Tuesday, April 1, 2014

Chesterman wins appeal against CNH

It has taken four years, but Chesterman Farm Equipment Ltd. of Tillsonburg has finally won a tribunal appeal against CNH Canada Inc.

CNH could still appeal to divisional court as it has already done once in this case.

The case has been watched closely by big farm machinery companies, including Deere, and by dealers because it strikes at the dealership agreements between manufacturers and dealers.

The tribunal has ordered CNH to pay Chesterman $139,846 plus $60,670.61 interest because the company unfairly cancelled the Chesterman’s CNH dealership agreement at the end of 2006.

The matter of court costs remains to be resolved and could amount to many more thousands of dollars because the hearings have been so long and involved.

The tribunal held public hearings in October, 2010, and in February, May, June and November year.
In between there was a divisional court case when CNH appealed the tribunal’s decision on warranty and liability issues.

The court sent the case back to the tribunal and it decided to rejoin the two halves of the appeal that it had earlier split apart.

CNH also mounted a legal challenge to try to bar the introduction of records of debates in the legislature when the Ontario Farm Implements Act was under discussion and to bar testimony from Beverly Leavitt, president and chief executive officer of the Canada (East) Farm Equipment Dealers Association.

The tribunal ruled against CNH.

During the hearing, CNH argued it had four reasons for refusing to renew Chesterman’s dealership agreement:

1. Poor high-power tractor sales.

2. Lack of trained salespeople.

3. Declining total revenue.

4. Poor hay and forage equipment sales performance.

As reported previously by Ontario Farmer during the tribunal hearings, Dave Chesterman said the CNH move came as a surprise because the dealership had won CNH performance awards.

He also explained that Tillsonburg is a tobacco-growing community where there is lower demand for high-powered tractors and limited demand for forage equipment.

The tribunal noted that the facts establish that:

         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 30th, 2006 and December 31st, 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.

Chesterman failed to get as much compensation as it sought - $730,622 for lost profits, $80,310 for assets, $7,051 in restocking fees, $33,594 for parts it could not return to CNH and $88,532 for inventory liquidation.