After six years of litigation, the Ontario Court of Appeal made a unanimous decision to dismiss all claims by a former Pet Valu franchisee that the pet supply retail franchisor had breached its duty of good faith and fair dealing with regard to volume rebate information.
Borden Ladner Gervais LLP lawyers Graham Splawski and Bevan Brooksbank say the decision is of interest to franchise professionals for its discussion of judicial recrafting of certified common issues and for elaborating on the scope of duty and good faith and fair dealing under Ontario’s Arthur Wishart (Franchise Disclosure, 2000) Act.
The class action against Pet Valu was certified in 2011. In October 2014, Pet Valu received a summary judgment dismissing five of the seven certified common issues, mainly those dealing with the contract. The remaining issues related to whether the franchisor breached its duty of good faith and fair dealing by not disclosing information about volume rebates to franchisees and if any damages resulted.
In December 2014, the franchisee brought forward a motion to amend the statement of claim and tried to add a new issue, saying Pet Valu had misrepresented the nature and extent of its purchasing power and did not actually receive significant volume discounts from suppliers. A month later, Justice Edward Belobaba declined this motion to amend, due to his misunderstanding of affidavit evidence, and proceeded to deal with the original two issues. He concluded the duty of good faith and fair dealing in section three of the act did require Pet Valu to disclose the amount of volume rebates it received as part of the performance and enforcement of its obligations under the franchise agreement. Pet Valu appealed this decision.
In January 2016, the Ontario Court of Appeal found in favour of the franchisor and dismissed the entire class action. It said bringing in an eighth issue three years after certification was unfair and allowing the amendment would have caused an injustice to Pet Valu not compensable in costs. It also said the idea Pet Valu should have disclosed rebate information did not relate to the performance and enforcement of the franchise agreement under section three; rather, it was information that should have been disclosed under section five before the plaintiffs became franchisees.
Further, the court found section three does not include an ongoing duty to disclose information necessary for franchisees to verify whether a franchisor is meeting its obligations and found the motion judge (Belobaba) erred on this basis. A failure to include all material facts in a disclosure document does not constitute unfair dealing in the performance of a franchise agreement and a franchisor is required to provide a contract before a prospect even signs.