Judge calls Input Capital contracts ‘unconscionable’

[middleofsask]

https://www.producer.com/2018/05/judge-calls-input-capital-contracts-unconscionable/ https://www.producer.com/2018/05/judge-calls-input-capital-contracts-unconscionable/

https://static.producer.com/wp-content/uploads/2018/05/18132207/QBG-2120-of-2015-Input-Cap-Gustafson.pdf#_ga=2.178836769.445216775.1526672844-779100769.1514993935 https://static.producer.com/wp-content/uploads/2018/05/18132207/QBG-2120-of-2015-Input-Cap-Gustafson.pdf#_ga=2.178836769.445216775.1526672844-779100769.1514993935

In a ruling dated May 17, Court of Queen's Bench Justice J.D. Kalmakoff ruled that contracts signed by Gustafson and Input Capital were "unconscionable" because there was a "substantial inequity in bargaining power" between the two parties who signed the agreements. | Screencap via inputcapital.com
A Saskatchewan court has issued a ruling in a protracted legal battle between farmer Terry Gustafson of Macoun, Sask., and Input Capital Corp., a Regina based company that signs “canola streaming contracts” with farm clients.

In a ruling dated May 17, Court of Queen’s Bench Justice J.D. Kalmakoff ruled that contracts signed by Gustafson and Input Capital were “unconscionable” because there was a “substantial inequity in bargaining power” between the two parties who signed the agreements.

The determination absolves Gustafson from upholding the terms of the agreements and nullifies Input’s contractual right to collect interest on payments that were made to Gustafson and to collect on security or collateral in the form of mortgage interests issued on farmland that was owned or leased by Gustafson.

Input and Gustafson signed four contracts between April 2014 and April 2015.

Input paid Gustafson a total of $4.5 million in exchange for the rights to market a portion of his crop. The court heard that Input recovered about $100,000 through the sale of durum wheat that was produced by Gustafson.

The court also ruled that Gustafson, who benefited materially from the contracts, must repay Input Capital nearly $4.4 million plus legal costs incurred by Input Capital.

Contact brian.cross@producer.com

[middleofsask]

http://www.cbc.ca/news/canada/saskatchewan/judge-ruling-input-capital-saskatchewan-farmer-1.4669680 http://www.cbc.ca/news/canada/saskatchewan/judge-ruling-input-capital-saskatchewan-farmer-1.4669680

Justice Jeffery Kalmakoff concluded that, because of that fundamental unfairness, "the entire contractual relationship between Mr. Gustafson and [Input Capital Coporation] is substantially unfair and cannot be permitted to stand." (Shutterstock)

A Court of Queen's Bench judge has ruled that contracts Regina grain trader Input Capital Corporation (ICC) made with a Saskatchewan farmer were "heavily one-sided" and "unconscionable" and therefore "they must all be set aside."

This ruling comes two weeks after a group of farmers launched a class action lawsuit against the company raising similar concerns — alleging ICC had engaged in "predatory lending" and its contracts were unfair and should be declared illegal.

Between April 2014 and March 2015, Macoun-area farmer Terry Gustafson entered into a series of agreements with ICC, a publicly-traded company that bills itself as a "low cost source of capital for farmers." It does business across Western Canada.

The entire contractual relationship between Mr. Gustafson and ICC is substantially unfair and cannot be permitted to stand.- Justice Jeffery Kalmakoff - Court of Queen's Bench judge

ICC says it is a buyer and seller of grain that offers farmers up-front payment for a fixed amount of a future canola crop. It refers to this as a streaming canola contract and on its website it says it has more than 300 active agreements.

Justice Jeffery Kalmakoff, in his ruling released late Thursday, says ICC's agreements with Gustafson were "heavily one-sided" and "unconscionable."

"To put it simply, there is no risk to ICC in the streaming contracts," he found. "The obligations and expense, apart from the up-front payment, all rest on Mr. Gustafson."

The judge concluded that, because of that fundamental unfairness, "the entire contractual relationship between Mr. Gustafson and ICC is substantially unfair and cannot be permitted to stand."

Input considering appeal of findings
The ruling wasn't entirely favourable for Gustafson.

The judge found that ICC had given the farmer about $4.4 million in up-front payments and he ruled Gustafson had to give that money back.

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In a news release, ICC noted that in his 99-page ruling the judge found in favour of the company on a number of arguments that had been made by Gustafson, and, the release says, he concluded "Input did not breach any of its contractual obligations to the client."

"While Input achieved success in the case, the court did make certain findings that Input believes to be in error. Input is considering an appeal of these findings."

Gustafson's lawyer, Gordon Kuski said his client is pleased by the ruling.

Kuski said in court he attempted to show the contracts "were unfair and that Mr. Gustafson was taken advantage of and the judge ruled that."

Ruling 'may be the end of Input', says lawyer
Kuski said while the facts of this case are very specific, this ruling may have implications for other disputes involving ICC.

"Anybody who is in a dispute of a similar variety, this ruling will certainly not hurt them," said Kuski.

Tony Merchant, the lawyer who launched the class action against ICC, says this ruling "may mean the end of Input."

Regina lawyer Tony Merchant is representing a group of farmers who have launched a class action lawsuit against Input Capital, alleging the companies contracts are unfair and should be found illegal. (CBC News)
In a text message to CBC, he said the ruling "means every farmer in the clutches of Input can get free and most can get back a lot of money."

Morris Feduk, the lead plaintiff in the class action, says his dealings with ICC led to his land being foreclosed on and his farm equipment being seized and sold.

He said he's teetering on the brink of bankruptcy, but that this ruling gives him some hope.

"It means that they owe me money because of the equipment they sold and my land that they sold. They've been overpaid," Feduk said.

He said he realizes he has a long legal road ahead, as the claims in his lawsuit haven't been tested in court.

"I'm hopeful that I can survive now into my golden years, at least," he said.

'A substantial inequality'
Justice Kalmakoff said "the court's power to set aside a contract should not be lightly exercised."

He said the bar for Gustafson was high. He had to prove:

"There was at the time of entering the agreements, an inequality between himself and ICC, where ICC was in the more powerful position."

That ICC "used this position of power in an unconscionable manner to achieve an advantage over Mr. Gustafson."

"There is a substantial unfairness in the agreements themselves."

Kalmakoff said each of these points was borne out by the evidence.

When Gustafson entered into the agreements with ICC he "had suffered two consecutive years of bad financial times and was on the brink of a third." For the 2014 year, he reported a $3.6-million loss to his farming operation.

The judge said that in 2014, the year Gustafson entered the first agreement, the farmer's debt-to-equity ratio stood at 179.8 per cent "and it was expected to climb to 622 per cent in 2015." Gustafson's accountant was recommending he consider bankruptcy.

By contrast, the judge said ICC was "a stable and successful company, with substantial capital at its disposal." Quoting from a news article, he said that by 2014 ICC had raised more than $100 million from investors and that by late 2015 it had an assessed market capital of more than $240 million.

"I have no difficulty in concluding that Mr. Gustafson's financial distress, and ICC's relative strength created a substantial inequality," the judge wrote.

ICC bargained in 'an unconscionable manner'
In reviewing the agreements between ICC and Gustafson, Kalmakoff found "the contracts are heavily one-sided."

He said if ICC signs a contract with a farmer that is financial stable and successful and is therefore able to meet its obligations, "ICC profits handsomely," and the farmer "makes out alright."

However, if the farmer fails to meet his obligations, ICC can enforce its security agreements and seize the farmers land and equipment, which works out well for ICC but for the farmer "not so much."

The judge said because the consequences for the farmer if he failed were so severe, ICC had an extra responsibility to make sure the farmer had the necessary financial stability.

But he found the company did very little in that regard.

The judge say ICC was well aware that Gustafson was desperate to sell his canola, partly because ICC had tied up so much of the grain delivery space.

"ICC had made it very difficult for farmers to sell canola independently, given the market conditions, and the lack of available delivery space (much of which was already spoken for by ICC)."

In addition, the judge pointed out that ICC failed to provide Gustafson with copies of the contracts in advance of signing and didn't leave copies with him after they were signed.

"The contracts were signed quickly, in circumstances where Mr. Gustafson was anxious to get to other tasks, and there was little detailed discussion of many important terms."

The contracts — signed by Gustafson and ICC representative Gord Nystuen — were sometimes finalized at a kitchen table or in a pickup truck. In those contracts, Gustafson agreed to place security agreements on his land and equipment, putting him at risk significant of loss if he failed to meet the terms of the agreements.

"The terms of all of these agreements are so unfavourable to Mr. Gustafson and all the consequences to him so harsh in the event of default, that treating the execution of such agreements as a casual and informal manner is a factor that weighs heavily in favour of finding that Mr. Nystuen acted unconscionably."

The judge did note that Nystuen did not misrepresent what was in the contracts.

The judge also found that though ICC was aware of Gustafson's growing financial troubles the company "continued to insist that Mr. Gustafson enter the contracts on ICC's terms."

The judge said ICC was increasing Gustafson's obligations to delivery grain which was making it more difficult "for him to meet those obligations, meaning he would be more likely to default an create a situation where ICC would enforce its security."

ICC agreements with Gustafson 'substantially unfair'
The judge said a cursory view of the contracts may initially lead one to conclude that they are fair, resulting in a healthy but reasonable profit for ICC and an acceptable return for Gustafson.

But he said if you dig a bit deeper, a different picture emerges. He said the most troubling fact is that ICC is taking virtually no risk in these agreements while the farmer is bearing the burden.

"The agreements reflect a highly profitable arrangement for ICC, which is almost entirely without risk," Kalmakoff wrote.

He said given the large up-front payment Gustafson received, the contract initially appears quite generous "but the longer the contracts go on, the smaller the benefit and the greater the risk."

He said if Gustafson were to breach any term of the contract, ICC would have the right to demand the return of the upfront payment and "to foreclose on the mortgage and sell Mr. Gustafson's land and seize all of his present and after-acquired property."

He said in light of all this "I can reach no other conclusion other than that the agreements must be set aside as unconscionable."

[farmaholic]

I'm glad my name and picture isn't on Input Capital's website.....not as a client but in any way of "association"!

Lack of morals and scruples......

Bottom feeding cream skimmers.

[grassfarmer]

.....Bottom feeding cream skimmers.

I think that's maybe an oxymoron farma!

[farmaholic]

I think that's maybe an oxymoron farma!

Yup, but it describes the situation.

[farming101]

Well, that's that. Back to no Lear for Iceman

[Oliver88]

Interesting to know how many customers these characters have.

Will there be more court cases and land auctions?

How will iceman’s ownership in this company pay out?

[farmaholic]

They might have some of the Iceman's money too

Out of power, stalled, gliding in for a crash landing!

[fjlip]

Says 300 active agreements

[bucket]

Some pretty heavy hitters in Saskatchewan's recent governments. ....there is quite a trail here....Any comment Mr.Wall or Mr. Calvert?

[iceman]

Ah FUUUUYCK

Iceman's Remembrance Day is now May 18th

Please take a moment of silence to honour those Lonnies who made the ultimate sacrifice......................................... ........................RIP


Iceman stopping seeding beside every sign to look for bottles

[Richard5]

Interesting to know how many customers these characters have.

Will there be more court cases and land auctions?

How will iceman’s ownership in this company pay out?

Ya know, for $6 you can search for security registrations on ISC

I too would like to know if some of these very successful looking from the outside farms, annual flip whole fleet of equipment or take 1 year old equipment to auction are deep into input capital.

Even if they are they are only in deeper trouble if they now have to repay these debts, since no one was obviously willing to lend them money in the first place.

Plain old crooks running this thing, glad they are getting hands slapped. Emsley and Nysteun, king of the scumbag terms imo

[ajl]

One sided contract are now unfair well that basically includes virtually all contracts particularly grain company ones and landlord tenant contracts. Anytime one signs a contract without being part of the development of it, it will be one sided in favor of the writer. Apparently the judge fell off the turnip truck yesterday,

[farmaholic]

Who is stopping in at their booth at Farm Progress Show or Ag in Motion?

[sumdumguy]

How much input does anyone have in mortgage, lease, any kind of contract? How are banks any different? When you make a deal, you accept the terms of the contract. You sign it, you live with it. This case is going to set a interesting precedent. Say a young farmer who doesn’t have much, takes a farm loan to buy land and then suffers a few bad years, guess the lender has to back him or adjust the contract to assume the risk - INTERESTING. Takes us back to 1981.