A recent decision of the Ontario Superior Court, which resolved
numerous common issues in a franchise class action on summary
judgment, provides practical guidance to franchisors on how to
reduce legal risk relating to the sharing of volume discounts or
other pricing benefits with franchisees.
In 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2014 ONSC 6056, Justice Belobaba decided five
of seven common issues certified in a class proceeding brought by
about 150 former franchisees against Pet Valu, a franchisor. The
decision includes three helpful lessons for franchisors:
Similar to the well-known Tim Horton's case from
2012 (Fairview Donut Inc. v. The TDL Group Corp., 2012 ONSC 1252), a class proceeding brought by
franchisees can be resolved, or at least substantially narrowed, on
a summary judgment motion. Numerous common issues in this case
could be disposed of through the Court interpreting key documents,
eliminating the need for a long and expensive trial to decide these
Franchise agreements conferring discretion upon the franchisor
regarding how rebates and volume discounts will be shared with
franchisees can provide flexibility in determining the amount and
the method by which these benefits will be shared with franchisees,
although this discretion should be exercised reasonably to minimize
legal risk. The Court noted that the franchise agreement in this
case provided wide-ranging discretion on the franchisor in deciding
how volume rebates will be shared with franchisees, but that both
franchise legislation and the common law principles require a
franchisor to exercise its discretion "reasonably and with
proper motive, and ... not... arbitrarily, capriciously, or in a
manner inconsistent with the reasonable expectations of the
Franchisors can assist themselves in litigation regarding
rebate issues by tracking and demonstrating (on a representative
basis) prices paid, volume and other discounts obtained, mark-ups
added, and wholesale prices to franchisees compared to other
suppliers. The franchisor in this case marshaled clear evidence of
these elements, and the representative franchisee had no contrary
evidence to support its allegation that the sharing of rebates was
unreasonable. After reviewing and assessing the franchisor's
transparent disclosure of how its pricing is arrived upon, the
Court held in its favour, concluding that there were no
The core issue in Pet Valu was whether the franchisor
failed to share volume-related pricing benefits with franchisees.
This involved an interpretation of the franchise agreement to
determine whether the franchisor was contractually obliged to share
volume rebates with franchisees, as well as a factual assessment of
whether the franchisor did, in fact, share such volume rebates.
The Court answered both questions in the affirmative.
Although it agreed that the franchise agreement required the
franchisor to share volume rebates, Justice Belobaba held that the
franchisor met this requirement. This conclusion was reached upon
review of the franchisor's comprehensive evidence, which (a)
demonstrated that its prices were 6-14% lower than competitors'
prices available to the franchisees, and (b) set out in detail for
its top 100 products: list price, applicable volume or other
discounts, mark-up applied, and franchisees' net costs. The
product pricing evidence demonstrated that pricing discounts to the
franchisor were passed along to franchisees, even after the
franchisor added a reasonable mark-up.
The Court's analysis on this issue was determinative of
several other common issues certified for the class, including
whether the franchisor breached the duty of fair dealing or was
The remaining two common issues raised the question of whether
the duty of good faith and fair dealing imposed by s. 3 of the
Arthur Wishart Act can be used to compel ongoing
disclosure from a franchisor. Justice Belobaba noted that Spina v Shoppers Drug Mart suggests
the answer is likely "no", but deferred the determination
of these issues to a later date. During the summary judgment
motion, the plaintiff class decided to move to add a new common
issue on the basis of sworn statements made by the franchisor on
the motion. As the decision on the motion for the addition of the
new common issue could be determinative of the remaining common
issues, Justice Belobaba deferred his answers on those issues until
the motion was decided.
It's not often that our little blog intersects with such titanic struggles as the U.S. presidential race – and by using the term "titanic" I certainly don't mean to suggest that anything disastrous is in the future.
J.J. v. C.C., is an interesting case in which the court held that an automotive garage owes a duty to minor children to secure the vehicles on the premises by locking the cars and safely storing the car keys...
In Irwin v. Alberta Veterinary Medical Association, 2015 ABCA 396, the Alberta Court of Appeal found that the "ABVMA" failed to afford procedural fairness to a veterinarian undergoing an incapacity assessment.
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