COURT OF APPEAL FOR ONTARIO
CITATION: CNH Canada Ltd. v. Chesterman Farm Equipment Ltd., 2018 ONCA 637
DATE: 20180713
DOCKET: C62823
Watt, Benotto and Miller JJ.A.
BETWEEN
CNH Canada Ltd.
Applicant (Appellant/
Respondent by way of cross-appeal)
and
Chesterman Farm Equipment Ltd.
Respondent (Respondent/
Appellant by way of cross-appeal)
Stuart R. Mackay, for the appellant
Eric K. Gillespie and John W. May, for the respondent
Heard: October 24, 2017
On appeal from the order of the Divisional Court (Justice Charles T. Hackland and Justice Peter B. Hambly, Justice Anne M. Molloy dissenting), dated March 7, 2016, with reasons reported at 2016 ONSC 698, allowing an application for judicial review in part from a decision of the Agriculture, Food and Rural Affairs Appeal Tribunal dated March 24, 2014 and a related costs decision dated June 9, 2014.
B.W. Miller J.A.:
A. Overview
[1] This appeal concerns a statutory appeal from a decision of the Agriculture, Food and Rural Affairs Tribunal interpreting the renewal provisions of a standard form farm equipment dealership agreement entered into between the parties.
[2] The relevant provisions of the dealership agreement were changed retrospectively, when Ontario adopted O. Reg. 123/06, the Dealership Agreements Regulation, establishing new provisions prescribing a process for renewal and non-renewal that overrode the dealership agreement. When the appellant elected not to renew the dealership agreement, a dispute arose as to the respective rights of the parties, in light of the Regulation. A decision from the Tribunal, in favour of the respondent, was largely upheld by the Divisional Court. The appellant appeals that decision to this court. The respondent cross-appeals.
[3] For the reasons given below, I would dismiss the appeal and the cross-appeal, except that I would allow the cross-appeal as to costs.
B. Background
[4] The appellant, CNH Canada Ltd., is a Canadian farm implement manufacturer and distributor, previously operating as Ford New Holland Inc.
[5] The respondent, Chesterman Farm Equipment Ltd., is a family-owned business that sells farm implements and other goods. In 1987, Chesterman became a dealer with New Holland, selling goods supplied by New Holland to the public. In 1999, New Holland advised Chesterman that it would not be renewing the existing dealership agreement, and offered Chesterman the opportunity to continue as a dealer under a new standard form agreement.
[6] This second agreement (the “Dealership Agreement”), effective January 1, 2000, was structured to provide for an initial term of two years, with automatic one-year extensions unless either party gave the other at least 90 days’ notice of its intention not to extend, as set out in the following provision:
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. This 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. Dealer understands that this Agreement is of a limited duration and agrees that it has not relied on any representation regarding the continuation of this Agreement or its benefits beyond the initial term or any subsequent term. [Emphasis in original.]
[7] The Dealership Agreement was automatically renewed for each year from 2003 to 2006.
[8] On September 30, 2006, CNH gave written notice that it would not be extending the Dealership Agreement beyond its expiration date of December 31, 2006. The reason given in the notice for CNH’s failure to renew the Agreement was Chesterman’s “serious breaches” of the Dealership Agreement: failing to meet its sales obligations and achieve and maintain a reasonable market share in the four preceding years.
[9] However, on April 25, 2006 – five months before CNH’s notice was provided – the Dealership Agreements Regulation came into force. The Regulation prescribes mandatory terms to be included in any farm implement dealership agreement, including terms dealing with renewal. Under the Regulation, any provision in a dealer agreement contrary to those prescribed mandatory terms is void: s. 1(3). Notably, s. 3 of the Regulation provides that a dealer under a dealership agreement has the right to renew the agreement, subject to the distributor’s approval, which cannot be “unreasonably withheld”: s. 3(1), (4). It is common ground that Chesterman is a “dealer” and CNH is a “distributor” for purposes of the Regulation.
[10] Section 3(6) of the Regulation prescribes a process that must be followed should a distributor intend to refuse the dealer’s renewal, involving the following steps:
1. The distributor must 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 renewal is deemed to be approved;
3. The dealer is allowed 15 days from receipt of the notice to address the concerns underlying the refusal; and
4. After the 15-day period has passed, the distributor may refuse the renewal.
[11] The Regulation is made under the Farms Implements Act, R.S.O. 1990, c. F.4 (the “Farm Implements Act” or the “Act”). The Farm Implements Act regulates aspects of the buying and selling of farm implements, including the contractual relationship between farm implement dealers and distributors. The Act and the Regulation exist, in part, to remedy the contractual power imbalance between dealers and distributors otherwise favouring the distributor.
[12] In the event of a dispute with respect to matters arising from the application of the Farm Implements Act or its regulations, s. 5 of the Act sets out procedures for resolving the dispute. If the parties are unable to resolve the dispute with the assistance of the Director or a mediator, they may apply to the Agriculture, Food and Rural Affairs Tribunal for a hearing: Farm Implements Act, s. 5(5). The parties have a further right of appeal from the Tribunal’s decision to the Divisional Court, but only on questions of law: Farm Implements Act, s. 5(7).
[13] Chesterman initiated proceedings against CNH for improperly ending the Dealership Agreement. The matter proceeded before the Tribunal in two phases. The first phase dealt with warranty and breach of contract issues. The Tribunal’s decision was appealed to the Divisional Court, which remitted the matter to the Tribunal with directions. The second phase addressed damages, as well as the matters relating to liability remitted from the first phase. It is this second phase of the Tribunal’s proceedings that is the subject of this appeal and cross-appeal.
(1) The Tribunal’s decision on liability and damages
[14] In a decision dated March 24, 2014, at the conclusion of the second phase of the proceedings, the Tribunal determined that CNH had improperly breached the Dealership Agreement and awarded Chesterman approximately $200,000 in damages.
[15] The Tribunal was satisfied that CNH had provided Chesterman with the required 90-day contractual notice for non-renewal under the Dealership Agreement as originally drafted. The Tribunal held, however, that the Regulation applied retrospectively to the Dealership Agreement, and thereby amended it. Specifically, the Tribunal determined that the impact of the Regulation was not to void the renewal provision (set out in paragraph 22 of the Agreement), but to revise that provision to incorporate the Regulation’s mandatory terms. The Tribunal found that s. 3(6) of the Regulation replaced CNH’s contractual right not to renew the Dealership Agreement with a “regulated” renewal process. It accordingly revised paragraph 22 of the Agreement to read 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.
[16] Based on the agreement of the parties, the automatic renewal clause in the pre-amendment Agreement was deemed to constitute the notice of intent to renew contemplated by the Regulation.
[17] The Tribunal concluded that CNH’s September 30, 2006 notice of non-renewal could not constitute a written refusal to this deemed notice under the revised Dealership Agreement because CNH’s notice: (1) sought to exercise a right of non-renewal that no longer existed in its original format; (2) failed to set out CNH’s reasons for non-renewal in full; and (3) did not give Chesterman an opportunity to address CNH’s concerns animating the non-renewal. Accordingly, CNH’s non-renewal breached the Regulation and the modified Dealer Agreement.
[18] The Tribunal awarded Chesterman damages of $200,516.61, itemized as $59,536 for lost profits, $80,310 for losses associated with obsolete assets, and $60,670.61 for pre-judgment interest.
(2) The Tribunal’s costs decision
[19] While acknowledging that costs are discretionary and it rarely makes cost awards, the Tribunal nonetheless awarded partial indemnity costs to Chesterman in the amount of $376,338.05.
[20] The Tribunal began by considering the nature of its jurisdiction to award costs. The Tribunal held that s. 17.1 of the Statutory Powers and Procedures Act, R.S.O. 1990, c. S.22 (the “SPPA”) gave it jurisdiction to award costs against a party whose conduct has been “unreasonable, frivolous or vexatious” or has “acted in bad faith”. It noted similar provisions in its own rules: the Rules of Procedure for the Agriculture, Food and Rural Affairs Appeal Tribunal (the “Tribunal Rules”). It also relied on s. 33 of the Farm Implements Act, which preserves common law rights and remedies, as authority to apply the “common law principle of costs following the event”.
[21] In deciding to award costs, the Tribunal concluded that the “unreasonable” conduct requirement in s. 17.1 of the SPPA and the Tribunal Rules had been met based in part on its finding that CNH’s conduct in ending the Dealership Agreement was unreasonable. It was also satisfied, however, that other conduct by CNH during the proceedings was sufficiently unreasonable to warrant costs being ordered against it, namely CNH’s altering its position about the effect of the renewal provision in the Dealership Agreement mid-way through the proceedings, and failing to plead or argue against the retrospective application of the Regulation during the first phase of the proceeding.
(3) The Divisional Court’s decision
[22] CNH appealed the Tribunal’s damages and costs awards to the Divisional Court. Chesterman cross-appealed from the damages award. On March 7, 2016, the Divisional Court allowed CNH’s appeal in part and dismissed Chesterman’s cross-appeal.
[23] An appeal lies to the Divisional Court from decisions of the Tribunal, but solely on questions of law: Farm Implements Act, s. 5(7). Accordingly, the preliminary question before the Divisional Court was whether the grounds of appeal advanced by CNH were questions of law or questions of mixed law and fact and questions of fact. Only after concluding an issue amounted to a question of law could the court go on to review the substantive decision of the Tribunal.
[24] All three members of the Divisional Court agreed that whether the Regulation applied retrospectively to the Dealership Agreement was a question of law and that the Tribunal correctly concluded the Regulation applied. All three members further agreed that the manner in which the Tribunal incorporated the Regulation into the Dealership Agreement was a question of mixed law and fact and thus not subject to review by the court.
[25] The Divisional Court split, however, on the issue of the validity of CNH’s non-renewal based on the requirements set out in the Regulation and incorporated into the amended Dealership Agreement. Hambly and Hackland JJ., writing for the majority, concluded that the issue did not engage a question of law. The nature and adequacy of the reasons for non-renewal provided by CNH were matters of fact arising from the parties’ dealings and therefore the Tribunal’s decision that the non-renewal was void was not reviewable by the court. Similarly, the majority concluded that there were no extricable questions of law in the Tribunal’s ruling as to the unreasonableness of CNH’s decision not to renew.
[26] In dissent, Molloy J. would have set aside the Tribunal’s finding of breach of contract and its damages award. In her view, the Tribunal made a number of legal errors, including:
· holding that CNH’s September 30, 2006 notice of non-renewal was an attempt to exercise a right of non-renewal that no longer existed under the Dealership Agreement and could not be considered a written refusal to approval Chesterman’s deemed notice to renew;
· determining that CNH was required to set out every possible ground for refusing renewal in its notice;
· finding that Chesterman was not given an opportunity to respond to the concerns underlying CNH’s non-renewal;
· failing to conclude that Chesterman’s failure to respond in some way to those concerns was fatal to its claim; and
· inquiring into the reasonableness of CNH’s refusal to renew given Chesterman did not even attempt to address those concerns.
[27] Regarding the quantum of damages, the Divisional Court was unanimous that the Tribunal erred in law by awarding $80,310 for losses associated with obsolete assets, and reduced the damages award accordingly. Chesterman’s cross-appeal regarding the quantum of damages for lost profits, however, was dismissed because the court unanimously concluded that it involved a question of mixed law and fact.
[28] With respect to CNH’s appeal of the Tribunal’s costs award, the Divisional Court was also unanimous that the Tribunal erred in law and exceeded its jurisdiction. Specifically, the Tribunal erred by relying on its previous finding that CNH’s conduct in ending the Dealership Agreement was unreasonable. This was an error because, the Divisional Court reasoned, conduct that relates to the proceeding cannot be a basis for a costs award under the Tribunal Rules or the SPPA. Similarly, the Tribunal could not rely on CNH’s change in position regarding the renewal clause or the retrospectivity issue as unreasonable conduct because, regardless of CNH’s conduct, it was necessary for the Tribunal to address these issues as part of the second phase of proceedings. Moreover, the Divisional Court found that the Tribunal had failed to adhere to restrictions on costs awards set out in the SPPA and the Tribunal Rules, published commentary, and case authority. Finally, the Tribunal’s reliance on s. 33 of the Farm Implements Act to apply the “common law principle of costs following the event” was also an error because no such common law principle exists and the Tribunal’s jurisdiction to award costs is restricted by statute and the Tribunal Rules. As a result, the issue of costs was remitted to the Tribunal for redetermination in light of the decision.
[29] The Divisional Court invited the parties to make written submissions on the issue of costs before that court, but none were provided.
C. Issues
[30] In its appeal, CNH raises four issues:
1. Did the Tribunal err in law by concluding that the notice of non-renewal was not compliant with the Regulation because it sought to exercise a right that was void?
2. Did the Tribunal err in law by concluding that the notice of non-renewal was not compliant with the Regulation because it failed to disclose “all” reasons for the refusal to renew?
3. Did the Tribunal err in law by concluding that Chesterman was not afforded 15 days to address the concerns outlined in the notice of non-renewal?
4. Did the Tribunal err in law by concluding that CNH failed to act reasonably when it did not renew the Dealership Agreement?
[31] Chesterman’s cross-appeal raises two additional issues:
1. Did the Divisional Court err in law by failing to consider the purpose of the Regulation in determining damages?
2. Did the Divisional Court err in law by quashing the Tribunal’s cost award?
D. Analysis
[32] As a preliminary matter, before addressing these six grounds of appeal, it is necessary to consider the limits of the court’s jurisdiction in reviewing decisions of the Tribunal, as well as the standard of review applicable to the review of those decisions.
(1) Jurisdiction of the court on appeal
(i) Legal principles governing jurisdiction
[33] An important jurisdictional restriction animates this appeal. As noted above, an appeal from a decision of the Tribunal in a proceeding under s. 5 of the Farm Implements Act is limited solely to questions of law. The Tribunal’s decisions on questions of mixed law and fact and questions of fact are not the proper subject of an appeal to the Divisional Court (or to this court on further appeal). It is accordingly necessary to consider whether the appeal gives rise to any question of law.
[34] Distinguishing between questions of law, questions of fact, and questions of mixed law and fact is often difficult. In Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748, at para. 35, the Supreme Court explained the distinction by stating that “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.”
[35] The issues advanced on appeal by CNH concern the interpretation of the Dealership Agreement, a contract. Before considering the issues individually, however, it is helpful to review the general principles applicable to identifying questions of law in contractual interpretation. Although courts formerly treated questions of contractual interpretation as questions of law, the Supreme Court largely abandoned this approach in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, holding, at para. 50, that contractual interpretation will usually involve questions of mixed law and fact. Sattva, however, recognized that in some circumstances, contractual interpretation may involve a question of law. Errors of law in the contractual context include: (1) the application of an incorrect legal principle; (2) the failure to consider a required element of a legal test; and (3) the failure to consider a relevant factor: Sattva, at para. 53.
[36] Bearing in mind these principles and the fact that the appeal from the Tribunal’s decision is limited to questions of law, I must analyze the various grounds of appeal advanced by the parties individually to determine whether they raise questions of law and, if so, whether the Tribunal’s decision concerning that issue was an error of law. Before doing so, however, I will set out the standard of review to be applied in that analysis.
(2) Standard of review
[37] As noted above, a party to a proceeding before the Tribunal under s. 5 of the Farm Implements Act has a statutory right of appeal to the Divisional Court: s. 5(7). This court must determine whether the Divisional Court identified the appropriate standard of review and applied it correctly: Onyskiw v. CJM Property Management Ltd., 2016 ONCA 477, 349 O.A.C. 253, at para. 27; see also Agraira v. Canada (Public Safety and Emergency Preparedness), 2013 SCC 36, [2013] 2 S.C.R. 559, at paras. 46-47.
[38] Based on the agreement of the parties, the Divisional Court applied a standard of review of correctness to all legal questions on appeal. However, the standard of review of a decision of an administrative tribunal – even in cases involving a statutory right of appeal – is decided under the “administrative law” framework associated with Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, not the “appellate” framework set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. As the Supreme Court observed in Mouvement laïque québécois v. Saguenay (City), 2015 SCC 16, [2015] 2 S.C.R. 3, at para. 38, regardless of whether the review is conducted in the context of a statutory appeal or an application for judicial review, “[w]here a court reviews a decision of a specialized administrative tribunal, the standard of review must be determined on the basis of administrative law principles”: see also Edmonton (City) v. Edmonton East (Capilano) Shopping Centres Ltd., 2016 SCC 47, [2016] 2 S.C.R. 293, at para. 30.
[39] Under the administrative law framework, a tribunal’s interpretation of its home statute and statutes closely connected to its function is presumptively reviewed on a reasonableness standard, even where there is a statutory right of appeal on a question of law: Edmonton (City), at paras. 22-23, 27-31; e.g., Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654, at para. 30; Onyskiw, at para. 28.
[40] The reasonableness standard of review recognizes that “[t]ribunals have a margin of appreciation within the range of acceptable and rational solutions”: Dunsmuir, at para. 47. On a reasonableness review, a court is charged with evaluating the “justification, transparency and intelligibility” of the tribunal’s decision-making process, and “whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law”: Dunsmuir, at para. 47.
(3) Substantive grounds of appeal
[41] As stated above, the parties advance six grounds of appeal, which I consider in turn below. In keeping with the framework outlined above, I proceed by first identifying whether the issue engages a question of law, a question of fact, or a question of mixed law and fact. Where a question of law is engaged, I consider whether the Tribunal’s decision on that question was reasonable.
(i) Exercise of a “void right” for non-renewal
[42] CNH argues that the Tribunal erred in law by concluding that its notice of non-renewal was not compliant with the Regulation because it sought to exercise a right that was void. As I explain below, I would reject this ground of appeal. Although it does raise a question of law as to whether the parties’ unrestricted right not to renew the Dealership Agreement survived the amendment by the Regulation, I nonetheless conclude that the Tribunal’s determination that it did not so survive was reasonable.
[43] Prior to its alteration through the Regulation, the Dealership Agreement included an unrestricted right for either party not to renew the Agreement. As set out above, paragraph 22 provided in part that the Agreement would 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.” Section 3(6) of the Regulation, however, introduced a regulated renewal process.
[44] The Tribunal reasoned that “[t]he practical impact of this regulated change to the Dealership Agreement [was] not to void the entire Duration’ paragraph 22 but, rather, to revise that language to incorporate the mandatory terms from the Regulation.”
[45] CNH does not contest this conclusion. It does, however, dispute the Tribunal’s conclusion that CNH’s notice of non-renewal provided to Chesterman “sought to engage a non-renewal right that CNH no longer enjoyed” and “communicated a non-renewal right that had become void”. CNH asserts that the Tribunal could not find that paragraph 22 survived to the benefit of Chesterman with respect to automatic renewal rights, while at the same finding it void in relation to CNH’s non-renewal rights. According to CNH, this “inconsistency of application of a contractual provision is an extricable error of law”.
[46] I agree that whether the Dealership Agreement, as amended by the Regulation, provided CNH with a right of non-renewal is a question of law. The renewal provisions in the Regulation are mandatory statutory terms that must be included in dealership agreements. In my view, the interpretation of a contract incorporating statutory terms by operation of law is of precedential value and transcends the particular factual circumstances of the parties in this dispute.
[47] However, whether CNH properly exercised any right of non-renewal is better characterized as a question of mixed law and fact. It requires assessing whether CNH complied with any requirements under the Dealership Agreement, as amended by the Regulation, to exercise that right.
[48] In any event, I do not agree with CNH’s characterization of the Tribunal’s reasons for concluding the notice of non-renewal was not compliant with the Regulation. It did not reach this conclusion by determining that CNH sought to exercise a right that had been extinguished. The Tribunal merely found that CNH “sought to exercise a right … that no longer existed in its original format” (emphasis added). In other words, CNH still had a right not to renew, but this right was now restricted and conditional. In my view, this was a reasonable interpretation open to the Tribunal.
[49] As the Tribunal explained, under the original Dealership Agreement each party had an unrestricted right not to renew, exercisable by giving the other party at least 90 days’ written notice. Section 3(6) of the Regulation, however, replaced this unrestricted right with a regulated approval process for non-renewal. Given that the application of the Regulation was mandatory, and the Dealership Agreement contained a provision allowing for modification of the Agreement to comply with the law, the Tribunal chose to revise the Dealership Agreement to include a regulated renewal approval process consistent with the Regulation. It did not “void” CNH’s right of non-renewal, but modified it to render it consistent with the mandatory terms of the Regulation.
[50] I would not give effect to this ground of appeal.
(ii) CNH’s failure to provide all its reasons for non-renewal
[51] The second issue CNH raises is that the Tribunal erred in law by concluding that its notice of non-renewal was not compliant with the Regulation because it failed to disclose all of its reasons for the refusal to renew. Once again, although I agree that whether CNH was required to set out all of its reasons for non-renewal pursuant to the Dealership Agreement, as amended by the Regulation, was a question of law, I conclude that the Tribunal reasonably determined that CNH was not compliant.
[52] Section 3(6)(1) of the Regulation requires a distributor to notify the dealer in writing of “the reasons for the refusal”. The Tribunal incorporated this requirement into the Dealership Agreement by requiring that the notice of non-renewal “se[t] out the Company’s [non-renewal] reasons.” Applying that requirement to this case, it found that CNH’s notice of non-renewal did not accurately or completely set out the reasons behind CNH’s decision not to renew. More specifically, while the notice focused on Chesterman’s purported failure to achieve a reasonable market share as required under the Dealership Agreement, there were several other reasons for the non-renewal that were not stated in the notice. Since CNH had not set out all the reasons for the non-renewal, the Tribunal concluded that the notice was invalid.
[53] In my view, whether a distributor is required to set out all the reasons for non-renewal is a question of law, but whether a distributor has met that requirement in any particular case is a question of mixed law and fact.
[54] In this case, it was reasonably open to the Tribunal to interpret the Regulation and Dealership Agreement to require CNH set out all the reasons for non-renewal in its notice to Chesterman. As the Tribunal explained, given that the Regulation contemplates providing a dealer with the opportunity to address the distributor’s concerns, the dealer must be fully informed of all the reasons for non-renewal for the process to be meaningful. While CNH’s submission – that a distributor should instead simply be foreclosed from relying on any undisclosed reasons to contest the non-renewal – has its attractions, reasonableness review recognizes that there may be more than one possible and acceptable interpretation in any given case. In this case, the Tribunal’s interpretation is justified, transparent and intelligible. There is no basis on which this court could interfere. I would accordingly dismiss this ground of appeal.
(iii) CNH’s failure to provide Chesterman with an opportunity to address its concerns
[55] CNH argues that the Tribunal erred in law by concluding that Chesterman was not provided with 15 days to address the concerns outlined in the notice of non-renewal, as required by the Regulation, and by speculating that CNH would have rejected Chesterman’s attempts to address the concerns in any event.
[56] Given my conclusion that the Tribunal did not err in interpreting the Regulation and Dealership Agreement to require CNH to set out all the reasons for non-renewal in its notice to Chesterman, it is not necessary to address this argument. If CNH breached the Dealership Agreement, as amended by the Regulation, by failing to provide all the reasons for its non-renewal, whether it further breached the Agreement by not affording Chesterman 15 days to address its concerns is inconsequential.
(iv) The reasonableness of CNH’s non-renewal
[57] CNH submits that the Tribunal erred in law by concluding that CNH acted unreasonably when it failed to renew the Dealership Agreement. As a preliminary note, I recognize that, again, given my earlier conclusions about CNH’s breach, it is not strictly necessary to address this argument. Nevertheless, I consider the issue below as it may be of assistance in other adjudications under this provision.
[58] Section 3(4) of the Regulation provides in part that a distributor’s approval of a renewal of a dealership agreement “shall not be unreasonably withheld”. The Tribunal incorporated this requirement into the Dealership Agreement by mandating that CNH’s decision not to renew “not be unreasonable in the circumstances.”
[59] The Tribunal explained that the Regulation did not remove CNH’s power to withhold approval, but introduced a regulated renewal process. After setting out sixteen findings of fact on matters such as the parties’ relationship and CNH’s failure to comply with the Regulation, the Tribunal concluded that CNH had, in fact, unreasonably withheld renewal and breached the Regulation.
[60] On appeal, CNH advances two purported legal errors in the Tribunal’s analysis said to give rise to questions of law.
[61] First, CNH argues that the Tribunal erred in law by even considering the reasonableness of the non-renewal, because Chesterman did not address its failure to maintain the required market share under the Dealership Agreement, an issue explicitly raised in the notice of non-renewal. In effect, CNH submits that before the Tribunal could analyze whether the non-renewal was unreasonable, it had to be satisfied that Chesterman had attempted to address CNH’s concerns.
[62] I agree that this raises a question of law. It involves the interpretation of the Regulation and its incorporation into the standard form dealer agreement. This issue is of precedential value and does not engage the factual matrix. That said, the Tribunal’s conclusion is reasonable. Section 3(4) of the Regulation clearly states that a distributor may not “unreasonably with[o]ld” renewal approval. This requirement is separate from a dealer’s right, under s. 3(6)(3), to address concerns underlying the refusal to renew once notified by the distributor. I see no basis to interfere with the Tribunal’s decision to consider whether CNH unreasonably withheld renewal.
[63] The second purported error of law CNH identifies is in the Tribunal’s conclusion that because CNH did not comply with the Regulation, its non-renewal was unreasonable. In fact, CNH argues, it was fully compliant with the Regulation.
[64] In my view, this issue raises a question of mixed law and fact. The Tribunal had to consider whether the evidence supported a conclusion that CNH’s non-renewal was unreasonable. This is not a question of law and is thus outside the scope of review. In any event, given my conclusions above, there is no merit to this argument.
[65] As a result, I would dismiss this ground of appeal.
(v) Cross-appeal: the Tribunal’s assessment of damages
[66] On its cross-appeal, Chesterman argues that the Divisional Court erred in law by failing to consider the purpose of the Regulation in determining damages. More specifically, Chesterman submits that the Tribunal’s acceptance of the “discounted cash flow” model for damages and its finding of a two-year reasonable notice period for termination of the contract, aspects of its decision not disturbed by the Divisional Court, is inconsistent with the remedial purpose of both the Regulation and the Act: levelling the commercial playing field between farm equipment distributors and dealers. While much of this ground of appeal engages questions of mixed law and fact, to the extent there is an extricable question of law concerning the Tribunal’s assessment of damages, I would dismiss this ground of the cross-appeal.
[67] Before the Tribunal, the parties presented competing models of assessing Chesterman’s damages. The Tribunal rejected Chesterman’s proposed “business valuation” model, which treated Chesterman’s loss arising from CNH’s non-renewal as the loss of a business line that would have continued indefinitely. The Tribunal accepted CNH’s “discounted cash flow” model, based on lost cash flows over a finite time period. The Tribunal recognized that determining the appropriate model for calculating damages depends on the circumstances of each case, including the terms of the dealer agreement at issue and the applicable legislation. In this case, the Dealer Agreement did not indicate that it was intended to operate in perpetuity. Nor did the Regulation introduce such a requirement. The Tribunal rejected Chesterman’s argument that there could be no basis for termination except as provided in seven circumstances listed in s. 2 of the Regulation. In so concluding, the Tribunal relied in part on s. 33 of the Farm Implements Act, which provides:
The rights, duties and remedies provided by this Act are in addition to the rights, duties and remedies under any other Act and the common law.
[68] The Tribunal reasoned that contracts at common law are terminable under their written terms or, if there are no applicable written terms, on notice that is reasonable in the circumstances. In the Tribunal’s view, a two-year notice period was reasonable in this case and damages for lost profits were calculated on that basis.
[69] On appeal to the Divisional Court, all three judges found that the quantum of damages did not engage any question of law and thus was not properly the subject of review. Molloy J., writing for the court on this issue, noted that 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. Moreover, she noted the Tribunal’s findings as to the unreliability of the basis of Chesterman’s expert’s calculations of the losses. The Divisional Court held that the Tribunal made no legal error in basing its damages award for lost profits on the theory that the Dealer Agreement could be terminated upon reasonable notice, which the Tribunal found in the circumstances to be two years.
[70] At its core, Chesterman’s cross-appeal to this court is a challenge as to how the Tribunal calculated damages for lost profits. Although framed somewhat differently, Chesterman essentially argues that the legislation precluded the Tribunal from interpreting the Dealer Agreement in accordance with principles of contract termination at common law, as this is at odds with the legislation’s purpose. In Chesterman’s view, the Tribunal wrongly incorporated a common law right to terminate the Agreement on reasonable notice, which in turn led it to erroneously adopt and calculate damages under the discounted cash flow model.
[71] The question of whether it was open to the Tribunal to find that the common law provides a right to terminate the Dealer Agreement on reasonable notice is an extricable question of law: in this case, the application of an incorrect principle: Sattva, at para. 53; see also Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2016 ONCA 246, 130 O.R. (3d) 418, at para. 41.
[72] Chesterman submits that the Tribunal erred by interpreting s. 33 to preserve rights incompatible with the legislation’s remedial purpose. I disagree. It is a well-established principle that to displace the common law, the legislation must show a clear intention to do so: Demers v. Monty, 2012 ONCA 384, 111 O.R. (3d) 42, at paras. 32-33; Parry Sound (District) Social Services Administration Board v. O.P.S.E.U., Local 324, 2003 SCC 42, [2003] 2 S.C.R. 157, at para. 39.
[73] The Tribunal, after reviewing the relevant legislation, reasonably determined that the Dealer Agreement, as amended by the Regulation, did not eliminate a common law right of termination. While the issue of whether a party has a common law right to terminate a contract will depend on the surrounding circumstances of each case, some types of contracts – including dealership or distribution agreements – will often naturally give rise to an implied right to terminate on reasonable notice: see e.g., Hillis Oil & Sales v. Wynn’s Canada, [1986] 1 S.C.R. 57, at p. 67; 1193430 Ontario Inc. v. Boa-Franc Inc. (2005), 78 O.R. (3d) 81 (C.A.), at paras. 45, 59-60; Robinson v. Galt Chemical Products Ltd., [1933] O.W.N. 502 (C.A.), at p. 504. Here, in the absence of clear and direct language to the contrary, the Tribunal reasonably determined that the Regulation did not exclude a common law right to terminate the Dealer Agreement.
[74] As a result, in my view, the Tribunal committed no error in assessing damages for lost profits on the basis that the Dealer Agreement could be terminated upon reasonable notice. Although Chesterman also takes issue with other aspects of the Tribunal’s damages award – such as how it weighed and considered the expert evidence – these issues do not raise extricable questions of law. I would accordingly dismiss Chesterman’s cross-appeal from the Tribunal’s damages award.
(vi) Cross-appeal: the Tribunal’s costs award
[75] Chesterman also cross-appeals the Divisional Court’s decision to quash the Tribunal’s costs award and remit the matter to the Tribunal for reconsideration. It argues that a fair reading of the Tribunal’s reasons demonstrates that its costs award was fully within its jurisdiction. In my view, whether the Tribunal failed to make a costs award in accordance with its jurisdiction and the law is a question of law. Finding no reviewable error in the Tribunal’s analysis, however, I would restore the Tribunal’s costs award.
[76] The Tribunal awarded costs to Chesterman in the amount of $376,338.05. It explained that r. 28 of the Tribunal Rules incorporates the SPPA provisions concerning the costs of a proceeding. Section 17.1 of the SPPA imposes two prerequisites to making a costs award, both of which were satisfied in this case. First, the Tribunal had to make rules about ordering costs, which it had in the Tribunal Rules. Second, the party against whom costs were ordered had to engage in unreasonable, frivolous or vexatious conduct or act in bad faith.
[77] In the Tribunal’s view, CNH’s conduct in ending the Dealer Agreement was unreasonable. Moreover, CNH had changed its theory of part of the case mid-way through the process by altering its position about the effect of the renewal provision in the Dealer Agreement and by raising the issue of retroactive versus retrospective application of the Regulation. The Tribunal determined that this constituted unreasonable conduct and warranted a costs award against CNH. In addition, the Tribunal further relied on s. 33 of the Farm Implements Act, which preserves common law rights and remedies, and reasoned there is a “common law principle of costs following the event’”.
[78] On appeal, the Divisional Court unanimously reversed the Tribunal’s costs decision and remitted the matter for redetermination. It found that the Tribunal had erred in law and exceeded its jurisdiction.
[79] On further appeal to this court, Chesterman argues that the Divisional Court erred in disturbing the Tribunal’s costs award. I agree.
[80] As explained above, an appeal from a Tribunal decision under s. 5 of the Farm Implements Act is limited to questions of law. As with all discretionary decisions, the Tribunal’s discretion to award costs must be exercised in accordance with the law: see generally, Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817, at paras. 53, 56; John Doe v. Ontario (Finance), 2014 SCC 36, [2014] 2 S.C.R. 3, at para. 52. If the Tribunal makes an error in principle or the award is clearly wrong, appellate intervention may be warranted: see Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27; Kerry (Canada) Inc. v. DCA Employees Pension Committee, 2007 ONCA 416, at paras. 170-71, aff’d Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678.
[81] Tribunal decisions concerning costs are reviewed on the reasonableness standard, absent a question that falls into one of the existing categories for which correctness review applies: Smith v. Alliance Pipeline Ltd., 2011 SCC 7, [2011] 1 S.C.R. 160, at paras. 36-40; Nolan, at para. 35; Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2011 SCC 53, [2011] 3 S.C.R. 471, at para. 27. There is no justification in this case to depart from the presumption that reasonableness governs the costs decision.
[82] Applying the reasonableness standard of review, I conclude that the Tribunal’s costs award was reasonable and ought not to have been disturbed.
[83] First, the Tribunal did not err in law by failing to adhere to the restrictions for awarding costs set out in the SPPA, the Tribunal Rules and associated commentary, and the Tribunal’s case law.
[84] As identified by the Tribunal, s. 17.1 of the SPPA and the Tribunal Rules govern the Tribunal’s authority to award costs. Section 17.1(2)(a) of the SPPA, which is incorporated into r. 28 of the Tribunal Rules, provides that costs may only be ordered where “the conduct or course of conduct of a party has been unreasonable, frivolous or vexatious or a party has acted in bad faith”. Rule 28.04 of the Tribunal Rules includes a non-exhaustive list of unreasonable, frivolous, vexatious or bad faith conduct. As the Divisional Court identified, the conduct outlined relates to actions within the course of the proceedings themselves.
[85] The commentary on r. 28 of the Tribunal Rules explains that “[a]n order for costs is very rare” and that “[i]t 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[s] will be made.” The commentary further provides that the “test for clearly unreasonable’ conduct” is whether “a reasonable person, having looked at all of the circumstances of the case, the conduct or course of conduct of a party proven at the hearing and the extent of his or her familiarity with the Tribunal’s procedure, [would] exclaim, that’s not right; that’s not fair; that person ought to be obligated to another in some way for that kind of conduct.’”
[86] The Divisional Court reasoned that the SPPA and the Tribunal Rules contemplate awarding costs only for unreasonable conduct within the proceeding itself, not conduct relating to the subject matter of the proceeding. With respect, there is nothing in the SPPA or the Tribunal Rules mandating this narrow interpretation of the Tribunal’s jurisdiction to award costs. In any event, the Tribunal concluded that “other conduct of CNH” during the proceedings – such as CNH’s changing the theory of part of its case midway through the process – was “sufficiently unreasonable to warrant a cost award.”
[87] Similarly, there is no merit to the argument that the Tribunal erred in law by failing to adhere to its own case authority. First, I do not read this case law identified by CNH as standing for the proposition that the Tribunal cannot consider conduct outside of the proceeding itself in awarding costs. Second, even if such a notion has emerged in Tribunal jurisprudence, a tribunal is not bound by its previous decisions: see Weber v. Ontario Hydro, [1995] 2 S.C.R. 929, at para. 14, per Iacobucci J., dissenting, but not on this point; Ontario (Provincial Police) v. Favretto (2004), 72 O.R. (3d) 681 (C.A.), at para. 48. Provided a decision remains within a tribunal’s jurisdiction and the bounds of rationality, an alleged inconsistency with another decision of the tribunal is not reason for this court to intervene: Ellis-Don Ltd. v. Ontario (Labour Relations Board), 2001 SCC 4, [2001] 1 S.C.R. 221, at para. 28 (citing Domtar Inc. v. Quebec (Commission d’appel en matière de lésions professionnelles), [1993] 2 S.C.R. 756).
[88] Second, notwithstanding the Tribunal’s musing about the existence of a common law principle that costs follow the event, and that it is “open to debate whether the common law principle of costs following the event’ ha[d] been elevated to a common law right, duty or remedy’”, the Tribunal understood that its decision to award costs was discretionary and had to be made in accordance with statutory requirements.
[89] Third, the Tribunal did not err in law by “failing to take into account” the principle of proportionality when awarding costs. The principle of proportionality is an overarching consideration in determining the appropriate quantum of costs: Barbour v. Bailey, 2016 ONCA 334, at para. 9. It requires a decision-maker to consider whether the costs incurred were justified in light of the circumstances of the case. The fact that a costs award exceeds a damages award does not necessarily mean that appellate intervention is warranted: e.g. The British Society of Audiology v. B. C. Decker Inc., 2010 ONCA 543, 268 O.A.C. 135, at paras. 25-31. Ultimately, the question is whether the costs award, in all the circumstances, is fair and reasonable.
[90] In this case, the Tribunal ordered CNH to pay costs on a partial indemnity scale of approximately $375,000. Chesterman had sought costs of almost $640,000 on a substantial indemnity scale. CNH’s partial indemnity costs reflected fees of approximately $190,000.
[91] The Tribunal noted that the proceeding had spanned several years and involved several interlocutory procedural hearings, seventeen hearing days, and an appeal to the Divisional Court. Notably, the Tribunal explicitly acknowledged the proportionality principle in its reasons, noting:
The amount claimed by Chesterman was approximately $1 million while the amount recovered was approximately $200,000. Proportionality is something to be considered. An unfortunate reality of modern litigation is that frequently the cost of litigating can exceed the amount claimed or the amount recovered. However, the Tribunal is not bound to any proportionality formula. It would be unfair to use the proportionality principle to deny a successful party of a cost award.
[92] While the Tribunal’s costs award may be high, in my view it did not err in law by failing to consider proportionality in its reasoning.
[93] In summary, the Tribunal’s costs award reflects no error on any identified question of law and there was accordingly no basis for the Divisional Court to interfere with it. I would therefore grant the cross-appeal in part and restore the costs award of the Tribunal.
E. Disposition:
[94] I would dismiss the appeal, as well as the cross-appeal on damages. I would allow the cross-appeal on costs, and restore the costs award made by the Tribunal.
[95] Chesterman has been largely successful on both the appeal and cross-appeal and is entitled to its costs in this court. I would award costs in the amount of $25,000 inclusive of HST and disbursements. Chesterman now also seeks an award of costs from this court for proceedings in the Divisional Court, despite no costs award having been sought or awarded below. CNH takes the position that costs in the Divisional Court should be remitted back to the Divisional Court for its consideration. In my view, as there was no costs ordered by the Divisional Court, that is the end of the matter and I would neither make a costs order for those proceedings, nor refer the matter back to the Divisional Court.
Released: “DW” JUL 13 2018
“B.W. Miller J.A.”
“I agree. David Watt J.A.”
“I agree. M.L. Benotto J.A.”