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Tim Hortons Class Action Franchisee Suit Dismissed on Summary Judgment

Monday, March 12th, 2012

On February 24, 2012, the Ontario Superior Court of Justice utilized the new summary judgment test established by the Ontario Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch to find that the long and protracted suit by Tim Hortons franchisees should be dismissed.

The representative plaintiffs, led by Brule Foods Ltd., sought to obtain a class action certification for the lawsuit. Tim Hortons International responded by seeking summary judgment. Justice Strathy did find in obiter that the claim would have been capable of achieving certification under the Class Proceedings Act, but found that ultimately the causes of action, which ranged from breach of contract, to misrepresentation, to conspiracy under the Competition Act, had “no chance of success.”

The plaintiffs were alleging that it was a breach of contract, as well as the obligations of good faith and fair dealing, to require Tim Hortons franchisees to sell some of the various lunch menu items at a loss. They argued that, notwithstanding the reasonable margins made in the aggregate, it was unfair for franchisees to sell low-to-no margin food items while Tim Hortons International reaped the profits from the manufacturing of those food items under the “Always Fresh” system.

The case raises concerns for potential franchisees to consider in their own dealings with franchisors. The court held that issues of good faith and fair dealing should not be analyzed on the micro level, where each category of revenue or each interaction between franchisor and franchisee is analyzed for fairness, whether at common law or under the Arthur Wishart Act. Justice Strathy found that:

The [Arthur Wishart Act] does not require that every interaction between the franchisor and the franchisee be subjected, in isolation, to a standard of “commercial reasonableness”.  Still less does it require that the price of every commodity sold by a franchisor to the franchisee must be commercially reasonable. What the statute requires is that the franchisor must act in good faith and in accordance with reasonable commercial standards in the performance of the contract.

In dismissing the claim, Justice Strathy criticized the plaintiffs:

What matters, at the end of the day, is whether the franchisee makes sufficient profit overall to justify his or her investment and to remain in the business. The suggestion by the plaintiffs that the franchisor has an obligation to price every menu item so that they can make a profit on that particular item is not supported by the contract, by the law or by common sense. It is simply not the responsibility of the court to step in to recalibrate the financial terms of the agreement made by the parties.

Because Tim Hortons International was entitled to set the food items and prices, and reap those profits, all of which were properly disclosed to the franchisees in accordance with the Arthur Wishart Act, the court was in no position to vary or alter the terms of the contract, and dismissed the plaintiffs’ claim.

A copy of the decision can be found at: Fairview Donut Inc. v. The TDL Group Corp.

 

Robert Kalanda, B.A., J.D., Student-at-law

 

Brief informational summaries about commercial and other litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

 

Posted in Civil Litigation, Class Actions, Franchise Law, Litigation Law | Add Comment »

Settlement with Individual Class Members in Class Action Lawsuits

Friday, August 19th, 2011

The Superior Court of Justice in 1250264 Ontario Inc. v. Pet Valu Canada Inc. refused to grant Pet Valu’s request for a declaration that agreements entered into between Pet Valu (the franchisor) and individual franchisees releasing Pet Valu of any liability pertaining to claims made in a class-action lawsuit are valid and enforceable.

However, in dismissing Pet Valu’s request, the court did not foreclose such agreements from being made in the future.  In distinguishing a prior Ontario Court decision that held that a class member did not have the right to receive settlement offers and to settle the claims in a class action, the court found that in this case the offers were made to a small fraction of the class and for legitimate business reasons rather than for the purpose of undermining the class action.

Ruzbeh Hosseini, B.Sc., LL.B., J.D.

 

Brief informational summaries about commercial and other litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Class Actions, Commercial Law, Contract Disputes, Franchise Law, Litigation Law | Add Comment »

Class Action Plaintiffs Can’t Amend List of Common Issues

Friday, May 27th, 2011

The Ontario Court of Appeal has said no to the plaintiffs in a class action who sought to amend the list of common issues some 11 years after the class action was certified.

Carom v. Bre-X Minerals Ltd. was certified as a class action by Winkler, J. in 1999: 44 O.R.(3d) 173 (S.C.).  The certification order contemplated a two stage process.  In the first stage, a common issues trial would decide questions of liability.  In the second stage, individual trials would be required to determine the claims of each class member, and in particular to determine issues of causation, reliance, and damages. 

In November of 2010, the representative plaintiffs moved for an order amending the list of common issues by adding 2 questions to the 15 issues that had been certified by Mr. Justice Winkler in 1999. 

The proposed new common issues raised questions of constructive trust, under which the plaintiffs sought an accounting and restitutionary remedies against the defendants.  Counsel for the plaintiffs had decided that the remedies of constructive trust and restitution might be more effective than the remedy of damages, and that it would be more efficient to deal with these matters in the common issues trial rather than in the second stage of the trial, which was to focus on remedies. 

The judge hearing the motion concluded that since the common issues had been settled in 1999, it would be unfair in 2010 to add two new questions to the common issues trial.  The Court of Appeal agreed: 

“In the end, we see no reason to interfere with the motion judge’s decision that it was unfair to add a common issue for a potential new cause of action at this late stage of these class proceedings.  His decision permits the appellants to seek remedies that are expressly sought in their statement of claim, but it keeps that issue where it has always been, in the second stage of the proceedings….” 

Although the action had been pending a long time it was not at a particularly advanced stage as the parties had been awaiting the outcome of criminal proceedings against one of the defendants.  Nevertheless, the case does indicate that the court will not be receptive to an attempt to change the way a class action is framed unless the party seeking the change moves early in the proceedings. 

Link: Carom v. Bre-X Minerals Ltd., 2011 ONCA 392

Richard Hayles, B.A., J.D.

 

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Class Actions, Litigation Law | Add Comment »

Court Certifies Franchise Claim Against General Motors as a Class Action

Thursday, March 3rd, 2011

The Ontario Superior Court of Justice has certified an action brought by General Motors franchisees as a class proceeding. 

During the recent recession, North American auto purchases fell to 50 year lows.  General Motors of Canada experienced plummeting sales, and due to a credit crunch, was on the verge of bankruptcy. 

The Government of Canada was willing to provide financial assistance to auto manufacturers, but only if they dealt with some of their business problems.  One of the conditions imposed by the Government of was that GM had to reduce the size of its dealer network.  GM offered a wind down package to 240 of its dealers.  Over 200 dealers accepted the offer within the six day deadline imposed by GM. 

One of the dealers, Trillium Motor World Inc., moved for certification of a proposed class action on behalf of the 207 GM franchisees that had entered into Wind Down Agreements (“WDAs”).  Trillium claimed that GM had breached its obligations under the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c. 3 (the”AWA”) and equivalent legislation in Alberta and Prince Edward Island.  Trillium also claimed that the law firm Cassels Brock & Blackwell, LLP had been retained to act on behalf of the dealers, but that Cassels Brock had a conflict of interest and breached the duties that it owed to its clients. 

Mr. Justice Strathy applied a five-part test to the certification of the action as a class proceeding: 

  1. There must be a cause of action;
  2. The cause of action must be shared by an identifiable class; 
  3. The proposed proceeding must involve common issues; 
  4. The use of a class action must be the preferable procedure, in that it presents an opportunity to resolve the common issues in a fair, efficient, and manageable way; 
  5. The representative plaintiff must be someone who can be expected to fairly and adequately represent the interests of the class. 

Strathy, J. found that the proposed class action met all five requirements of the test. 

In order to determine whether or not the proceeding involved a legitimate cause of action, Strathy, J. had to address the question of whether or not the WDAs were franchise agreements subject to the franchise disclosure legislation.  Under the AWA, a “franchise agreement” is defined as “any agreement that relates to a franchise between a franchisor … and a franchisee.”  Trillium alleged that GM was in breach of its obligation under the AWA to provide a disclosure document to prospective franchisees.  The term “prospective franchisee” is defined in the AWA as “a person who has indicated, directly or indirectly, to a franchisor or a franchisor’s associate, agent or broker an interest in entering into a franchise agreement.”  GM argued that the term “prospective franchisee” could not apply to someone who was already a franchisee. 

Strathy, J. took note of precedents indicating that the “cause of action” requirement is met unless it is plain, obvious, and beyond doubt that the plaintiff cannot succeed.  Matters of law that are not fully settled should be permitted to proceed, and the pleading is to be read generously to allow for inadequacies arising from drafting errors and the plaintiff’s lack of access to documents and discovery evidence.  He held that the nature of the WDA was unclear: “…it could be described as a freestanding independent agreement, an amendment of the franchise agreement, a supplemental agreement, a settlement and release agreement, or some combination of all four.”  As it was at least arguable that the disclosure requirements of the legislation applied to the WDA, the case should be permitted to proceed as a class action. 

The dealers’ claim against Cassels Brock was based on allegations that the law firm, while acting for the dealers, had also been representing the Government of Canada with respect to the auto industry bailout.  Since the Government had an interest in ensuring that the dealers agreed to terminate their franchises and close down their dealerships, Cassels Brock was in a conflict of interest position. 

In addition, the dealers asserted that Cassels Brock failed to advise them to band together so as to increase their bargaining leverage in order to present a counter-proposal to GM, and instead and took the position that each dealer should obtain its own independent legal advice regarding the WDA.  Mr. Justice Strathy held that these allegations constituted the pleading of legitimate causes of action as against Cassels Brock, and that the claim against the law firm could be advanced as a class proceeding. 

Richard Hayles, B.A., J.D. 

Link: Trillium Motor World Inc. v. General Motors of Canada Limited, CanLII – 2011 ONSC 1300 (CanLII)

 

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Class Actions, Franchise Law, Litigation Law | Add Comment »

Court Grants Motion for Production of Documents from Non-Party Affiants

Monday, January 17th, 2011

In a recent endorsement made by the Ontario Superior Court of Justice,  G. R.  Strathy J. granted a motion made by the moving plaintiffs (“Fairview Donut Inc. and Brulé Foods Ltd”) for the production of documents from eleven franchisees of the Tim Hortons chain who swore affidavits filed by the defendants (“Tim Hortons”).   The affidavits were made in support of Tim Hortons motion for summary judgment and as part of their record in response to the plaintiffs’ motion for certification of the proceeding as a class action.

As evidenced by the reasons for the endorsement, Justice Strathy recited numerous statutory provisions which provided for the production of documents, namely, Rule 30.10 of the Rules of Civil Procedure which governs production of documents from a non-party wherein a court may make such a request if satisfied that a document is relevant to a material issue in the action.  Further, Justice Strathy reiterated the powers provided by Rule 34.10 dealing with the production of documents on examination and section 12 of the Class Proceedings Act.  The later permitting a court to make “any order it considers appropriate regarding the conduct of a class proceeding to ensure its fair and expeditious determination”.

Lastly, the Court applied the factors set out in 30.10 and identified by Perrel J. in the Tetefsky v. General Motors Corp. case

Links:

Fairview Donut Inc. v. The TDL Group Corp., 2011 ONSC 247
Tetefsky v. General Motors Corp., 2010 ONSC 1675

C. Donald Brown


Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Class Actions, Commercial Law, Franchise Law | Add Comment »

Parties in Air France Class Action Get Disclosure of Cockpit Voice Recorder

Tuesday, October 26th, 2010

On August 2, 2005 Air France flight AFR 358 overshot the runway while attempting to land at Pearson International Airport during a severe thunderstorm.  At a speed of about 80 knots, the Airbus A340 crashed in a ravine and burst into flames.  Fortunately, none of the nearly 300 passengers and 12 crew members was killed, but a number of people suffered serious injuries.  The aircraft itself was a total loss.

A class action was launched in behalf of the passengers, and Air France and its insurers brought a multimillion dollar lawsuit against the Greater Toronto Airports Authority, NAV Canada (the entity responsible for air traffic control), and the Attorney General of Canada (representing the Ministry of Transportation).

Although it was not a party to any of the litigation pertaining to the crash, the Transportation Safety Board of Canada (the “Board”) took possession of the aircraft’s Cockpit Voice Recorder (the “CVR”) during the course of its investigation into the incident.  The CVR contains a complete recording of the conversations between the pilots, as well as their communications with air traffic control, in the hours leading up to the crash.  Investigators with the Board interviewed the two pilots at length, and made use of the contents of the CVR to help the pilots refresh their memories and reconstruct the last two hours of the flight.

The Board investigators obtained the CVR under section 28 of the Canadian Transportation Accident Investigation and Safety Board Act, R.S.C. 1989, c. 3 (the “Act”), which provides that any onboard recording that relates to a transportation occurrence under investigation by the Board is to be released to a Board investigator who requests it.  Under section 28(2), however, an onboard recording is privileged.  No person, including an investigator who obtains access to the recording under section 28, can communicate a recording or permit the contents of it be communicated to anyone else.

Section 28(6) provides an exception to the privilege.  The CVR may be produced in court proceedings where the court concludes that in the circumstances of the case the public interest in the proper administration of justice outweighs the importance of the privilege.  NAV Canada moved under section 28(6) for production of the CVR.  The motion was opposed by the Board and the pilots’ unions, who took the position that the contents of the CVR should be suppressed in the interests of aviation safety and the personal privacy of the pilots concerned.

The judge who heard the motion concluded that in the circumstances of the case the interests of justice outweighed the importance of the privilege, and ordered the disclosure of the CVR to the parties in the litigation.  This order was upheld in a recent decision of the Ontario Court of Appeal.

The Board had published a detailed report of its investigation.  While the Act does not permit the Board to assign fault or determine liability, the report did suggest that certain acts and omissions of the pilots during the last two hours of the flight, and in particular during the last 30 minutes, may have contributed to the crash.  The report did not quote the pilots’ conversations, but it did summarize the substance of the conversations.

The motions judge listened to the recording and read the transcript in camera. As a result, he concluded that there was “no doubt whatsoever that the contents of the CVR are highly relevant, probative and reliable and that they are of incalculable value in the investigation of this accident.”  The Board and the pilots’ unions argued that disclosure of the CVR would diminish the trust pilots have in the confidentiality of the investigation process, thereby producing a “chilling effect” and limiting the information that pilots would provide in future investigations.

In delivering the unanimous opinion of the Court of Appeal, Mr. Justice Goudge noted that in balancing the importance of the CVR to the administration of justice against the importance of the statutory privilege, the motions judge exercised the type of discretion that should attract deference on appellate review.  The Court of Appeal rejected the appellants’ assertion that the motions judge applied the wrong legal test.  It was not necessary for the moving party to establish extraordinary circumstances in order to justify production: “What the court must find is that in the particular case, the public interest in the administration of justice outweighs the importance attached to the statutory privilege.

These are some of the factors that the court cited as weighing in favour of disclosure in the interests of justice:

(1)    This was important and substantial litigation with a class of some 300 individuals and damages claimed in the hundreds of millions of dollars;

(2)    There was concern over the reliability of the pilots’ evidence;

(3)    The pilots had already used the CVR to refresh their memories;

(4)    Absent the CVR evidence, there was a real risk that the parties and the trier of fact would not have access to the best and most reliable evidence concerning the central issues in the case.

On the other hand, the CVR did not contain personal communications or communications “of a sensational or disturbing nature”, and there were no disciplinary proceedings pending against the pilots.

Disclosure served the public interest in the administration of justice because the contents of the CVR were relevant, probative, and reliable, and therefore of great value in the investigation of the particular accident that was before the court.  Since the Board and the unions had failed to provide any evidentiary basis for the alleged chilling effect (such as evidence that previous orders for disclosure had caused pilots to be less cooperative in subsequent investigations), this allegation was no more than speculation.

The court also rejected the appellants’ argument that the moving party has to show that a miscarriage of justice would occur unless the contents of the CVR were produced in the action.  In the circumstances, the public interest in the administration justice outweighed the importance of the privilege, and the recording should be produced.

Link: Societe Air France v. NAV Canada, CanLII – 2010 ONCA 598 (CanLII)

Richard Hayles, B.A., J.D.


Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Civil Litigation, Class Actions, Marine & Maritime | Add Comment »

Safety of Consumer Products

Tuesday, October 12th, 2010

Federal Bill C-36,  an Act respecting the safety of consumer products, received  second reading and was referred to Committee in the House of Commons on October 7, 2010.

For a summary of Bill C-36, click here.

David Alderson, LL.B, LL.M


Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Posted in Class Actions, Consumer Protection, International Trade, Products Liability, Sale of Goods | Add Comment »