Canada: Legislative Developments

Last Updated: June 19 2015
Article by Richard Leblanc and Callum Campbell

A. Bill 45 – Healthy Menu Choices Act (Ontario)

In November 2014, the Ontario government introduced Bill 45, which is aimed at promoting transparency and health in the province by enacting the Electronic Cigarettes Act, 2014, amending the Smoke-Free Ontario Act and, of particular interest to franchisors, enacting the Healthy Menu Choices Act, 2014 (the "Act").   The Bill received Royal Asset on May 28, 2015 and is scheduled to come into force on January 1, 2017.

The Act will require food service providers who are part of a chain of 20 or more locations in the Province of Ontario, and who operate under the same, or substantially the same name (regardless of ownership), to display the number of calories in all standard food and beverage items on their menus and displays. The calorie content, and other prescribed information (yet to be revealed), will need to be displayed for each flavour and size of the various items. The calorie content information must appear on any menus where the relevant food item is listed, on at least one sign in the restaurant, and on the food or beverage's label or tag where the item is on display. The Act will also allow inspectors to scrutinize businesses for compliance. Failure to adhere to the rules will carry significant fines.

B. Update on British Columbia's Franchise Legislation

In March of last year, the British Columbia Law Institute released its Report on a Franchise Act for British Columbia, recommending the adoption of franchise legislation by the province. From September 10, 2014 and December 10, 2014, the Government of British Columbia sought comments from the public and stakeholders on the proposed adoption of the statute. If legislation is enacted, it would be consistent with the legislation in Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island, by regulating the sale of franchises and requiring that franchise agreements be presented with pre-sale disclosure documents. A summary of the feedback received by the BC government was released on January 30, 2015 and can be found online at: http://www.ag.gov.bc.ca/legislation/shareddocs/franchises/stakeholder-input.pdf. Submissions were received from: the Canadian Franchise Association (CFA), the B.C. Chamber of Commerce (BCCC), a Special Committee of the B.C. branch of the Canadian Bar Association (Special Committee), one franchise consultant, four franchisees and a lawyer expert in franchise law.

Only the CFA, the BCCC, and the franchise consultant did not directly express their support for franchise legislation based on the Uniform Franchises Act. However, they did, together with the Special Committee, provide suggestions for improving the uniform statute. Ministry of Justice staff are currently reviewing the received feedback and preparing recommendations for the proposed legislation. 

CASE-LAW DIGEST

A. Volume Rebate Representations

The recent decision in 1250264 Ontario Inc. v Pet Valu Canada Inc. is a cautionary tale for franchisors about making volume rebate representations. A class of former franchisees of Pet Valu brought a class action suit against the franchisor, and sought to amend their pleadings to include a claim that the franchisor had made misrepresentations about the volume rebates available to franchisees. Ultimately, the court denied the request on the basis of prejudice to the defendant, but agreed that there was merit to their claim.

The court found that Pet Valu's disclosure document and franchise agreement included representations that it possessed significant purchasing power, enabling it to take advantage of volume rebates from suppliers, and that this would translate into a meaningful benefit to franchisees. Despite the fact that Pet Valu passed along all of the rebates to its franchisees, the franchisor did not generate a meaningful measure of volume rebates, contrary to what was represented to franchisees. The franchisor's insufficient purchasing power constituted a "material fact" under the Arthur Wishart Act (AWA), and failing to inform the franchisees of this truth amounted to a possible violation of the duty of good faith and fair dealing under s.3 of the AWA.

Ultimately, this case highlights the materiality of volume rebates and purchasing power, and takes a greatly expanded view of the duty of good faith in finding that a disclosure obligation exists not only under s.5 of the AWA, but also in the discharge of the duty of good faith and fair dealing. The court cautioned that the franchisors should at least provide information on the amounts of rebates received, retained, and shared, so franchisees can draw their own conclusions.  This decision is currently under appeal.

1250264 Ontario Inc. v. Pet Valu Canada Inc., 2015 ONSC 29.

http://www.canlii.org/en/on/onsc/doc/2015/2015onsc29/2015onsc29.html

B. Arbitration vs. Class Action (and the right to associate)

Three franchisees sought to bring a class action against the franchisor (Pillar to Post) for unilaterally converting its system from exclusive territories to non-exclusive territories. However,the franchise agreement contained an arbitration clause, which the franchisee maintained violated the franchisee's right to associate pursuant to s.4 of the Arthur Wishart Act (AWA). The court rejected the franchisee's argument and stayed the class action, ruling that the right to associate does not extend so far as to negate an arbitration clause. In particular, the court pointed out that s.5(1) of the AWA regulations specifically allows for parties to arbitrate and that the Arbitration Act (s.7(1)) directs the court to stay an action where a party tries to sue in respect of a matter which, by contract, is to be submitted to arbitration.

Despite the remedial nature of the AWA, the court found that it would go too far to give franchisees a unilateral right to choose between a class action and arbitration where the agreement includes an arbitration clause. Comparing this case to 405341 Ontario Ltd. v Midas Canada Inc. [2009] OJ No 4354 (Ont Sup Ct), in which the court struck down a release that prevented the franchisee from joining a class action, the court said that the arbitration clause in this case did not deny the franchisee any forum for access to justice.

The ruling here lends support to the success franchisors may find in including arbitration clauses in their agreements.

1146845 Ontario Inc. v Pillar to Post Inc., 2014 ONSC 7400.

http://www.canlii.org/en/on/onsc/doc/2014/2014onsc7400/2014onsc7400.html

C. Material Fact Litigation

A franchisee sought to rescind their franchise agreement pursuant to s.6(2) of the Arthur Wishart Act (AWA) on the basis of the franchisor's failure to disclose litigation it had commenced against a former franchisee who was operating a competing business. As the AWA does not specifically require that litigation of this specific nature be contained in the disclosure document, the question was whether it constituted a "material fact" within the meaning of the legislation. The Ontario Court of Appeal ruled that if the undisclosed litigation does not fall within the type required to be disclosed pursuant to s.2(5) of the regulations, then whether or not it is material must be addressed on a case by case basis. Given that the undisclosed litigation in this case was not a potential liability to the franchise system, but rather a proactive measure for the benefit of the franchisees, it was not a material fact and did not deprive the franchisee of the opportunity to make an informed decision to invest. In agreeing with the motion judge, the court went on to state that the lack of disclosure in this case did not come close to the type of deficiency that would amount to "no disclosure at all" and the resulting entitlement to a rescission remedy under s.6(2).

Of note is the fact that while the franchisors were successful in this case, the decision lends support to the notion that undisclosed litigation of the sort not listed in the regulations may be reviewed for its materiality.

Caffé Demetre Franchising Corp. v 2249027 Ontario Inc., 2015 ONCA 258.

https://www.canlii.org/en/on/onca/doc/2015/2015onca258/2015onca258.html

D. Unfair & Unreasonable Releases

This case centres around the settlement of a class action suit between a group of franchisees and Quizno's. The suit involved the alleged misconduct on the part of the franchisor for discouraging a food supplier from offering discounts to the franchisees. A Settlement Agreement was reached between the parties and brought forward to the court for approval. In rejecting the proposed settlement, the court ruled that the wording of the release had the potential to be interpreted in an overly broad manner. Had the release simply prevented the class members from bringing further suits against the franchisor based on the existing alleged misconduct and future continuations of those claims, then it would have been reasonable. However, the release was broad enough so that it could be interpreted as categorically releasing Quizno's from all future claims of the type identified in the suit. In other words, it could prevent members of the class from bringing any claims against Quizno's relating to the purchase, sale, distribution, promotion, or marketing of supplies. As such, the court rejected the settlement as being unfair, unreasonable, and not in the best interest of class members.

2038724 Ontario Ltd. v Quizno's Canada Restaurant Corp., 2014 ONSC 5812.

http://www.canlii.org/en/on/onsc/doc/2014/2014onsc5812/2014onsc5812.html

E. Dunkin' Donuts Revisited

In a decision released on April 15, 2015, the Québec Court of Appeal has, save for reducing the damages awarded, upheld the trial court decision from 2012 in which Dunkin' Donuts was found liable for failing to protect and enhance its brand in the face of increased competition in the province from the likes of Tim Hortons.

On appeal, the franchisor claimed that the trail judge misinterpreted a clause in the franchise agreement regarding the franchisor's commitment to enhancing and protecting the brand by transforming what was merely a "hoped-for result" into a binding contractual obligation. In rejecting the argument, the Appeal Court noted that the trial judge said nothing about a contractual duty to outperform the competition or guarantee a market share to franchisees. Rather, the decision marked the application of the existing good faith duty of a franchisor, identified in the earlier Quebec case of Provigo Distribution Inc. v Supermarché A.R.G. Inc., to require it to cooperate with franchisees and to respond and adjust to market conditions. The Appeal Court noted that the duty of good faith is not limited to a franchisor merely refraining from competing unfairly with their franchisees, which had been the main issue in the Provigo case.

Moving beyond the explicit language of the agreement, the court clarified that the franchisor's obligation to protect the brand was not based only in the provisions of the franchise agreement, but also in an implied undertaking made to all franchisees. The right the franchisor had to insist that franchisees respect the standards of the system and the brand, brought with it a mirror obligation "owed to the network" to protect the brand. This obligation, whether explicitly stated or not, translated to a duty owed to each of the franchisees; in continuing to carry on business as usual in the face of competition and market challenges, the franchisor failed to meet its contractual obligations.

While this decision comes out of Québec's civil law system, franchisees Canada-wide can still refer to this case to support their position that there is an additional or emboldened duty on the part of franchisors to protect the franchise system in the face of a changing market.

Dunkin' Brands Canada Ltd. v Bertico Inc., 2015 QCCA 625.

http://www.canlii.org/en/qc/qcca/doc/2015/2015qcca625/2015qcca625.html

F. The New Common Law Duty of Good Faith

In a unanimous decision released on November 13, 2014, the Supreme Court of Canada (SCC) has set down a new common law duty of good faith that applies to all commercial contracts. This is not to be confused with a duty of loyalty, a duty of disclosure, or a requirement that a party forego advantages flowing from the contact; rather, the obligation is simply not to lie to, or mislead, the other party about one's contractual performance.

The surrounding facts of the case involved Bhasin and Hrynew, who were competing enrolment directors for Canadian American Financial Corp. (Can-Am). Looking to take over his competitor's business, Hrynew had pressured Can-Am not to renew its dealership agreement with Bhasin and subsequently scooped his competitor's sales agents. Bhasin consequently sued both Hrynew and Can-Am, claiming conspiracy and that Can-Am had failed to act in good faith.

In overturning the Alberta Court of Appeal's decision in this matter, the SCC found that in repeatedly lying to Bhasin about, among other items, its intention to force him out, Can-Am had breached its duty to perform the contract honestly. Referring to it as a general organizing principal, akin to unconscionability, the SCC explained that this duty of honest performance cannot be waived by the parties or excluded by an entire agreement clause.

The relevance of this case to franchisors will likely be widespread, as it bolsters the duty of good faith found in existing franchise legislation, and imposes a new common law duty of good faith even in those provinces without such legislation.

Bhasin v Hrynew, 2014 SCC 71.

https://www.canlii.org/en/ca/scc/doc/2014/2014scc71/2014scc71.html

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Richard Leblanc
Callum Campbell
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions