Ontario Court Of Appeal Dismisses Pet Valu Class Action, Clarifies The Scope Of The Duty Of Good Faith And Fair Dealing And Calls For Greater Judicial Restraint

The recent decision of the Ontario Court of Appeal in 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2016 ONCA 24 clarifies and narrows the scope of the duty of good faith and fair dealing imposed on franchisors under section 3 of the Arthur Wishart Act (Franchise Disclosure) ("AWA") and expressly cautions against zealous judicial intervention in the framing and amendment of common issues in class action proceedings.

In a unanimous decision released last week, the Court of Appeal ruled in favour of the franchisor, Pet Valu Canada Inc. ("Pet Valu"), dismissing the remaining common issue in a class action proceeding commenced by a group of former franchisees alleging, among other claims, that Pet Valu breached its duty of good faith and fair dealing in the performance and enforcement of its obligations under the franchise agreement, contrary to Section 3 of the AWA, by failing to disclose information relating to its receipt and sharing of volume rebates.

Background

In a summary judgment decision released October 31, 2014 (discussed here), the motion judge, Justice Belobaba, dismissed five of the seven common issues certified at an earlier hearing, holding that Pet Valu had, in fact, passed on and shared with its franchisees volume rebate discounts received from its suppliers. The plaintiffs' arguments in the course of the initial certification hearing focused on the extent of the defendant's purchasing power and the significance of the rebates received. As a result, Justice Belobaba suggested that the plaintiff consider amending the statement of claim to add an eight and new common issue to address this issue. In December 2014, on the basis of the judge's earlier comment, the plaintiff franchisees brought a motion to amend the statement of claim and add a new common issue centered around allegations that Pet Valu had misrepresented the nature and extent of its purchasing power and that it, in fact, did not receive "significant volume discounts" from suppliers.

In reasons released January 7, 2015 (discussed here), Justice Belobaba declined to allow the plaintiffs' motion to amend on grounds of prejudice occasioned, in part, by his misapprehension of certain affidavit evidence and judicial intervention in encouraging an amendment of the statement of claim.

Justice Belobaba proceeded to deal with the remaining two common issues, which raised the question of whether the duty of good faith and fair dealing provided by s. 3 of the AWA could be used...