Ontario Court Clarifies Franchise Issues In Trillium Motor v. General Motors

On July 8, 2015, the Ontario Superior Court of Justice released its decision in the Trillium Motor World Ltd. v. General Motors of Canada Limited class action trial,1 granting the franchisee plaintiffs damages in the amount of $45 million against Cassels Brock & Blackwell LLP (Cassels), lawyers who were found to have acted in a conflict of interest by representing the plaintiffs as well as the federal government in a complex restructuring of a franchisor's automobile dealer network.2 The court's disposition of the underlying claim—an action for breach of a franchisor's duties under the Arthur Wishart Act3 — has received somewhat less attention than the fate of the lawyers, but is worth noting as it clarifies and affirms the state of the law on issues thrown into doubt in the case.

Background

The class action arose as a result of the execution of a plan by the franchisor, General Motors of Canada Limited (GMCL), to reduce its large GM vehicle dealership network in Canada following the calamitous economic downturn commencing in the fall of 2008. Prior to that time, GMCL knew that it had too many dealers in a single market. The immediate effect of this over-dealering was a reduction in dealer profitability which in turn caused reluctance for investments in facilities and equipment. Combined with GM's general declining market share of the automobile market, multibillion losses in 2007 and 2008, and GM rapidly running out of cash, over-dealering had to be rectified in the context of any restructuring.

Once the likely depth of the economic downturn became apparent, GMCL engaged in restructuring planning, considered a CCAA proceeding and engaged with the Canadian and US governments for assistance. One of its restructuring plans was to rationalize its dealer network and terminate a large number of its dealership agreements with individual dealers across Canada. In May 2009, GMCL delivered Notices of Non-Renewal and Wind-Down Agreements to 240 GM dealers. If accepted, those Wind-Down Agreements - which carried with them compensation payable to the dealer - would terminate the dealer-GMCL relationships over a period of time. The dealers were given six (6) days to accept or decline the offers. Two-hundred-and-two of the 240 dealers accepted the Wind-Down Agreements (WDAs). Saturn dealers were particularly affected by the restructuring plan in that all Saturn dealers received WDAs following the discontinuance of the Saturn brand.

The Result

The court...