S.C.R. 413 [^10]: Re Rizzo and Rizzo Shoes Ltd., [1998] 1 S.C.R. 27 [“Rizzo Shoes”] [^11]: Épiciers Unis Métro-Richelieu Inc., division "Éconogros" v. Collin, [2004] 3 S.C.R. 257, 2004 SCC 59 at para. 46, citing E. A. Driedger, “Statutes: Retroactive Retrospective Reflections” (1978), 56 Can. Bar Rev. 264, at pp. 268‑69 [^12]: Gustavson Drilling (1964) Limited v. Minister of National Revenue, [1977] 1 S.C.R. 271, 66 D.L.R. (3d) 449 at para. 11 [^13]: Sullivan, Ruth: Sullivan on the Construction of Statutes (6th Edition), Lexis Nexis Canada Inc. 2014, September 2014 at pp. 834-835 (citations omitted) [^14]: British Columbia (Attorney General)v. Parklane Private Hospital Ltd., [1975] 2 S.C.R. 47 [^15]: Apotex Inc. v. Merck Frosst Canada & Co., 2011 FCA 329 [^16]: Reasons of the Tribunal at p. 19 [^17]: 1392290 Ontario Ltd and Riocan Holdings Ltd. v. Corporation of the Town of Ajax, 2010 ONCA 37 [“Riocan”]; see also Rizzo Shoes, supra, Note 4 [^18]: Riocan, at paras. 13-16 [^19]: Chapin v. Matthews (1915), 24 D.L.R. 457 (Alta.S.C.) [^20]: Acme (Village) School District No. 2296 v. Steele Smith, [1933] S.C.R. 47 [^21]: Reasons of the Tribunal dated March 24, 2014, at p.25 [^22]: Billes v. Parkin Architects Planners (1983), 40 O.R. (2d) 525 (C.A.), citing Westcoast Transmission Co. Ltd. v. Majestic Wiley Contractors Ltd. (1982), 31 B.C.L.R. 174 (Bouck J.), affirmed June 2, 1982 (unreported [now reported, 139 D.L.R. (3d) 97, [1982] 6 W.W.R. 149, 38 B.C.L.R. 310]) at W.W.R. 154. [^23]: Statutory Powers Procedure Act, R.S.O. 1990, c. S.22 [^24]: SPPA, ss. 17.1(2)(b) and 4 [^25]: SPPA, s. 17.1(2)(a) [^26]: LaGantoise Inc. v. Dairy Farmers of Ontario, 2012 ONAFRAAT 21, p.2; HSBB Drain (RE), 2010 ONAFRATT 26; Short and No.2A Drain (RE), 2011 ONAFRAAT 37; OQRO v. DFO, 2009 ONAFRAAT 27