Over four years after the certification of the case as a class proceeding, and over six years after the action was commenced, the Ontario Superior Court of Justice approved a settlement of the class action brought on behalf of Midas franchisees against their franchisor regarding 2003 changes to the Midas franchise system.
In 405341 Ontario Limited v. Midas Canada Inc., Madam Justice Lax approved a settlement that provides for the franchisor paying franchisee class members $8,500,000, inclusive of interest, legal fees, disbursements, administration expenses and taxes. In approving the settlement, which was for significantly less than the amount originally claimed by the plaintiff ($75,000,000), the Court noted the changing landscape in Canadian franchise litigation, particularly in respect of the recent Tim Hortons decisions where the Ontario Court of Appeal outlined the difficulty of proving bad faith and the lack of fair dealing in respect of franchise system changes:
Midas relies heavily on the TDL case, where the court dismissed an action brought by franchisees in the Tim Hortons franchise system who alleged bad faith conduct. The TDL case certainly highlights the risk of loss at trial. In his reasons, Justice Cullity acknowledged that proving bad faith and lack of fair dealing would involve the "difficult exercise of weighing the detriment suffered by the Franchisees, as a result of the change in the products supply system, in light of the undoubted right of Midas to give consideration and weight to its own interests".... Even if the plaintiff is successful at trial, the anticipated range of damages for breaches of the duties of good faith and fair dealing is uncertain. Moreover, appeals are inevitable.
It is heartening to Canadian franchisors to have the Court acknowledge that "the jurisprudence in franchisee class actions has developed" in respect of good faith and fair dealing claims in respect of system changes. Given the jurisprudential progression, franchisors can hopefully expect courts to thoroughly analyze proposed franchisee class actions to ensure the legitimacy and appropriateness of statutory and common law bad faith claims.
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