Court Of Appeal Provides Guidance On Common Issues And Franchisors' Duty Of Good Faith

On January 14, 2016 the Ontario Court of Appeal released its unanimous decision in 1250264 Ontario Inc. v. Pet Valu Canada Inc.1 granting summary judgment dismissing a class action brought against Pet Valu by its former franchisee and bringing the claim to an end after over six years of litigation. The decision is of interest to both the class action and franchise bars for its discussion of judicial recrafting of certified common issues, and for an elaboration on the scope of the duty of good faith and fair dealing.

Background

The action was certified in 2011 by Justice Strathy2 with a focus on whether Pet Valu was contractually obligated to share volume rebates with its franchisees and, if so, whether it breached that duty.

In October 2014, Pet Valu obtained summary judgment dismissing five of the seven certified common issues, dealing primarily with those contractual issues. The remaining common issues (6 and 7 respectively) related to (a) whether Pet Valu breached the duty of good faith and fair dealing stipulated by section 3 of the Arthur Wishart Act3 (the "AWA") by failing to disclose information concerning volume rebates to franchisees; and (b) any resultant damages. In the course of the motion the plaintiff sought to amend its claim and add a common issue addressing the franchisor's purchasing power. The decision on summary judgment concerning common issues 6 and 7 was deferred.

In January 2015, Justice Belobaba granted summary judgment in favour of the plaintiff on common issue 6. In so doing, he interpreted certified common issue #6, set out above with respect to a breach of section 3 of the AWA, so as to read into it the words "a significant level of " volume rebates. However, the motion judge declined to allow the plaintiff 's pleading amendment which, as discussed below, would have added an eighth common issue concerning "significant volume discounts".

Pet Valu appealed the motion judge's decision granting summary judgment for the plaintiff on common issue 6. The plaintiff cross-appealed the dismissal of its motion to amend to add an eighth common issue.

The Motion Judge Erred by Reading Language into the Certified Common Issue

The Court of Appeal reversed the motion judge. In so doing it held that the inclusion of the modifier "significant level" was "tantamount to an amendment" of the common issue. It further held that by reading-in terms to a common issue after certification, the motion judge effectively "gave judgment on an...