Franchise Law
Franchise Law e-COMMUNIQUÉ - February 2010
By Jayne Edmonds, Eunice Machado, Frank Robinson, Geoffrey B. Shaw, Lawrence M. Weinberg
In This Issue
- What We're Up To
- Cases to Watch For...
- Update on Canada Consumer Product Safety Act
- Trade Secrets International Ltd. v. Jalaly 2009 ONCA 748
- Hino Truck Centre (Toronto) Ltd. v. Hino Motors Canada Ltd., [2009] O.J. No. 4512 (S.C.J.)
What We're Up To
As usual, the members of the Cassels Brock Franchise Law Group have been busy! Here is a list of some of our activities, upcoming publications and events that we are organizing or at which we are speaking.
- From February to April, 2010, Larry Weinberg and Geoff Shaw will be teaching the first ever course in Canada on franchise law, at the University of Western Ontario’s Law School.
- In February 2010, Larry Weinberg, Geoff Shaw and Jayne Edmonds will be attending the IFA Convention in San Antonio, Texas. At the Convention, Jayne will be hosting the Women’s Caucus Event.
- Geoff Shaw has been appointed to the IFA’s Legal Symposium Taskforce for 2010-2011. Geoff is also scheduled to be a speaker at the May 2010 IFA Legal Symposium in Washington D.C., on "How to Identify and Avoid Problems in International Master Franchising."
- Larry Weinberg will be moderator and speaker at the May 2010 IFA/IBA Joint Legal conference, in Washington D.C., on "Managing Franchise Sales Representations Internationally and the Risks from Them."
- Frank Robinson has written an article on the topic of franchise transfers. His article will appear in the OBA Focus on Franchising E-newsletter on March 31, 2010.
- Jayne Edmonds has been appointed a member of the ABA Forum on Franchising’s International Franchise and Distribution Division Steering Committee for 2010 and 2011.
- In October of 2009, the team took on numerous responsibilities for the American Bar Association’s Forum on Franchising and the Ontario Bar Association’s Annual Franchise Law Conference:
a. Larry Weinberg was one of two co-chairs for the ABA Conference
b. Jayne Edmonds spoke at a workshop on Multi-Unit Franchising
c. Eunice Machado was a host at the Newcomers Networking Event and co-chaired the Community Service Event
d. Geoff Shaw spoke on a panel with Chief Justice Winkler at the OBA Conference on franchise terminations
e. Eunice Machado hosted a roundtable on franchise terminations
- Later this year, members of our team will also be attending the CFA Convention in Mont Tremblant, Quebec, the IFA Legal symposium in Washington D.C., IFA/IBA Joint Legal conference in Washington D.C., and the ABA Forum’s 33rdAnnual Forum on Franchising in San Diego, California.
Cases to Watch For...
There are three cases of particular interest to the franchising community, that are soon to be argued or are currently waiting for judicial pronouncement. Notably, all of them involve class proceedings.
In 405341 Ontario Limited v. Midas Canada Inc., franchisees commenced a class action against their franchisor. The action has been certified. However, a peripheral issue has dominated the discourse about this case. In a decision on October 16, 2009, Justice Cullity of the Ontario Superior Court of Justice found sections of Midas’ standard Franchise Agreement void where they required that, on renewal or transfer, franchisees were required to provide Midas, inter alia, with a full and final release. Justice Cullity also found that the Arthur Wishart Act could apply to Midas franchisees located outside of Ontario. That decision is now before the Ontario Court of Appeal which will hear arguments from counsel in the next few months.
2038724 Ontario Ltd. et al v. Quizno’s Canada et al. was certified as a class action by the Ontario Divisional Court which overturned the motion judge’s decision not to certify the class. However, even the Divisional Court was split on the issue of whether or not to certify this action as a class proceeding where there are allegations of price fixing contrary to Canada’s Competition Act. The Court of Appeal granted leave to appeal the Divisional Court’s decision and the appeal was argued on January 27, 2010. Quiznos was represented by Geoffrey Shaw, Tim Pinos and Eunice Machado of Cassels Brock. The Court of Appeal has reserved its decision and we now await the outcome.
The Supreme Court of Canada will soon shed some light on whether parties to a contract containing an arbitration clause can nonetheless proceed through the Courts as a class proceeding, thereby avoiding arbitration. In Michelle Seidel v. Telus Communications Inc. the applicant's contract with the respondent for cellular services contained an arbitration clause. The applicant commenced a class action against the respondent. The respondent sought a stay of the action on the basis of the arbitration clause. This matter is currently scheduled to be heard in May, 2010.
Update on Canada Consumer Product Safety Act
You might recall that our last e-LERT provided you with information on the Canada Consumer Product Safety Act (the "CCPSA") and the potential costs that franchisors could face if this legislation became law. The CCPSA was amended at third reading in the Senate and was expected to become law in early 2010. As with all of the other pieces of pending legislation, the CCPSA is one of the many bills that died with the decision to prorogue the federal Parliament until March 3, 2010. Therefore, we’ll have to wait to see if and when this legislation, or something like it, is again proposed with the new session of government.
Trade Secrets International Ltd. v. Jalaly 2009 ONCA 748
To date, there have been precious few decisions dealing, even peripherally, with how to quantify damages under section 6 of the Arthur Wishart Act (Franchise Disclosure), 2000 (the "Act") where a franchisee has successfully sought rescission of its franchise agreement. A recent decision of the Ontario Court of Appeal, Trade Secrets International Ltd. v. Jalaly, provides guidance with regards to the scope of section 6(6)(d) of the Act, and more specifically, the extent of compensation a franchisee may obtain from a franchisor upon rescission.
Under this subsection, the Act provides that within 60 days from the rescission of a franchise agreement, the franchisor must compensate the franchisee for any losses that were incurred in "acquiring, setting up and operating the franchise."
The scope of this provision is broad and does not specifically identify the types of losses that would entitle a franchisee to compensation. In this case, the Court looked at whether losses under the Act include monies that are paid to a lender for the purpose of paying off a prior franchisee's indebtedness. This decision suggests that such monies are compensable under the Act, as they are undoubtedly incurred as a result of "acquiring, setting up and operating a franchise."
Franchisors and their advisors must be mindful of any payments made by a franchisee to acquire the assets and the goodwill of a franchise, as such costs incurred fall squarely within the scope of losses requiring compensation under the Act.
Hino Truck Centre (Toronto) Ltd. v. Hino Motors Canada Ltd., [2009] O.J. No. 4512 (S.C.J.)
If you are a franchisor and one of your franchisees has sued you, should you seek summary judgment for any amount the franchisee owes you? Or should you avoid the costs of summary judgment and wait to have this issue determined at trial?
In Hino Truck Centre (Toronto) Ltd. v. Hino Motors Canada Ltd., the Court found that while the franchisor was entitled to judgment on the amounts owed by the franchisee, payment of the damages would be stayed until the remainder of the action was determined. The plaintiff had argued that their claim represented an equitable set-off against the franchisor’s claim. However, the Supreme Court of Canada has said that a counterclaim must be "so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the counterclaim." In this case, the Ontario court found that the defence of equitable set-off for damages could not be used as two claims did not deal with substantially the same subject matter. Had the set-off claim been permitted, the Court would not have granted judgment to the defendant. The claim and counterclaim would then have both proceeded to trial.
Furthermore, on January 1, 2010 (which was after the above decision), the Rules of Civil Procedure in Ontario have changed making summary judgment motions more accessible in order to resolve more disputes at the early stages of an action. Moving parities will also be subject to fewer cost consequences arising from unsuccessful summary judgment motions.
Summary judgment can therefore play an important role in litigation. A successful motion means that, before the trial has even begun, the plaintiff is operating from a deficit position which provides the defendant with some needed leverage and incentive to either settle or advance the lawsuit more quickly.