Dealers have a number of ways to protect themselves from the fraudulent use of nominee or ‘strawman’ buyers.

Dealers face various implications if they are not vigilant in protecting against this activity, including reprisals by manufacturers, tax concerns, regulatory exposure, loss of future opportunity and bad press. This is not to mention the consumer harm posed by the legal risks the nominees unknowingly expose themselves to, the harm to the domestic market and tax implications.

These illegal purchasers pose as legitimate consumers, but are actually part of a secret network of exporters who swiftly, after the sale, ship the unit out of Canada for big money.

Some dealers employ a contractual solution to address this. One way they do this is through the use of “non-export agreement clauses” (NEAs) which essentially restrict the buyer from exporting the vehicle they are buying for some period of time after the purchase and if they do, there is a monetary penalty. It is incorporated into, and forms part of, the vehicle purchase agreement.

These clauses have been found to be legal by courts, but in a recent case, an Ontario Court found a particular clause breached the Consumer Protection Act because it was too broadly worded.

Some minor drafting corrections would be needed to the NEA to clarify that the buyer would not be held accountable for an export that was not within their personal control.

In a lengthy ruling that never really established if the Land Rover vehicle was actually exported or by whom, the Court overturned a small claims court judgement against the consumer for $15,000.

The Court said:

“First, NEAs have been found to be enforceable on the parties.

…

There is an ambiguity if the vehicle is stolen and then exported. Would the consumer be held liable under the NEA as it was exported without their intent?

…

According to the NEA, the Appellant would be responsible under all circumstances if the vehicle is resold for export within one year of purchase. The dealership is placing the risk of the export to the consumer regardless of whether the vehicle was exported by a purchaser of the vehicle or was stolen and then exported.

…

It would be inherently wrong and contrary to public policy to enforce the NEA that transfers the risk of the export completely to the consumer even it is out of the control of the consumer.

Therefore, the court finds that the trial judge erred in law in finding that the CPA did not apply to the NEA.”

The decision is well-reasoned and logical.

The drafting of the NEA in this case was poor. Dealers who use these clauses should take note and use wording that is compliant with consumer protection legislation.

If you’d like to read the whole case, the Ontario Divisional Court case is reported here: https://tinyurl.com/5ybxj6cs