Distributor breached contract, Tribunal rules

Sunday, March 30, 2014

by SUSAN MANN

Farm equipment distributor CNH Canada Ltd. must pay its former Tillsonburg-area equipment dealer more than $200,000 in damages and interest for breaching its contract with the dealership and failing to follow Ontario Farm Implements Act regulations when it ended the arrangement, an agricultural tribunal has ruled.

In a March 24 written decision, the Ontario Agriculture, Food and Rural Affairs Appeal Tribunal says Chesterman Farm Equipment Inc. is owed $139,846 in damages, $60,670.61 in pre-judgment interest plus the monetary award has post-judgment interest of three per cent annually from the date of the decision until the amounts are paid.

Chesterman was a dealer for CNH and its predecessor companies from 1987 until Dec. 31, 2006, when a dispute ended the two companies’ 19-year relationship.

Dave Chesterman says “I think (the tribunal’s) judgment amount is low.” He says they were originally asking for about $800,000 in damages and “then the pre-judgment interest would be way higher too.”

Chesterman says they haven’t decided yet if they will appeal the tribunal’s decision.

The case began in 2007 with “the original arbitrations,” he says.

The two sides couldn’t resolve their dispute in mediation so Chesterman Farm Equipment brought the matter to the tribunal. The tribunal held seven days of hearings in 2010 and then another 10 non-consecutive days in 2013.

CNH Canada Ltd. officials couldn’t be reached for comment.

The tribunal found that when CNH decided to not renew its dealer agreement with Chesterman Farm Equipment, it didn’t follow the rules set out in regulation 123/06 of the Farm Implements Act. That regulation states manufacturers or distributors have to give dealers written notice they’re withholding renewal approval and give the dealer an opportunity to cure any defects or address the manufacturer’s or distributor’s concerns, the decision says.

CNH sent a letter to Chesterman Farm Equipment dated Sept. 30, 2006 saying it wasn’t renewing its dealer agreement with the dealership because of its poor performance in sales and market share. But the letter didn’t talk about all of the reasons why CNH was dissatisfied with Chesterman Farm Equipment, nor did it give the dealership time to correct problems.

Chesterman Farm Equipment argued the decision was made in ‘bad faith’ because the sales and market data CNH relied on to conclude the dealership had poor sales performance and market share “is suspect or wrong.” In addition, CNH wasn’t being honest because the poor sales performance and market share weren’t the real reasons for the non-renewal, the decision says.

Chesterman testified they didn’t receive any warnings from CNH their dealership status was in jeopardy. In fact, Chesterman Farm Equipment scored well in CNH’s dealer monitoring program in 2005 and 2006 and received service excellence awards. In 2004/05 and 2005/06 it received CNH’s president’s prestige award, the decision states.

Chesterman told the tribunal the real reason their dealership agreement wasn’t being renewed was due to friction between him and CNH’s regional sales director, Réal Prefontaine. Dave Chesterman says he made some remarks at a dealers’ meeting in 2005 that Prefontaine considered to reflect a bad attitude, the decision says. In an email exchange just after the meeting, Prefontaine said Chesterman Farm Equipment should resign as a CNH dealer.

The tribunal did not find that CNH’s reliance on market data from the Association of Equipment Manufacturers to be in bad faith as a basis for its decision to not renew the Chesterman dealership agreement, the decision says. “The parties governed their dealings for almost two decades relying on the AEM (Association of Equipment Manufacturers) data.”

In addition, there was no evidence the friction between Chesterman and Prefontaine “had anything to do with the non-renewal decision,” the decision says.

But the tribunal decision says CNH’s Sept. 30, 2006 letter to Chesterman Farm Equipment to not renew the dealership agreement did not accurately or completely state the reasons why CNH decided not to renew the agreement, nor did CNH give Chesterman Farm Equipment an opportunity to address its concerns as the government regulation says it needed to do.

“The letter focused only on market share,” the decision says.

But an official with CNH testified there were four reasons why the company decided to not renew the dealership agreement. They were that: Chesterman Farm Equipment had poor high power tractor sales performance, it had a lack of trained sales people, declining total revenue and poor hay and forage equipment sales performance. BF