Canada: Ontario Court Rules Automotive Dealership May Not Be A Franchise Under Ontario Franchise Legislation

Last Updated: October 5 2012
Article by Rebecca Hamovitch

On August 31st 2012, in the case of Butera et al. v. Mitsubishi Motors et al., the Ontario Superior Court of Justice granted a motion for summary judgment brought the defendants, Mitsubishi Motor Sales of Canada Inc. (MMSCAN) and various other Mitsubishi entities, and dismissed the action brought by the plaintiffs, Luciano Butera and two of his companies. In the context of alleged misrepresentations, the Court made some interesting comments regarding the distinction between expressions of opinion and ascertainable facts, and also discussed the utility of entire agreement clauses and releases. Also notable was the Court's finding that the dealer agreement in this case did not give rise to a franchise relationship and that the Arthur Wishart Act (Franchise Disclosure), 2000 (the "Act") was not applicable under the circumstances.


In 2002, Butera submitted an application to MMSCAN to acquire a Mitsubishi dealership. Included as part of his application were various pro forma sales forecasts, which were prepared by Butera based on figures from the United States and the predictions of the defendants of expanded sales in both the United States and Canada. Later that year, Butera, on behalf of 1515404 Ontario Inc. (operating as Niagara Mitsubishi) entered into a Dealer Agreement with MMSCAN. At that time, Mitsubishi cars were not being sold in Canada.

In 2007, the plaintiffs sued various Mitsubishi entities for damages for breach of contract, fraudulent, negligent and reckless misrepresentation and breach of collateral warranty. Butera claimed that the defendants' alleged misrepresentations had persuaded him to enter into the Dealer Agreement, and resulted in significant losses. Butera also alleged that the Dealer Agreement was a franchise agreement, and that MMSCAN failed to comply with the Act. MMSCAN counterclaimed for the amount owing under the Dealer Agreement and the defendants moved for summary judgment dismissing the plaintiffs' action.


Justice Hambly of the Ontario Superior Court of Justice found that the action was statute-barred as it had been commenced after the expiration of the limitation period, but nevertheless went on to assess the arguments of the defendants, ultimately dismissing the plaintiffs' action and allowing MMSCAN's counterclaim. The crux of the plaintiffs' claim was that the defendants misrepresented the future prospects of sales of Mitsubishi cars in Canada based on their past performance in the United States. However, the Court found (and Butera conceded) that there was no evidence that the figures presented to him of sales in the United States were not accurate, nor any evidence to suggest that the agents of the defendants did not honestly believe their predictions of success.

In finding that no misrepresentations had been made, the Court emphasized that Butera had experience in the motor vehicle sales industry and could have made further inquiries where required. Significantly, the Court pointed out that the forecasts at issue in the case were an expression of opinion about the future based on the past, which ultimately proved to be inaccurate. Such inaccuracy did not give the plaintiffs a cause of action against the defendant based on misrepresentation. The Court stressed that in order to succeed on a claim for negligent misrepresentation, the statement or representation at issue must relate to an ascertainable or existing fact, as opposed to an opinion or expectation. The Court's comments on this point highlight that the provision of a forecast or projection will not automatically give rise to liability in the event that such forecasts are not met. That said, the result in this case may well have been different if the information provided by the defendants had been false. 

The Court also focused on the existence of an exclusive agreement clause and a release clause in the Dealer Agreement, both of which operated in these circumstances to help shield the defendants from a finding of misrepresentation. The entire agreement clause explicitly stated that the Dealer Agreement superseded all prior written or oral agreements and understandings between the parties. Pursuant to the release, Butera agreed to release MMSCAN from any and all claims and liabilities of any kind. The Court stated that as a lawyer, Butera understood these clauses when he entered into the Dealer Agreement. In addition, the pro forma statements that Butera had submitted to MMSCAN contained a disclaimer statement that provided that MMSCAN made no representations and assumed no liability regarding the objectives and assumptions involved or any figures shown in the pro forma materials. The Court pointed out that the terms of the Dealer Agreement and the disclaimers cannot be ignored simply because the plaintiffs' business failed. Accordingly, the entire agreement clause and the release clause in the Dealer Agreement were found to be a complete defence to the plaintiffs' claim.

Finally, while the Court did not provide a comprehensive analysis of the applicability of the Act, it did consider the plaintiffs' assertion that the Act applied. Looking at the definition of "franchise" under the Act, the Court briefly noted that the Dealer Agreement did not require that Niagara Mitsubishi make a payment or continuing payments to MMSCAN, and did not, therefore, give rise to a franchise. In any event, the Court held that even if the Act did apply, it would not assist the plaintiffs as most of the relevant sections do nothing more than codify the common law, pursuant to which the Court had already found in favour of the defendants. Even section 7(2), which provides for deemed reliance on misrepresentations, did not assist the plaintiffs given the finding that no misrepresentations had been made. The Court also noted that the time period in which rescission might have been available to the plaintiffs had expired.


While the Court was careful to point out that more generally, the Act is not to be narrowly construed, the Court's conclusion on its inapplicability in this case is a reminder that dealerships and similarly structured businesses will not automatically be considered franchises, and that the definition of "franchise" in the legislation is important and must be carefully examined on a case-by-case basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Rebecca Hamovitch
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