Canada: Court Of Appeal Dismisses Pet Valu Class Action And Confirms Courts Not To Recast Common Issues Where Prejudicial To Defendants

A recent decision of the Ontario Court of Appeal in the Pet Valu franchise class action should give defendants to class proceedings optimism that courts will not allow plaintiffs to recast their claims at late stages of the class proceedings. While the Pet Valu decision highlights and provides important reasoning on franchise law matters – perhaps most importantly on the scope of the statutory duty of fair dealing under the Arthur Wishart Act– this post focuses on the Court's comments on the class action procedural points. Read our Osler Update for our commentary on the substantive franchise issues discussed in this case.

Plaintiffs Cannot Amend Pleadings Where to do so Prejudices the Defendants

Pet Valu's appeal arose in the context of a class action brought against the franchisor by its franchisees. In January of 2011, Justice Strathy certified a narrow set of claims relating to allegations that Pet Valu failed to pass on the benefits of certain volume rebates to its franchisees.

Pet Valu moved for summary judgment before Justice Belobaba who granted judgment in favour of Pet Valu in respect of five of the common issues. However, over the course of arguing the summary judgment motion the plaintiff attempted to shift the focus of its claim from issues pertaining to volume rebates to issues of purchasing power. Justice Belobaba therefore granted leave to the plaintiffs to amend their pleadings to add a new common issue for certification in relation to purchasing power and deferred his decision in relation to the existing sixth common issue (the seventh common issue related to damages and was contingent on another common issue being certified).

Despite it being his suggestion, Justice Belobaba ultimately denied the plaintiff's motion to add a new common issue on the grounds of prejudice to the defendants. In so doing, at paragraph 32 of his reasons, Justice Belobaba cited the Quizno's decision where Justice Perell noted that "defendants, just as much as plaintiffs, are entitled to access to justice" and courts "should also be aware that the procedure of a class action is meant to level the playing field, not tip the field in favour of plaintiffs." In his decision, Justice Belobaba also read additional language into the remaining sixth common issue, and then held for the Plaintiffs on that issue pursuant to its new framing.

Pet Valu appealed Justice Belobaba's decision based on the new wording of the sixth common issue and the plaintiffs cross-appealed Justice Belobaba's denial of their motion to add an eighth common issue. The Court of Appeal upheld Justice Belobaba's denial of the motion to add an eighth common issue. The Court of Appeal noted that Pet Valu encountered actual prejudice because in the absence of the proposed additional common issue, Pet Valu could have obtained complete summary judgment on the common issues as well as well as a probable costs award that would have ended the litigation. Justice Belobaba acknowledged this at paragraph 31 of his reasons.

Critically, the Court of Appeal also commented on the role of the case management judge in a class proceeding, emphasizing that while the case management role is an important and challenging one in guiding the proceeding, it does not permit a judge 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."

The Motion Judge Erred in Amending a Common Issue to Conduct an Inquiry not Justified by the Certified Common Issues

The Court of Appeal held that Justice Belobaba erred in reading additional language into common issue six, noting that the addition of language to a common issue was tantamount to adding a common issue (relief which had been denied by the court). This means that Justice Belobaba effectively gave judgment on an issue that was never actually certified. Furthermore, the Court of Appeal noted that modifying the common issues without notice to Pet Valu was not only fundamentally unfair to them, but undermined the adversarial process by depriving the court of the benefit of submissions on this issue.

Implications

This decision is significant because of the Court of Appeal's affirmation that common issues cannot be added or modified where to do so would prejudice the defendant. Further, the Court of Appeal clarified the role of a case management judge in defining the common issues in a class proceeding.

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.

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