John Vieraitis vs. Xeltron S.A. & Phair Systems Ltd.

In the matter of the Farm Implements Act

And in the matter of: An Application to the Agriculture, Food and Rural Affairs Appeal Tribunal (Tribunal) by John Vieraitis, of Tillsonburg, Ontario, for a hearing under Section 5 of the Farm Implements Act with respect to the alleged failure of a colour sorting machine to perform to specifications.

Before: John O'Kane, Vice-Chair; Rob Scouller, Member; Jane Sadler Richards, Member

Appearances:
John Vieraitis Jr., appellant
Edward Oldfield, counsel for appellant
Bill Phair, Phair Systems Ltd., respondent
Thomas Chalmers, counsel for respondent

Decision of the Tribunal

John Vieraitis, a farmer operating Ontario Specialty Grains, purchased a sorting machine manufactured by Xeltron S.A. (Xeltron) from Phair Systems Ltd. (Phair) for use in sorting beans. A dispute arose about the operation of the machine that Vieraitis, Xeltron and Phair were unable to resolve through mediation. As a result of the failed mediation, Mr. Vieraitis applied for a hearing into the dispute before the Tribunal under section 5(5) of the Farm Implements Act (the Act).

The Tribunal conducted a hearing on March 23rd and May 3rd, 2011.

Despite participating in mediation under the Act, and despite participating in an aborted Tribunal hearing during 2010, Xeltron did not attend the hearing on March 23rd or May 3rd.

Background

John Vieraitis owns 300 acres and rents another 2,900 acres of farmland. He grows a variety of crops as well as doing some custom planting and combining for other farmers. He markets what he grows through his company called Ontario Specialty Grains.

In 2007, Mr. Vieraitis began shopping to buy a colour sorting machine, primarily to sort his beans. Mr. Vieraitis planned to sell some of his beans as "food grade" both domestically and in the specialty export market, where there is a much lower tolerance for product imperfections. In this context, colour sorting machines sort out contaminants and off-coloured beans. The end result is a more uniformly coloured product that meets buyer specifications.

Mr. Vieraitis' investigations about a suitable colour sorter lead him to an equipment dealer in Mount Pleasant, Michigan, who recommended the Xeltron Model MV-90 electronic colour sorter.

Mr. Vieraitis ultimately purchased a Xeltron Model MV-90 through Phair Systems Ltd. on March 26th, 2008. Mr. Vieraitis made the purchase through Phair because he had a past business relationship with Phair and Phair was located only about an hour from his farm, rather than the much greater distance to the Michigan dealer.

Xeltron's operations are located in Costa Rica and the MV-90 sorter was imported to Ontario in late summer 2008 and eventually installed at the Vieraitis' farm in late October. Mr. Vieraitis' actual use of the MV-90 sorter began about November 5th, 2008. From the first day of actual use, the MV-90 was unable to sort Mr. Vieraitis' beans to the tolerance levels demanded by the marketplace.

Between January and the end of March 2009, Xeltron and Phair unsuccessfully attempted to modify and adjust the MV-90 to meet Mr. Vieraitis' needs.

When Xeltron and Phair were unsuccessful, Mr. Vieraitis asked Xeltron and Phair to take the MV-90 back and refund his money under the provisions of the Act related to "failure to perform".

Mr. Vieraitis asked the Tribunal to terminate his sale agreement with Phair and Xeltron and order that Phair and Xeltron refund the purchase price.

Between the first hearing day on March 23rd and the second day on May 3rd, 2011, Mr. Vieraitis and Phair reached a settlement. Mr. Vieraitis' counsel filed Minutes of Settlement on May 3rd and we will refer to parts of those Minutes in these reasons for decision.

Evidence

The Tribunal only heard evidence from John Vieraitis.

When the Tribunal adjourned on March 23rd, Mr. Vieraitis' evidence in chief was not completed. Mr. Vieraitis was not cross-examined by Phair's counsel before they reached a settlement between March 23rd and May 3rd. Mr. Vieraitis was not cross-examined by Xeltron because, as noted previously, Xeltron elected not to participate in the Tribunal hearing.

As a result, Mr. Vieraitis's evidence was uncontested and the only evidence before the Tribunal.

Based on the evidence, and Phair's admissions in the Minutes of Settlement, the following summarizes the evidence and serves as our findings of material fact:

• John Vieraitis is a farmer who needed a high capacity, colour sorting machine to sort his beans. For example, he needed a sorter that could separate yellow beans from black beans to supply food grade markets with extremely low or zero tolerance for contamination.
• In the context of John Vieraitis' farming operation, a colour sorting machine to sort his beans is used for agricultural purposes, and therefore is a "farm implement" as defined in the Act.
• Phair offers farm implements or parts for sale at retail, and therefore is a "dealer" as defined in the Act.
• Phair acted as Xeltron's dealer in the transaction involving John Vieraitis and the MV-90 colour sorter.
• Xeltron manufactures, among other things, colour crop sorting machines and in these circumstances it sold, consigned or delivered the MV-90 colour sorter to or through Phair, and therefore is a "distributor" under the Act.
• John Vieraitis communicated to Xeltron and to Phair the purposes for which he intended to use the MV-90 colour sorter, including the required sorting capacity and the required sorting tolerances.
• Xeltron and Phair communicated to John Vieraitis that the MV-90 colour sorter was capable of performing to the required sorting capacity and the required sorting tolerances.
• Taken together, John Vieraitis' stated requirements for sorting capacity and tolerances and Xeltron's and Phair's publications and representations about sorting capacity and tolerances, comprise, for the purposes of this hearing, the manufacturer's specifications.
• John Vieraitis purchased an MV-90 colour sorter manufactured by Xeltron from Phair and paid $108,915.00 (U.S.).
  • Phair received $13,042.94 (U.S.) of that purchase price from Xeltron as commission.
  • John Vieraitis owes $2,671.57 (U.S.) for other unrelated purchases to Phair and he and Phair agree that sum is to be set off against the commission Phair received from Xeltron, resulting in a net commission, as between John Vieraitis and Phair of $10,300.00 (U.S.).
• Despite any written warranty from Xeltron, section 13 and paragraph 3 of section 14 of the Act deem a twelve month warranty that the MV-90 colour sorter is properly constructed and will perform to the manufacturer's specifications for which it was intended if it is properly operated and maintained and used under reasonable operating conditions.
• John Vieraitis began actual use of the MV-90 colour sorter on November 5th, 2008.
• John Vieraitis properly maintained and used the MV-90 colour sorter under reasonable operating conditions.
• Starting from November 5th, 2008, the MV-90 colour sorter failed to sort John Vieraitis' beans at the required capacity and to the required colour tolerances, and failed to perform to the manufacturer's specifications.
• In the context of the Act, the MV-90 colour sorter was a "defective" farm implement.
• John Vieraitis provided Phair and Xeltron with actual notice, albeit not in writing, that the MV-90 colour sorter failed to perform to the manufacturer's specifications within its first ten days or 100 hours of actual use.
• Between January 2009 and March 24th, 2009, Phair and Xeltron unsuccessfully endeavoured to make the defective farm implement perform to the manufacturer's specifications.
• Beginning March 24th, 2009, John Vieraitis gave Phair and Xeltron repeated written notices, requesting the cancellation of the purchase and a refund of the purchase price.
  

Findings and Analysis

The Act applies to farm implements sold in Ontario, regardless of where they are manufactured.

Having determined as a finding of fact that the Xeltron MV-90 colour sorter is a "farm implement" as defined in the Act and that a dispute exists between a purchaser, dealer and distributor over matters arising from the application of the Act, the Tribunal is satisfied that it has, in these circumstances, the requisite subject matter jurisdiction.

While the Tribunal may have had some concerns about its jurisdiction over Xeltron, a Costa Rican corporation, Xeltron itself allayed those concerns by its participation in the mediation process required under the Act and by its acceptance of the Tribunal's jurisdiction by appearing at the aborted Tribunal hearing last summer. In addition, while it did not appear before the Tribunal on March 23rd or May 3rd, it had, in further evidence of its acceptance of the Tribunal's jurisdiction, filed a Document Brief for the hearing.

There was ample evidence before the Tribunal satisfying us that the Xeltron MV-90 colour sorter was a farm implement that did not perform to the required specifications within the first ten days or 100 hours of actual use.

Xeltron and Phair had actual notice of the failure to perform almost immediately and they attempted to remedy the defects. Because Xeltron and Phair had actual knowledge of the defects and acted on that knowledge, we find that John Vieraitis' failure to provide the written notice as required by section 22(2) of the Act, to be an immaterial oversight. In all material respects, John Vieraitis complied with the requirements of section 22 of the Act.

In circumstances such as these, where the dealer and distributor are unable to repair the defective farm implement within fourteen days, section 22(5) of the Act requires the distributor to replace the farm implement with a satisfactory farm implement or the dealer "shall terminate the sale agreement". In this case, the distributor did not replace the MV-90 colour sorter with a satisfactory farm implement and the dealer did not "terminate the sale agreement". The inaction of dealers and distributors to carry out their statutory duty under the Act cannot thwart the statutory rights of farm implement purchasers, such as John Vieraitis in this case.

The Tribunal is given broad discretion under section 5(6) of the Act to "decide the issue that is before it".

Therefore, in these circumstances, the Tribunal considers that the fundamental issue before it is that the dealer and distributor failed to terminate the sale agreement in accordance with the Act, and failed to refund the purchase price in accordance with the Act.

In these circumstances, given our findings of fact as set out above, the appropriate decision is to terminate the sale agreement between John Vieraitis, Phair and Xeltron and order Xeltron to refund to John Vieraitis the purchase price of $108,915.00 (U.S.).

Order of the Tribunal

Therefore, the Tribunal Orders that:

1. The purchase agreement between John Vieraitis, Phair and Xeltron for the MV-90 colour sorter is terminated.
2. Pursuant to section 22(6)(a) of the Act, Xeltron will refund to John Vieraitis, through Phair the sum of $95,872.06 (U.S.).
3. Pursuant to section 22(6)(b), Phair will refund to John Vieraitis the sum of $13,042.94 (U.S.) less the set-off of $2,671.57 (U.S.) agreed to between John Vieraitis and Phair in the Minutes of Settlement, for a net refund from Phair of $10,300.00 (U.S.).

Any party to this hearing may appeal the decision of the Tribunal on a question of law to the Divisional Court of the Superior Court of Justice in accordance with its rules of practice within 15 days from the day on which this decision was served.

Dated at Brampton, Ontario this 20 th day of June, 2011.