Ontario's Arthur Wishart Act (Franchise Disclosure),
2000 does not guarantee franchisees the right to commence
a class action. The Ontario Superior Court recently stayed a proposed franchise class
action in favour of requiring arbitration under the franchise
agreement. In doing so, the Court rejected the franchisees'
argument that the legislature intended to override their
arbitration agreement to allow them to start a class action.
In 1146845 Ontario Inc. v. Pillar to Post
Inc., Justice Perell addressed whether the Ontario
legislature intended the Arthur Wishart Act to guarantee
franchisees the right to commence a class action even though their
franchise agreements required arbitration. Justice Perell found no
intention in the Act to pre-empt the arbitration
agreement. He accordingly stayed the class action.
Justice Perell considered the intersection of the Arthur
Wishart Act, the Class Proceedings Act, 1992, and the
Arbitration Act, 1991. Under the
Arbitration Act, courts must stay proceedings where the
parties have agreed to arbitrate their disputes, unless the matter
falls within a specific exception or the legislature has granted
the court the exclusive jurisdiction to resolve the dispute.
This mandatory stay extends to class actions. To get around
this, the franchisees in Pillar to Post argued that their right to
associate in s. 4 of the Arthur Wishart Act implicitly
gave them the choice of either compelling arbitration or commencing
a class proceeding against the franchisor.
Justice Perell rejected this argument. The right to associate in
the Arthur Wishart Act does not equal a right to bring a
class action in the face of an arbitration provision. Where
franchisors and franchisees mutually agree to arbitrate their
disputes, effect will be given to their agreement. The legislature
did not intend to grant the courts exclusive jurisdiction to
resolve franchise disputes or to pre-empt arbitration provisions in
franchise agreements to allow class actions to go ahead.
Arbitration offers an alternate route to a remedy and does not deny
franchisees access to justice.
Significance To Franchise Class Actions
Pillar to Post clarifies the law in Ontario that an
agreement to arbitrate in a franchise agreement is a complete
answer to a proposed class action. The court will stay the
proceedings without the defendant having to show that arbitration
would be the preferable procedure to resolve the claim.
Justice Perell's decision clearly rejects the theory, which
existed for some time prior to Pillar to Post, that the
right of association in s. 4 of the Arthur Wishart Act
guarantees franchisees the right to associate for the purposes of
bringing a class action. In doing so, he distinguished 405341 Ontario Limited v. Midas Canada
Inc., which the franchisees cited in support of their
position, on the basis that it was not a motion to stay a class
action nor did it involve an agreement to arbitrate. Following
Pillar to Post, it is clear that the right to associate does not
include a right to bring a class action in the face of an
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