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)

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