Farmers and equipment dealers in Ontario can have a renewed sense of confidence in the effectiveness and value provided by their provincial Farm Implements Act. In a recent landmark decision, the Ontario Ministry of Agriculture, Food and Rural Affairs’ (AFRAAT) Tribunal ruled that U.S. corporate giant, CNH Canada Ltd. breached Ontario Regulation 123/06 by not renewing the Dealer Agreement of Chesterman Farm Equipment Inc.  Tribunal Rulings parallel those of a civil court in most respects and the decision is equally binding.

The Chesterman vs. CNH story is a classic David and Goliath battle spanning a 6-year period. On September 30, 2006, CNH Canada, Ltd (“CNH”) purported to sever the business agreements of five Ontario New Holland dealers, including the 19 year relationship they had enjoyed with Chesterman Farm Equipment Inc. (CFEI) of Tillsonburg, Ontario.  Chestermans were advised that the termination by CNH was effective December 31st of that year and CNH’s reason for termination was cited as failure to achieve market share.  Chestermans, who received New Holland’s President’s Award for 2005-2006 “In Recognition of Superior Achievement in New Holland Dealer Standards” a scant few weeks prior to receiving the termination letter, had no prior awareness that their contract with CNH was in jeopardy. 

In response to what they perceived as unfair treatment, Chestermans initiated a Tribunal process through the Ontario Ministry of Agriculture in early 2006, alleging that CNH’s “termination” breached the Ontario Farm Implements Act and Ontario Regulation 123/06, which set out specific terms under which dealers and manufacturers must conduct business in the province and prevents manufacturers from effecting arbitrary dealer terminations.

CNH was shortly to change their story following Chestermans filing for Tribunal Hearing.  Despite the letter of termination sent to Chesterman Farm Equipment Inc., CNH now claimed not to have terminated the dealership; rather, they had exercised their right not to renew the contract.

The Tribunal Hearing took place over a 7 day period in October 2010.  Their Ruling, published on March 17, 2011, declares the Tribunal is satisfied that CFEI has proven that CNH breached Ontario Regulation 123/06 by not renewing the Dealer Agreement.

Also under scrutiny and being argued by the parties in Chesterman vs. CNH Canada Ltd., was interpretation of the Warranty Reimbursement clauses of the Ontario Farm Implement Act.  This section of the Act requires that manufacturers reimburse dealers for the repair of defective farm implements at posted shop labour rate and includes travel, transportation and diagnostic time.  John Deere and the Association of Equipment Manufacturers (AEM), both applied for and were granted Intervener status by the Tribunal which allowed their participation in arguing the warranty reimbursement aspect of the Chesterman vs. CNH case.

Despite CNH and the Interveners’ strenuous argument that these requirements under the Act applied only to mass recall situations, they were unsuccessful in that argument.  Tribunal invoked the legal principle that legislature does not intend its legislation to have absurd consequences in their published ruling that, “The warranty reimbursement provisions in the Act apply to all claims for warranty reimbursements and not merely

to claims for reimbursement arising from a mass recall of farm implements exhibiting a common defect”. 

Beverly Leavitt, President/CEO of Canada East Equipment Dealers’ Association (CEEDA), the trade association representing equipment dealers in the Province of Ontario, said this decision by the Tribunal puts to bed a 6 year interpretation dispute between CEEDA and the manufacturer entities doing business in Ontario.  “For years many manufacturers have expected their dealer network, which has absolutely no input into the design or engineering of a manufacturer’s product, to absorb some or in other instances, all of the associated warranty costs,” says Leavitt. She went on to say, “Dealers operate on some fairly tight margins these days and as a result, they would have been left with little option but to pass on warranty costs to their customers had the Tribunal decision been different.”

When asked how the decision is expected to impact the cost of equipment, Leavitt responded, “The decision of the Tribunal will have no financial ramification for the manufacturer of exceptional quality product.  It is only those entities who produce sub-standard equipment that have reason for concern.”

CNH Canada Ltd. has filed an appeal with the Ontario Superior Court of Justice Division Court.