Dispute Resolution and Franchise Litigation in Canada

AuthorGeoff Shaw and Jeff Hoffman
Pages269-374
Dispute Resolution and Franchise
Litigation in Canada
CHAPTER 7
Geoff Shaw and Jeff Hoffman
Contents
269
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 71
II. Legal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
III. Jurisdiction of Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .273
IV. Litigation Differences Between Canada and the U.S. . . . . . . . . . . . . . . .2 74
V. Judge-Made Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 75
VI. Damage Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
B. Codified Damages in Franchise Law . . . . . . . . . . . . . . . . . . . . . . . . . . 279
C. Punitive Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 81
D. Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .282
VII. Costs and Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
VIII. Class Actions in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
B. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .288
C. Goals of Class Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
D. Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .289
1. Tim Hortons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 89
2. Midas Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
3. Quizno’s Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
4. Pet Valu Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
5. Other Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 95
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 96
IX. Right of Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 96
X. Enforcement of Foreign Judgments in Canadian Courts . . . . . . . . . . . . . 304
A. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 04
B. Defences to a Foreign Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
C. Recognition of Final Money Judgments and Other Final Orders . . . 30 7
D. Moving for Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 08
E. Québec Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
XI. Choice of Law and Forum and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 30 9
A. Choice of Law and Choice of Forum Provisions . . . . . . . . . . . . . . . . 309
B. Non-waiver Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
270 Chapter 7
XII. Duty of Good Faith and Fair Dealing in Canada . . . . . . . . . . . . . . . . . . 322
A. What Does the Duty Entail? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 22
B. Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
C. Case Law: Interpretation of the Duty of Good Faith, and
Examples of Good and Bad Faith Conduct . . . . . . . . . . . . . . . . . . . .3 30
D. Damages for Breach of the Duty of Fair Dealing . . . . . . . . . . . . . . . 339
XIII. Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
A. Types of Injunctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 40
B. Test for Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
C. Mandatory Injunctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 43
D. Damage Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 44
E. Equitable Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 44
F. Public Policy Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 45
G. Recent Injunction Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
XIV. Non-competition Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
A. Non-solicitation Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
B. Chapter Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
C. The Reasonableness Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
D. Blue Pencil Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5
E. Privity and Proper Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
F. Internet Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 65
XV. Alternative Dispute Resolution, Mediation, and Arbitration . . . . . . . . . 367
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367
B. Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7
1. Private Mediation and Arbitration Services . . . . . . . . . . . . . . . . . . 368
2. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 69
3. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
XVI. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374
Dispute Resolution and Franchise Litigation in Canada 271
271
I. Introduction
When this text was first published in 2004, there were only two provinces in
Canada with franchise disclosure and relationship legislation, Alberta and Ontario.
Franchise proceedings tended to be based on a blend of statutory and common-
law causes of action. The Ontario franchise statute, the Arthur Wishart Act (Fran-
chise Disclosure), 2000, S.O. 2000, c. 3 (the AWA or Ontario statute) was barely
four years old, and cases decided under it were, for the most part, rescission
claims based on the complete failure on the part of franchisors (many of which
were not aware of existence of the statute) to provide prospective franchisees
with a franchise disclosure document. See, for example, MAA Diners Inc. v. 3
for 1 Pizza & Wings (Canada) Inc., [2003] O.J. No. 430 (S.C.J.); appeal dis-
missed, [2004] O.J. No. 297 (C.A.), and 1490664 Ontario Ltd. v. Dig This Gar-
den Retailers Ltd., [2004] O.J. No. 3008 (S.C.J.), appeal dismissed, [2005] O.J.
No. 3040 (C.A.).
Over the past 13 years, as franchisors became more aware of the nature and
extent of their duty to disclose and as jurisprudence in the area of franchise law
developed, the focus of claims shifted from common-law claims and statutory
rescission claims to claims based on the quality of the disclosure provided (for
example, whether material facts were omitted or misrepresentations made within
a franchise disclosure document), and on breaches of the mutual statutory duty
of fair dealing, though common-law claims and statutory rescission claims con-
tinued to be made.
Notably, though class proceedings have been permitted in Canada for some
time, their use for the determination of franchise disputes has expanded dramati-
cally over the past 13 years and included, for the first time, claims for infringe-
ment of the right of franchisees to associate. Franchise disputes often involve the
interpretation of standard form agreements and the consideration of uniform meth-
ods of operation. It is not surprising, therefore, for the courts to find that franchise
cases often have common issues that are ideally suited to determination through
class proceedings. In certifying franchise claims as class actions, the courts in
Canada recognized “the inherent vulnerability in the dependent ongoing nature
of the relationship between franchisor and franchisee”—1176560 Ontario Inc. v.
Great Atlantic & Pacific Co. of Canada, [2002] O.J. No. 4781 (S.C.J.), at para. 42;
affirmed [2004] O.J. No. 865 (Div. Ct.), and the judicial economy that is served
through collective action (Ibid., S.C.J. at para. 52).
Historically, with respect to alternative dispute resolution, there was a reluc-
tance on the part of franchisors doing business in Canada to include alternative
dispute resolution provisions in their franchise agreements. Today, parties to
franchise agreements are much more receptive to mediation and arbitration of

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