Canada: Ontario Court Of Appeal Dismisses Pet Valu Class Action, Clarifies The Scope Of The Duty Of Good Faith And Fair Dealing And Calls For Greater Judicial Restraint

The recent decision of the Ontario Court of Appeal in 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2016 ONCA 24 clarifies and narrows the scope of the duty of good faith and fair dealing imposed on franchisors under section 3 of the Arthur Wishart Act (Franchise Disclosure) ("AWA") and expressly cautions against zealous judicial intervention in the framing and amendment of common issues in class action proceedings.

In a unanimous decision released last week, the Court of Appeal ruled in favour of the franchisor, Pet Valu Canada Inc. ("Pet Valu"), dismissing the remaining common issue in a class action proceeding commenced by a group of former franchisees alleging, among other claims, that Pet Valu breached its duty of good faith and fair dealing in the performance and enforcement of its obligations under the franchise agreement, contrary to Section 3 of the AWA, by failing to disclose information relating to its receipt and sharing of volume rebates.


In a summary judgment decision released October 31, 2014 (discussed here), the motion judge, Justice Belobaba, dismissed five of the seven common issues certified at an earlier hearing, holding that Pet Valu had, in fact, passed on and shared with its franchisees volume rebate discounts received from its suppliers. The plaintiffs' arguments in the course of the initial certification hearing focused on the extent of the defendant's purchasing power and the significance of the rebates received. As a result, Justice Belobaba suggested that the plaintiff consider amending the statement of claim to add an eight and new common issue to address this issue. In December 2014, on the basis of the judge's earlier comment, the plaintiff franchisees brought a motion to amend the statement of claim and add a new common issue centered around allegations that Pet Valu had misrepresented the nature and extent of its purchasing power and that it, in fact, did not receive "significant volume discounts" from suppliers.

In reasons released January 7, 2015 (discussed here), Justice Belobaba declined to allow the plaintiffs' motion to amend on grounds of prejudice occasioned, in part, by his misapprehension of certain affidavit evidence and judicial intervention in encouraging an amendment of the statement of claim.

Justice Belobaba proceeded to deal with the remaining two common issues, which raised the question of whether the duty of good faith and fair dealing provided by s. 3 of the AWA could be used to impose ongoing disclosure from a franchisor (common issue 6), and what damages, if any, a franchisor would be required to pay for breach of such a duty (common issue 7). Justice Belobaba answered both questions in the affirmative, but only after reading language into common issue 6, which modified the originally cast question of whether Pet Valu received volume rebates to whether Pet Valu received a "meaningful or significant measure of volume discounts". On this basis, Justice Belobaba concluded that the duty of good faith and fair dealing in s. 3 of the AWA did impose on Pet Valu an ongoing duty to disclose the amount of volume rebates it received as part of the performance and enforcement of its obligations under the franchise agreement, and that Pet Valu had breached that duty. Pet Valu appealed this decision. On January 14, 2016, the Ontario Court of Appeal found in favour of Pet Valu, dismissing the class action in its entirety.

The Court of Appeal Decision

The Court highlighted the following key findings in support of its decision to dismiss the action:

Greater Restraint Required When Judicial Intervention May Unfairly Prejudice One Party Over Another or Unduly Curtail the Adversarial Process

1. The motion judge's dismissal of the plaintiffs' motion to amend the statement of claim to add new allegations and an 8th common issue was correct; to have ruled otherwise would have been fundamentally unfair and prejudicial to Pet Valu given that, but for the motion judge's suggestion that the plaintiff amend its pleading, Pet Valu was in a position to secure summary judgment on all common issues. On this instance of judicial intervention, the Court expressly noted that "while the... judge in a class proceeding unquestionably plays an important (and challenging) role in guiding the evolution of the proceedings, that role does not permit him to descend into the arena and make a suggestion at the conclusion of an otherwise dispositive summary judgment motion as to how a plaintiff might improve its position..." [para. 38]

2. The motion judge's affirmative answer to Common Issue 6 and finding that Pet Valu had breached s. 3 of the AWA was founded on an impermissible amendment of that common issue. By reading in the words "significant volume discounts", the motion judge recast the question and effectively "gave judgment on an issue that was never certified. Doing so was fundamentally unfair to Pet Valu." [para. 49]. Further, the Court held that by unilaterally reading in language that modified the theory of liability without affording the parties the opportunity to make submissions resulted in the theory, which was ultimately flawed, not being "tested in the crucible of the adversarial process". [para. 52]

Non-Disclosure of Material Facts Does Not Automatically Equate to Bad Faith and Unfair Dealing in the Performance of a Franchise Agreement

3. The motion judge erred by applying the pre-contractual disclosure obligation imposed by section 5 of the AWA to an assessment of the duty of good faith and fair dealing imposed on parties under s. 3 of the AWA in the discharge of their obligations under a franchise agreement. The Court clarified that the duty of good faith and fair dealing imposed on Pet Valu by section 3 of the AWA arises in the "performance and enforcement" of the franchise agreement. If information relating to the amount of volume discounts was material and ought to have been disclosed, that obligation arose under s. 5 of the AWA, which requires franchisors to provide a disclosure document before a franchisee signs the franchise agreement, not under s. 3 of the AWA, which deals with the parties performance under the franchise agreement once it has been signed. The Court noted that there are remedies available to franchisees under ss. 6 and 7 of the AWA if a franchisor fails to disclose material facts or otherwise comply with its obligations under s. 5 of the AWA.

In making this important distinction, the Court emphasized that there was no contractual or statutory obligation to provide ongoing disclosure, nor could a finding of bad faith and unfair dealing be supported in the absence of any evidence being adduced by the plaintiffs that the alleged non-disclosure adversely affected them in any way once they became franchisees. Thus, non-disclosure of material facts in a disclosure document will not automatically equate to bad faith and unfair dealing in the performance of a franchise agreement.

In the instant case, the Court found that the motion judge effectively ruled that Pet Valu had breached s. 3 of the AWA by failing to disclose information necessary for the franchisees to verify whether or not Pet Valu had breached a representation under the franchise agreement that it received "significant volume discounts", which was akin to the pre-litigation oriented duty of disclosure rejected in Spina v. Shoppers Drug Mart Inc., 2012 ONSC 5563.

Conclusion and Takeaways

The Court circumscribed the duty of fair dealing and good faith under the AWA, emphasizing that a breach of section 3 arises only in the context of the performance and enforcement of a franchise agreement: this does not include disclosure that should have occurred before the franchise agreement was signed when there is no contractual obligation to provide ongoing disclosure and the non-disclosure does not have an adverse effect on parties once they become franchisees. Section 3 cannot be used to burden franchisors with a duty to disclose information that simply verifies whether they are meeting their franchise agreement obligations.

The Court also provided guidance on the amendment of common issues in class action proceedings, cautioning motion judges in class action proceedings to exercise restraint in amending the statement of claim and rewording certified issues.

Case Information

1250264 Ontario Inc. v. Pet Valu Canada Inc., 2016 ONCA 24

Docket: C59956

Date of Decision: January 14, 2016

To view original article, please click here.

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

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

In association with
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.