Canada: Former Dealers Unsuccessful With Franchise Law Claims In Class Action Against General Motors Of Canada Limited

In a recently released decision of the Ontario Superior Court of Justice, Trillium Motor World Ltd. v. General Motors of Canada Limited, former automotive dealers were unsuccessful in their class action against General Motors of Canada Limited (GMCL) in respect of a broad range of claims brought against the company arising out of its 2009 restructuring during the global financial crisis.1

The former dealers had alleged a variety of breaches of common law and franchise law obligations based on GMCL's decision to offer 240 dealers notices of non-renewal and wind-down agreements (WDAs) that would terminate their dealer relationships with GMCL. The dealers were given six days to accept or decline the offer. 202 dealers accepted the WDAs, which was a sufficient number to forestall GMCL's potential insolvency proceeding (along with a variety of other factors). Subsequently, 181 of the 202 dealers sued in respect of the WDA process. In dismissing the action, Justice McEwen held that "GMCL did not breach any common law or statutory obligations toward the Class Members" and dismissed the claim. The court also dismissed GMCL's counterclaim against the Class Members.

The decision involves a wide array of franchise-related issues and provides continued guidance to Canadian franchisors in respect of class proceedings, potential terminations, releases, the duty of good faith and franchise system-wide changes.

The key franchise-related findings in the decision are as follows:

  • The application of the Wishart Act to out-of-province franchisees:

The court held that Ontario's franchise legislation, the Arthur Wishart Act (Franchise Disclosure, 2000) applied to the dealership agreements of Class Members that operated outside of Ontario. The judge based this holding on the fact that each agreement contained a choice of law clause in favour of Ontario.

In reaching its conclusion, the Court held that section 2(1) of the Wishart Act – which states that the Act applies to franchise agreements entered into by franchisees operating partly or wholly in Ontario – does not preclude parties outside of Ontario from designating the Wishart Act to govern their agreements. In this regard, the Court followed its earlier decision in 405341 Ontario Limited v. Midas Canada Inc.,2 which was affirmed by the Court of Appeal.3

The Court also considered certain sections in Alberta and Prince Edward Island's franchise acts that render void any provision in a franchise agreement that would restrict the application of the laws of those provinces. The Court held that these sections did not oust the choice of law clause for Class Members in those provinces because, among other reasons, the class action had been certified in and proceeded in Ontario.

  • The duty of good faith:

The plaintiff complained that GMCL breached the duty of good faith through its actions surrounding the delivery of the WDAs. However, upon examining the evidence surrounding each of these complaints and the unique economic context in which they were made, the court held that GMCL's conduct was, on the whole, reasonable and did not breach the duty of good faith. The court noted that GMCL was making crucial business decisions "very quickly during a time of instability and flux for both GMCL and its dealers."

  • The statutory right of franchisees to associate:

The plaintiff complained that GMCL violated the Class Members' statutory right to associate under section 4 of the Wishart Act by, among other things: (a) not disclosing the identities of the dealers offered a WDA, and (b) including a confidentiality provision in the WDA that prevented dealers from discussing its terms with other dealers.

The Court dismissed the first complaint on the basis that the right to associate does not impose positive obligations on the franchisor. It is a "negative duty," which prevents a franchisor from restricting, prohibiting and interfering with a franchisee's exercise of that right, or attempting to threaten or penalize a franchisee for exercising that right. GMCL was therefore not obligated to identify the dealers that had been offered a WDA, and its refusal to do so did not prevent those dealers from self-identifying and forming a collective. The confidentiality provision in the WDA also did not interfere with the Class Members' right to associate because dealers were free to discuss its terms prior to executing it.

  • The enforceability of waivers and releases in the WDAs:

The WDAs provided releases of claims against GMCL, including the release of franchise legislation (Wishart Act) rights. The dealers claimed that the release was void and unenforceable because it contravened section 11 of the Wishart Act, which holds that any purported waiver or release of Wishart Act rights is void.

The Court held that the release provided under the WDAs was exempt from section 11 because section 11 does not have application to a release given (with the advice of counsel) by a franchisee in the settlement of a dispute. The Court characterized the WDA as a settlement, in that it was a voluntary arrangement that brings a dispute or potential dispute to an end without a final adjudication of the issues between the parties on the merits. As such, it did not breach section 11. This exception is generally known as the Tutor Time exception, based on the 2006 decision which gave rise to this interpretation of the statute.4

  • The obligation to deliver a disclosure document with the WDAs:

The Court held that GMCL was not required to deliver a disclosure document to dealers prior to their execution of the WDA for two reasons.

First, the WDA was not a "franchise agreement or any other agreement relating to the franchise" for purposes of the disclosure obligations at section 5(1) of the Wishart Act. This phrase refers only to agreements that change a prospective franchisee's legal position so as to become a franchisee, and ancillary agreements signed at that time. The WDA did the opposite: it changed the dealers' legal position to no longer be GMCL franchisees.

Second, only a "prospective franchisee" is entitled to receive a disclosure document under section 5(1) of the Wishart Act. A prospective franchisee is one that has not yet signed a franchise agreement. The dealers that signed the WDA were not prospective franchisees, and were therefore not entitled to receive a disclosure document.

  • Class action releases:

The WDA release prohibited the dealers from commencing a class proceeding relating to the released claims, and required dealers to opt out from any such proceeding. GMCL asserted by counterclaim that the each dealer Class Member breached that provision of the release by commencing the class action and/or failing to opt out.

The Court dismissed GMCL's counterclaim, finding that the prohibition on the commencement of a class action offended the franchisees' right to associate under section 4 of the Wishart Act.The court also held that the prohibition was void for public policy reasons because class proceedings play an important role in Canadian society. In the result, the WDAs could not preclude a class action, but the release provided GMCL with a defence to that class action.

It remains to be seen how Trillium can be reconciled with the recent Ontario Superior Court of Justice decision in 1146845 Ontario Inc v Pillar to Post Inc.,5 where a proposed franchise class action was dismissed on the basis that the language of an arbitration clause precluded class proceedings. Any appeal of Trillium to the Ontario Court of Appeal may eventually provide guidance on this issue.

Footnotes

1 Trillium Motor World Ltd. v. General Motors of Canada Limited, 2015 ONSC 3824 ("Trillium").
2 2009 CanLII 56298 (SCJ).
3 2010 ONCA 478.
4 1518628 Ontario Inc. v. Tutor Time Learning Centres, LLC, 2006 CanLII 25276 (Ont. S.C.).
5 2014 ONSC 7400.

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
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
 
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