2017 Legal and Legislative Update By Darrell Jarvis, Fasken Martineau and Jonathan Mesiano-Crookston, Goldman Hine LLP
Cases in 2017 (and late 2016) • Seto v Wendy’s Restaurants of Canada Inc, 2016 ABQB 493 • Trillium Motor World Ltd v General Motors of Canada Limited, 2017 ONCA 545 • 1291079 Ontario Limited v Sears Canada Inc, 2016 ONSC 7451 • 1250264 Ontario Inc v Pet Valu Canada Inc, 2016 CanLII 66262 (SCC) • Zwaniga v Johnvince Foods Distribution LP, 2017 ONSC 888 • Mendoza v Active Tire & Auto Inc, 2017 ONCA 471 • Harvey v Talon International Inc, 2017 ONCA 267 • 2212886 Ontario v Obsidian Group, 2017 ONSC 1643 • Reid v Snap Fitness Cloverdale and others , 2017 BCHRT 181
Cases in 2017 (and late 2016) • Dairy Queen Canada, Inc v MY Sundae Inc, 2017 BCSC 358 • 2122994 Ontario Inc v Lettieri, 2016 ONSC 6209 • 241 Pizza (2006) Ltd v Loza, 2016 ONSC 6623 • Mr Lube Canada Limited Partnership v 2070778 Ontario Limited, 2016 ONSC 7707 • YESCO Franchising LLC v 2261116 Ontario Inc, 2017 ONSC 4273 • Zhao v Pizza Nova Take Out Ltd, 2016 HRTO 1166 • Hanewich v Budget Brake & Muffler Franchising Ltd, 2016 ABQB 727 • Cora Franchise Group Inc v Watters, 2017 ONCA 286 • Sprague v MBEC Communications Inc, 2016 HRTO 1284 • Comité paritaire de l’entretien d’édifices publics de la région de Quebec c. Modern Concept d’Entretien Inc, 2017 QCCA 1237 • Chavdarova v The Staffing Exchange, 2016 ONSC 1822 • Asian Concepts Franchising Corporation (Re), 2017 BCSC 1452
Seto v Wendy’s Restaurants of Canada Inc , 2016 ABQB 493 • F’ee in periodic default of franchise agreement over years including arrears to CRA and bank • Forbearance Agreement in past • F’ee in early steps to sell franchise • Wendy’s terminated franchise agreement • F’ee alleged: waiver due to past conduct; breach of duty of good faith and fair dealing; unjust enrichment
Seto v Wendy’s Restaurants of Canada Inc , 2016 ABQB 493 Take-aways: • Importance of waiver and entire agreement provisions; forbearance agreement noted • Assess circumstances prior to termination: termination was done in accordance with agreement and no improper purpose but if sale had been imminent it could be evidence of termination for improper purpose.
Seto v Wendy’s Restaurants of Canada Inc , 2016 ABQB 493 • Importance of provision stating that goodwill inures to franchisor in assessing claim for unjust enrichment • Provision for ‘reasonable attorney’s fee incurred as a result of default’ not sufficient for solicitor and client level legal fee reimbursement
Trillium Motor World Ltd v General Motors of Canada Limited , 2017 ONCA 545 • GM was insolvent. Had to restructure and reduce # of dealers. Offered payouts to terminate franchise agreements, in exchange for releases • Dealers brought class action against GM • GM defending saying release was full defence • Hearing judge agreed, dismissed class action • Ont CA agreed
Trillium Motor World Ltd v General Motors of Canada Limited , 2017 ONCA 545 Take-aways: • Releases signed over known claims/issues, and with advice of counsel, are valid • F’ors can make tough decisions and still be acting in good faith , as long as commercially reasonable • “ “rational business decision” made for “valid economic and strategic reasons, having regard to both GMCL’s own interests and the interests of its franchisees”
1291079 Ontario Limited v Sears Canada Inc, 2016 ONSC 7451 • Action certified as a class proceeding. Parties then agreed on timetable, discovery plan, exchange of documents, discovery, expert reports; refusals; mediation; and common issues trial • Plaintiffs sought motion for partial summary judgment on one of the common issues • Permitting partial summary judgment motion would add to expense, and possibly delay resolution of entire matter
1291079 Ontario Limited v Sears Canada Inc, 2016 ONSC 7451 Take-aways: • Had summary judgment motion been brought immediately after certification, there might’ve been more justification for it. • Even then, it would have been difficult to avoid the problem of two final orders and appeal routes. • However, at least the significant document productions and consequent cost would have been avoided, or at least delayed
Further Class Action Update • 1250264 Ontario Inc v Pet Valu Canada Inc (2016 CanLII 66262 (SCC)) : SCC denied the representative plaintiff’s application for leave to appeal the unanimous decision of the ONCA. Costs awarded to Pet Valu • Zwaniga v Johnvince Foods Distribution LP (2017 ONSC 888): Settled pre-certification as between the proposed class and the f’or
Mendoza v Active Tire & Auto Inc , 2017 ONCA 471 • F’ee rescinded based on deficiencies in disclosure (not most recent financials, and only one signature on certificate, not two) • Trial judge held that deficiencies minor and f’ee had information it needed to make informed decision • On appeal, Ont CA held that test for rescission is objective: whether Act complied with, not what f’ee knew
Mendoza v Active Tire & Auto Inc , 2017 ONCA 471 Take-aways: • It doesn’t matter what f’ee knew • Get disclosure right – one signature instead of two, on the certificate, is likely a material deficiency (almost certainly in light of other case law) – Providing old financial statements is likely a material deficiency
Harvey v Talon International Inc , 2017 ONCA 267 • This was a condominium law case, but made comments about franchise law • Under the Condominium Act, 1998 , a condo purchaser can rescind their purchase in certain circumstances • Two purchasers allegedly rescinded their purchase agreements, but did not clearly refer to rescission or the section of the Condo Act being relied on. Court had to determine if their notices of rescission were valid or not.
Harvey v Talon International Inc , 2017 ONCA 267 • Court commented on franchise law cases that indicated that a notice of rescission must inform the recipient what remedies are being claimed but does not have to use any specific language • Court held the two notices were valid • Section 74(7) of the Condo Act does not require the use of the words “rescind” or “rescission” or any specific language.
Harvey v Talon International Inc , 2017 ONCA 267 Take-aways : • (Really for lawyers.) • Disclosure documents are technical, and notices of rescission are less so, but don’t be too lax. Rescinding franchisees still need to inform their (ex-) f’ors what remedies they claim and how much money.
2212886 Ontario v Obsidian Group , 2017 ONSC 1643 • F’ee brought motion for summary judgment, claiming rescission – for failing to provide copy of head lease and of earnings projections previously shown • F’or brought cross -motion to dismiss • Motion granted in part
2212886 Ontario v Obsidian Group , 2017 ONSC 1643 Take-aways : • Re: disclosure/rescission: – head lease apparently not material (contrast with Raibex Ont CA) – earnings projections were , and had been provided by f’or • Where two franchise agreements signed, 2-year limitations period may run from the second. But note, it had been requested by f’or and to its benefit. • For litigators: this last point was decided on summary judgment, even though an issue of credibility
Reid v Snap Fitness Cloverdale and others , 2017 BCHRT 181 • Employee of f’ee brought complaint against f’ee and f’or alleging discrimination in employment on basis of physical disability • F’or applied to have complaint dismissed against it, claiming that it was not a proper party • F’or tendered two pages of 45 pg. franchise agreement in support of its application • BCHRT denied application to dismiss
Reid v Snap Fitness Cloverdale and others , 2017 BCHRT 181 Take-aways: • A respondent does not need to employ a complainant in order to be in violation of Code • F’or will bear the burden of persuading a human rights tribunal to dismiss complaints made against it by employees of the f’ee • Outcome of application to dismiss will depend on “nature and extent of the influence” exerted by f’or
Dairy Queen Canada, Inc v MY Sundae Inc , 2017 BCSC 358 • Breakdown of relationship between f’or and f’ee • F’or and f’ee signed Mutual Cancellation and Release, but postponed termination to give f’ee an opportunity to sell franchise and recoup investment • F’ee continued to operate the franchise for months after termination before de-branding
Dairy Queen Canada, Inc v MY Sundae Inc , 2017 BCSC 358 • F’or sought damages for passing off, among other claims • F’ee claimed duress, unconscionability in signing Release and counterclaimed for damages of breach of K, and unfair dealing, among other claims
Dairy Queen Canada, Inc v MY Sundae Inc , 2017 BCSC 358 Take-Aways (Duress, Unconscionability): • Absent evidence of duress or coercion at the time of negotiation, inequality of bargaining power will not preclude enforcement of release and exclusion clauses • Opportunity for f’ee to sell business was evidence of substantive fairness of Release Take-Aways (Passing Off): Note on ultimatums • In assessing f’or’s damages court found evidence that f’or had delivered subsequent ultimatum to f’ee to cease business after formal termination date. F’or’s damages were reduced accordingly.
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