Despite the retroactive nature of the Arthur Wishart Act (AWA) (Act), its anti-waiver provision only applies to rights purportedly waived after the date on which the AWA came into force, according to a recent decision of the Ontario Superior Court of Justice.

In Healy v. Canadian Tire Corporation (Healy), the Court held that the franchisee had waived his right to claim for negligent misrepresentation in respect of a change to the franchise relationship, by failing to give notice of the claim pursuant to his dealer agreement. Though the dealer agreement was signed after the AWA's effective date, the representations were made before the AWA came into force.

Background Facts

Healy, was an appeal of an arbitral award that accorded the franchisee damages of $250,000 for a breach of the duty of fair dealing in respect of a 2005 store renovation project, but denied recovery on the more substantial issue of alleged negligent misrepresentation in respect of a replacement store project from 2000 (Replacement Build).

The franchisee had participated in the Replacement Build, replacing and relocating its Canadian Tire franchise. The franchisee claimed that the franchisor had made negligent misrepresentations in respect of certain sales forecasts, which were provided to the franchisee regarding the Replacement Build.

Among the reasons given by the arbitrator for refusing the negligent misrepresentation claim, was that the franchisee had waived the claim by failing to give notice of it pursuant to the terms of his Dealer Contract with the franchisor. However, the franchisee argued that the waiver provided in the Dealer Contract was negated by section 11 of the AWA, which voids "any purported waiver or release by a franchisee of a right given under this Act or of an obligation or requirement imposed on a franchisor or franchisor's associate."

The relevant dates would be central to the Court's decision. The sales forecast for the Replacement Build was provided by the franchisor in March 2000. The AWA, and its section 3 duty of good faith and fair dealing, came into force several months later, on July 1, 2000. The effective date of the Dealer Contract was July 13, 2000, 12 days after the AWA came into force but the Dealer Contract was actually signed on January 15, 2001, six months after the AWA's effective date.

The franchisee also claimed that damages for the Replacement Build should have been in excess of $3 million, a figure which was substantially higher than the amount the arbitrator would have awarded if the franchisor had been found liable for negligent misrepresentation. The arbitrator significantly reduced the damage award in light of the franchisee's own breaches of the duty of good faith and fair dealing.

The Court Narrowly Interprets Section 11 and Affirms Franchisee Obligations

The Court found that section 11 only acts to void a release of a right given under the AWA. Because the alleged misrepresentations occurred in March 2000, before the AWA came into force, the Court held that no right under the AWA had been waived by the Dealer Contract.

The Court made this finding even while acknowledging that section 2 of AWA makes the Act applicable to a renewal or extension of a franchise agreement entered into before the coming into force of the AWA. Though the AWA applied to the Dealer Contract, the Dealer Contract's waiver/release provision was accepted in respect of representations given before the AWA came into force, and therefore did not constitute a waiver of a right under the AWA.

The Court also affirmed the arbitrator's finding in respect of the damages reduction. It affirmed that the section 3 duty of good faith and fair dealing is a "two-way street" and that the arbitrator was justified in reducing the assessed damages, as a result of the franchisee's own (unspecified) breaches of the Dealer Contract.

Impact of the Decision

The decision in Healy makes clear that waivers pre-dating the AWA can survive and can be enforced by the franchisor. It also affirms that the duty of good faith and fair dealing is owed as much by franchisees as by franchisors.

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