Naber v John Deere Financial Inc., 2020 SKCA 94

Court of Appeal for Saskatchewan Docket: CACV3510 Citation: Naber v John Deere Financial Inc. , 2020 SKCA 94 Date: 2020-08-06 Between: Todd Naber and TK Equipment Ltd. Appellants (Applicants) And John Deere Financial Inc. Respondent (Respondent) Before: Ryan-Froslie, Leurer and Barrington-Foote JJ.A. Disposition: Appeal allowed Written reasons by: The Honourable Madam Justice Ryan-Froslie In concurrence: The Honourable Mr. Justice Leurer The Honourable Mr.

Justice Barrington-Foote On appeal from: QBG No 42/2016 and QBG No 2/2017, Melfort Appeal heard: May 20, 2020 Counsel: Michael Mahon for the Appellants Murray Sawatzky, Q.C. and Heather Franklin for the Respondent Ryan-Froslie J.A. I. Introduction [ 1 ] Todd Naber and TK Equipment Ltd. [appellants] entered into four agreements for the purchase of farm equipment financed through the respondent, John Deere Financial Inc. [John Deere].

The appellants fell into arears under the contracts and brought an application in the Court of Queen’s Bench seeking temporary relief from forfeiture of the equipment pursuant to s. 53 of The Saskatchewan Farm Security Act , SS 1988-89, c S-17.1 [ SFSA ]. The Chambers judge refused the application, finding the appellants had failed to establish that their inability to pay arose from temporary circumstances ( Naber v John Deere Financial Inc. (7 October 2019) Melfort, QBG 42/2016 and QBG 2/2017 (Sask QB) [ Chambers Decision ]).

The appellants now appeal that decision to this Court. [ 2 ] In my view, the Chambers judge applied the wrong test to the appellants’ application and, for the reasons set out herein, the appeal must be allowed. II. Background [ 3 ] In January and May of 2013, the appellants entered into four contracts with John Deere to purchase farm equipment for a total purchase price of $2,305,000. John Deere financed $2,071,199.16 of the purchase price. Each of the four contracts was for a term for 72 months and provided for semi-annual payments. The term of all four contracts has now expired.

The final payments under the contracts were due either on January 15, 2019, or May 11, 2019.

The equipment covered by the contracts is essential to the appellants’ farming operations and includes a sprayer, tractors, windrowers, swathers, combines and pickup platforms. [ 4 ] The status of each contract was summarized by the Chambers judge at paragraph 4 of her decision: Date of signing Amount financed Balance owing Per diem Estimated present value of equipment Final payment due Contract 1 January 15, 2013 $372,998.04 $102,888.46 $88.07 $132,814.00 January 15, 2019 Contract 2 January 15, 2013 $810,807.72 $208,548.62 $186.97 $371,414.00 January 15, 2019 Contract 3 May 11, 2013 $126,74.92 $40,306.63 $34.85 $94,056.00 May 11, 2019 Contract 4 May 11, 2013 $760,650.48 $211,496.67 $177.14 $356,622.00 May 11, 2019 TOTALS $2,071,199.16 $563,240.38 $478.03 $954,906.00 [ 5 ] While there appears to be some issue as to the exact amount owing under the contracts, in October 2018 the appellants verified in writing that John Deere’s calculations were correct.

The amount owing is $563,240.38 (plus interest). The appellants have paid more than 75% of the purchase price. The value of the equipment as of the application date was $954,906. [ 6 ] The appellants’ last payment was for $53,745.80 [1] . Mr. Naber deposed the payment had been made some time in 2019, while John Deere’s evidence was that it had been made in December 2018. [ 7 ] It is uncontroverted that the appellants’ payment history with respect to the contracts was less than stellar. The appellants defaulted under all four contracts in 2013 and thereafter never made the payments as agreed.

Several applications for possession have been made by John Deere, all of which were resolved by the appellants paying the arrears.

[ 8 ] The Chambers judge described the appellants’ payment history as follows: [13] Over the years, the applicants have made few payments, if any, in accordance with the payment structure set out in the contracts. There have been a number of court applications required by the respondent under the Act , with the respondent attempting to seize the equipment or, at a minimum, ensure payment toward the debt.

The August 15, 2019 affidavit of Ryan Szymusiak, a member of the “litigation, repossession and specialized collections department” for the respondent, has set out ongoing settlement discussions between the parties including those in the past year. The respondent has worked diligently with the applicants to address payment of the contracts, but has also been required to take a number of legal steps to enforce repayment of the contracts and attempt to repossess the equipment.

Despite the applicants' commitment to make payments, these often did not materialize or court intervention was required to prevent the respondent's repossession of the equipment. [ 9 ] In 2018, John Deere issued a notice under the SFSA of its intent to take possession of the equipment covered by the contracts. The appellants, through their legal counsel, advised John Deere they were prepared to pay the outstanding debt by assigning to John Deere the proceeds of a grain delivery contract.

It then came to light that another creditor had been given priority to the first $200,000 of proceeds from grain sales under the contract. As a result, the grain delivery contract was not assigned to John Deere and further promises to pay by the appellants came to naught. The only additional payment received by John Deere was $53,745.80. [ 10 ] The evidence confirms that John Deere extended the appellants considerable latitude to enable them to pay out the contracts but to no avail.

John Deere, again, served the appellants with notice of intent to realize on security under the Farm Debt Mediation Act , SC 1997, c 21 , followed by service of a notice of intention to take possession of the equipment under the SFSA . The appellants applied for a hearing under s. 50 of the latter Act.

They sought relief from forfeiture of the equipment pursuant to s. 53, claiming they had been unable to make payments under the contracts because of a poor harvest in 2018 and an inability to market canola as a result of China’s trade embargo. [ 11 ] At the hearing, which occurred in September 2019, the appellants offered to assign two Parish & Heimbecker grain delivery contracts to John Deere; the proceeds of which the appellants said would be sufficient to pay out all four contracts. The grain was scheduled to be delivered by the end of 2019. Mr.

Naber attested that neither grain delivery contract had been assigned or was held as security by any other creditor. The appellants asked the Chambers judge to postpone John Deere’s repossession of the equipment until they had an opportunity to deliver the grain and pay out the contracts. III.

The Chambers Decision [ 12 ] The Chambers judge identified the issue to be determined by her as whether the appellants had “demonstrated the existence of a temporary hardship or inability to pay entitling them to relief under s. 53 of the [ SFSA ]” ( at para 6 ). [ 13 ] The Chambers judge concluded: [ 14 ] From the evidence, I am satisfied this is not temporary relief the applicants seek. It is instead demonstrative of an ongoing pattern of chronic difficulty meeting financial obligations under the contracts.

The applicants have repeatedly required concessions from the respondent. … [28] I am not satisfied this is a temporary hardship or inability to pay. It is a perpetual and chronic issue in meeting the financial obligations under the contracts. [14] Based on those conclusions, the Chambers judge dismissed the appellants’ application and ordered the equipment be delivered to John Deere without delay. IV. Issues [ 15 ] Pursuant to s. 106 of the SFSA , appeals to this Court are limited to questions of law. [ 16 ] The appellants describe the issues for appeal as whether the Chambers judge erred in determining: (

i) their inability to pay was not due to temporary financial hardship; and (ii) the relief claimed was not temporary relief. [ 17 ] John Deere contends those issues do not raise questions of law. [ 18 ] While the appellants could have done a better job framing their issues, it is clear from their factum and oral arguments that the real questions for determination by this Court are whether the Chambers judge correctly identified the legal test to be applied and whether she erred in law in applying that test. I would, thus, reframe the issues as follows: (

a) Did the Chambers judge correctly identify the test to be applied under s. 53(1)? (

b) Did the Chambers judge err in law in applying that test? [ 19 ] While John Deere contends the appellants have not raised a question of law, that contention is, in my view, without merit. The applicable test pursuant to s. 53(1) is a question of law subject to a correctness standard of review. The application of that test in the context of any particular set of facts involves the exercise of discretion, which is generally subject to deference by this Court: Rimmer v Adshead , 2002 SKCA 12 at para 58 , [2002] 4 WWR 119.

It is, however, an error of law for a judge in exercising his or her discretion to err in principle or disregard a material matter of fact. As LeBel J. stated in British Columbia (Minister of Forests) v Okanagan Indian Band , 2003 SCC 71 at para 43 , [2003] 3 SCR 371:

As I observed in R. v. Regan, [2002] 1 S.C.R. 297, 2002 SCC 12, however, discretionary decisions are not completely insulated fromreview (para. 118). An appellate court may and should intervene where it finds that the trial judge has misdirected himself as to theapplicable law or made a palpable error in his assessment of the facts. As this Court held in Pelech v.

Pelech, (SCC),[1987] 1 S.C.R. 801, at p. 814-15, the criteria for the exercise of a judicial discretion are legal criteria, and their definition as well as afailure to apply them or a misapplication of them raise questions of law which are subject to appellate review. V. Analysis A. The law [20] As indicated, this appeal engages the

interpretation and application of s. 53 of the SFSA, the relevant portions of which read asfollows: Orders of the court 53(1) On the hearing of an application made pursuant to

section 50, the court may make any orders that it considers just.

(2) Without limiting the generality of subsection (1), the court may: (

a) order delivery of the implement to the secured party, subject to any conditions that the court considers just; or (

b) order delivery of the implement to the secured party and postpone the operation of the order: (

i) on condition that the farmer pays to the secured party any amount that the court considers just; or (ii) subject to fulfillment of any conditions by the farmer, other than that described in subclause (i), that the court considers just.

(3) The court may vary the terms of any order made pursuant to this section: (

a) at any time; and (

b) in any manner that the court considers just.

(4) Where a secured party and a farmer do not agree as to the amount remaining unpaid under the agreement, the court may determine theamount.

(5) Subject to any conditions that it considers just, the court may, at any time, revoke the postponement of the operation of an order fordelivery of an implement. … [21] The principles applicable to the

interpretation of statutory provisions are well-settled and were recently enunciated in PhillipsLegal Professional Corporation v Schenher, 2020 SKCA 87: [83] In Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 SCR 27, the Supreme Court of Canada endorsed the principleexpressed by Elmer A. Driedger, Construction of Statutes, 2d ed (Toronto: Butterworths, 1983) at 89, that the proper approach to statutoryinterpretation is to read the words of

an Act in their entire context and in their grammatical and ordinary sense, harmoniously with thescheme of the Act, the object of the Act and, in this case, the intention of the Legislature.

Section 2-10 of The Legislation Act, SS 2019, cL-10.2, codifies this approach with respect to the

interpretation of Saskatchewan statutes and, in addition, provides in subsection (2) that:“Every Act and regulation is to be construed as being remedial and is to be given the fair, large and liberal

interpretation that best ensuresthe attainment of its objects”. [22] The SFSA is farm debt legislation enacted for the benefit of farmers. Its full title suggests its object:

an Act to provide forsecurity for Saskatchewan family farms. The purpose of the SFSA is to assist farmers to retain their farming operations in the face offinancial instability, generated by the vagaries of the farming industry such as weather, blight, transportation and market upheavals. Itprovides farmers with protection against seizure of their land and equipment and provides additional tools to enable them to work outaccommodations with their creditors. [23]

Part IV of the SFSA deals with the repossession of farm equipment. Among the protections found in this Part, is that a vendor’srights against a farmer are limited to repossession of the equipment (articles) sold unless it has been damaged by the farmer’s neglect orwilful act or a court determines it is inequitable for the restriction to apply (s. 46). At its most basic, a vendor intending to repossess a farmimplement must first serve notice of its intention on the farmer (s. 48). After receipt of this notice, the farmer may apply to the Court ofQueen’s Bench for a hearing (s. 50).

On hearing the application, the court has the power to make any of the orders described in s. 53. Asstated by Vancise J.A. in Ross v New Holland (Canada) Credit Co., 2002 SKCA 39, 219 Sask R 279: [9] The general purpose of

Part IV of the Act is to provide a measure of protection to farmers in relation to creditors with securedinterests in purchases by farmers. … [24] Justice Richards (as he then was) in Chmil v National Leasing Group Inc., 2006 SKCA 140, [2007] 6 WWR 25 [Chmil],described

Part IV in these terms: [4] The Saskatchewan Farm Security Act prevents a secured creditor from taking possession of an implement from a farmer withoutfirst serving the farmer with a prescribed notice. The notice advises the farmer of his or her right to apply for a hearing before the Court of

Queen’s Bench. If such an application is made, the secured creditor is barred from taking further proceedings without leave of the court.At the Queen’s Bench hearing, the Court may make such orders as it considers just and equitable. … (Emphasis added) [25] Section 53(1) sets out the test to be applied by judges hearing applications pursuant to s. 53(1) of

Part IV: “the court may makeany orders that it considers just” (Chmil at para 4). The Act makes no reference as to what factors should be considered to determine whatis “just”. Obviously, the applicable factors will vary depending on the circumstances of each case and must be weighed keeping in mindthe purpose of the SFSA. In most cases, an unpaid vendor has no recourse to the personal covenant of the farmer. Other secured partiesmay find illusory the ability to sue on that covenant, even when it is legally permissible.

On the other hand, when the residual value of theequipment exceeds the amount secured, the farmer has an interest in that equity. Of course, the greater the residual value the less risk thevendor faces by leaving the equipment in the hands of the farmer. [26] In Bartko v Odnokon Holdings Ltd., 2012 SKQB 262, 400 Sask R 200 [Bartko], Mills J. described some of the specificconsiderations a judge should take into account when weighing what is “just” in the circumstances and in fashioning a remedy pursuant tos. 53(1): [2] Pursuant to s. 50 of the Act, the Bartkos applied for a hearing, which was conducted in a

summary fashion on June 26, 2012. Thepower I have to make an order following the hearing is very wide, as found in s. 53 of the Act. Essentially, I am to make any order Iconsider just. Practically, that is meant that after comparing the equities of the parties to the application, I can exercise my discretion toorder the farmer to give up possession of all or some of the farm equipment immediately, postpone the giving up of possession by thefarmer for a specified period of time on conditions involving payment or other matters the Court deems appropriate. [3] Equitable considerations that are normally examined include: (

a) the amount outstanding under the lease agreement; (

b) the amount of continuing payments required pursuant to the agreement; (

c) whether the lease agreement has expired; (

d) whether the lease agreement includes an option to purchase the equipment at a determinable price; (

e) the payment history of the farmer, including the date of and amount of the last payment made; (

f) the fair market value of the equipment; (

g) the time of year the application is made in relation to the nature of the equipment for which possession is sought (for example,equitable considerations are stronger in favour of a farmer who seeks to retain possession of a combine for the purpose of an immediateharvest as opposed to retaining possession after harvest is completed); (

h) the time of year for which sales of the farm equipment would normally be held; (

i) the prospects the farmer has for becoming current under the lease agreement; and/or (

j) factors outside of the control of the farmer that may have led to the default occurring (for example, serious personal injury or death of aprincipal member of the farming operation, or catastrophes impacting upon the profitability of the farm). [4] There are likely other considerations that will arise. The point of the previous comment is to emphasize the wide type ofconsiderations the Court is entitled to view in coming to a just determination. [27] In Bartko, the Chambers judge was dealing with a lease of farm equipment where ongoing payments were required.

While Iwould adopt Mills J.’s comments, I would add that a key factor in determining what is “just”, is the type of contract in play – that is,whether it is a lease, a lease with a buy out provision, or a purchase by installment agreement.

Also of importance is whether ongoingpayments are necessary or whether the contract is at an end and only a single payment is required. [28] It is of note that the SFSA does not require a farmer’s inability to meet their payments result from temporary hardship, thoughthat may be a factor in determining what is “just”. [29] In Belarus Equipment of Canada Ltd. v Chernoff, (SK CA), [1983] 5 WWR 536 (Sask CA) [Chernoff], thisCourt dealt with the purchase of a tractor under a conditional sales contract. When the tractor failed to perform properly, the farmerstopped making payments.

The vendor served the farmer with notice of its intent to repossess the tractor pursuant to what was then TheLimitation of Civil Rights Act, RSS 1978, c L-16. The farmer applied for a hearing pursuant to s. 33(1) of that Act, which is in substancethe same as s. 53(1) of the SFSA. At the hearing, the judge determined the tractor was defective and ordered the vendor to return theportion of the purchase price paid.

The vendor appealed that decision to this Court. [30] In allowing the appeal, this Court considered the limits of a judge’s discretion pursuant to s. 33(1) of The Limitation of CivilRights Act, which reads: “Upon the hearing of an application made under

section 23, the judge may make such orders as he deems just”.Justice Matheson (ad hoc), writing for the Court, described the limits of a judge’s discretion under that subsection in these terms: [21] Orders relating to issues involving the temporary relief from forfeiture, or relief predicated upon the applicant's temporaryhardship or inability to pay, or upon some like need for forbearance from the opposite party's right to proceed, are orders within the scopeof the judge's discretion.

But orders based on issues that have nothing to do with the applicant's ability to make payments, which aredesigned to definitively resolve legal disputes between the parties that would ordinarily be tried in regularly constituted actions, are notwithin the ambit of the judge's discretion under this section.

[31] The Court in Chernoff did not purport to limit applications for relief under s. 33(1) of The Limitation of Civil Rights Act tosituations where farmers are suffering temporary financial hardship. Rather, it limited applications for relief to a need for temporaryforbearance. That need might, for example, be triggered by “the applicant’s temporary hardship or inability to pay or some like need forforbearance” from the creditor’s right to proceed.

The point made by the Court in Chernoff is that a Chambers judge’s discretion pursuantto s. 33(1) of The Limitation of Civil Rights Act (by analogy pursuant to s. 53(1) of the SFSA) was restricted to orders of forbearance.Judges had no power under that subsection to resolve legal disputes between farmers and their creditors that would ordinarily be subject tocourt proceedings such as determining the meaning of contractual provisions, determining whether the contract had been breached or theamount owing under the contract (other than a simple accounting exercise). [32] Keeping in mind these principles as well as the purpose and scheme of the SFSA, I turn to consider whether the Chambersjudge applied the correct test to her analysis of the appellants’ application.

B. Did the Chambers judge correctly identify the test to be applied unders. 53(1)? [33] As already indicated, the test to be applied under s. 53(1) is what is “just” in the circumstances (Chmil at para 4).

Here, theChambers judge determined that the issue before her was whether the appellants had “demonstrated the existence of a temporary hardshipor inability to pay entitling them to relief under s. 53 of the Act” (Chambers Decision at para 6). [34] While the Chambers judge quoted Hrabinsky J.’s comment in Lanal Farms Ltd. v Bank of Montreal (1989), (SK KB), 81 Sask R 162 (QB); the comments of Mills J. in Bartko, which have been quoted herein; and Petryshyn v National LeasingGroup Inc., 2018 SKQB 5, she never identified the test to be applied.

Instead she focused on whether the appellants had demonstrated theexistence of a temporary hardship or inability to pay entitling them to relief under s. 53 of the SFSA. In my respectful view, this was anerror. A temporary hardship or inability to pay may be relevant in determining what is “just”, but it is not a prescribed requirement thatmust be met in order to obtain relief under s. 53(1) of the SFSA. As stated, the test under that subsection is what is “just” in thecircumstances and that requires an assessment of all relevant factors. C.

Did the Chambers judge err in her application of the test? [35] In my view, the Chambers judge failed to identify the correct test. This led her to overlook relevant factors in arriving at herdetermination. This constituted an error of law on her part. Let me explain. [36] Whether the appellants’ failure to make payments under the contracts was due to “chronic” financial difficulties or a temporaryinability to pay was not of central relevance in the circumstances of the application before the Chambers judge.

While the appellants pastperformance created a reason for John Deere to be concerned that it would not be paid in full, the contracts were all at an end and noongoing payments were being proposed or were required. Rather, the appellants were seeking forbearance until grain could be soldpursuant to identifiable grain delivery contracts in a context in which John Deere remained well secured by the equipment. This leads tomy next point. [37] The Chambers judge overlooked key factors in exercising her discretion thus evidencing an error in principle. Those factorsincluded that: (

i) the contracts in issue were all purchase agreements; (ii) the appellants, having paid having paid 75% of the purchaseprice, had accumulated a significant equity in the current value of the equipment; (iii) the appellants had put forward a viable proposal thatwould have allowed pay out of the balance owing under all four contracts within a relatively short period of time (two to three months);and (iv) the current value of the equipment exceeds the amount owing against it.

John Deere was well secured and would remain so evenif forbearance was granted. [38] While the Chambers judge expressed concern about the assignment of the grain delivery contracts because the grain coveredby the contracts was owned by a separate legal entity, those concerns could easily have been addressed within the confines of a s. 53order. For example, the order could have made forbearance conditional on a valid assignment of the grain delivery contracts beingreceived by a stated date. This would not be unreasonable as Mr. Naber was the owner and directing mind of the company that owned thegrain.

Further, the time required to deliver the grain was short – two to three months – as such, only a temporary forbearance was required. [39] Keeping in mind the purpose of the SFSA, the purpose of the contracts at issue, the appellants’ equitable interest in theequipment, the value of the equipment and the essential nature of the equipment to the appellants’ ongoing farming operations, it was“just” that the relief requested be granted. VI. conclusion [40] The appeal is allowed. The Chambers judge’s decision is set aside.

Because of the passage of time, the grain delivery contractsare no longer available for assignment. Accordingly, this matter must be remitted to the Court of Queen’s Bench for reconsideration withadditional evidence to be filed by the appellants and the respondent providing an update as to any matters that may touch on the issues,including the value of the equipment, the amount outstanding and the appellants’ proposal for payment. [41] There shall be no order as to costs. “Ryan-Froslie J.A.” Ryan-Froslie J.A.I concur. “Leurer J.A.” Leurer J.A. I concur. “Barrington-Foote J.A.”

Barrington-Foote J.A.