In 2038724 Ontario Ltd. v. Quizno's Canada Restaurant
Corporation, the Ontario Superior Court of Justice recently
dismissed a motion to approve a Settlement Agreement between the
Franchisor and the Representative Franchisees on the basis of an
overbroad unfair release.
The allegations forming the basis of the class action included
anti-competitive behaviour on the part of the Franchisor. The
Franchisor was alleged to be maintaining the prices of goods
offered by its Designated Suppliers to Franchisees at commercially
unreasonable levels. It was further alleged that there persisted a
conspiracy between the Franchisor and the Designated Suppliers to
the present time. The claims pleaded relied on s. 61(1) of the
Competition Act, creating sanctions for influencing
prices, and s. 3 of the Arthur Wishart Act (Franchise
Disclosure) 2000, imposing a duty of fair dealing on parties
to franchise agreements.
One of the terms of the Settlement Agreement was a full and
final release, binding on the Plaintiffs and all Class Members, of
the Franchisor and its co-defendant Designated Suppliers with
respect to a defined set of "Released Claims." The
Released Claims were
any and all claims, demands, actions, suits, causes of
action, whether class, individual or otherwise in nature, including
assigned claims, whether known or unknown, asserted or unasserted,
regardless of the legal theory, existing now or arising in the
future by any and all of the Plaintiffs or the Class Members,
arising out of or relating to the purchase, sale, distribution,
promotion, or marketing of Supplies (as defined in the Statement of
The evidence showed that the parties disagreed as to the scope
of the Released Claims. While Class Counsel was of the view that
the covenant simply precluded claims based on the existing alleged
misconduct identified in the Statement of Claim, the Defendants
viewed it as barring the types of claims identified in the
Statement of Claim. This distinction was vital to their
interpretation of the Agreement given that they continued to carry
on the purchase, sale, distribution, etc. of Supplies in the same
manner as they had in the past. They sought to avoid the risk of
another class action based on this same conduct.
One Class Member had raised detailed concerns in advance of the
hearing, indicating that he feared the Defendants'
interpretation was the correct one despite Class Counsel's
assurances. In his letter of objection, the Class Member opined
that the Settlement Agreement "gives [the Franchisor] carte
blanche...to do whatever it wishes with respect to the pricing
charged to franchisees for all supplies...in perpetuity."
The Court's Reasoning
The Court found that this concern had merit. While it
acknowledged that interpreting its potential future application was
a speculative exercise, it found that one possible interpretation
of the release was that it would categorically bar all future
claims of the types identified in the class action, rather than
only the current claims or continuations of the current claims. It
concluded that it would not be fair or reasonable to potentially
bar all future claims based on presently unknown circumstances.
While it was possible that a future Court would interpret the
release so as to be fair to Class Members, it was also
"certainly not impossible to release future claims."
Further, the release could have unfair effects in that the current
Class Members would be unable to join cause with new franchisees
with new complaints of alleged common breaches of the franchise
The Court made it clear that but for the breadth of the release,
the Settlement Agreement would have been approved. Although the
Agreement had very little in it for the plaintiffs, the chances of
the Class Members fairing much better at trial were deemed to be
slim given intervening developments in the interpretation of the
Competition Act and other difficulties inherent to the
Class' claims. The release, given its potentially unfair and
unreasonable consequences, was fatal to the approval of the
otherwise reasonable settlement.
The most valuable lesson to take away from this decision is the
cautionary tale it contains about releases in franchise class
action settlements. If a release is so broad as to plausibly lend
itself to an interpretation that would release a Franchisor from
all future claims of a particular type, it risks being rejected by
the court for being overbroad and unfair — even if those
claims are based on similar allegations as the action at issue.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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