Release Me: Ontario Court Of Appeal Clarifies When Franchisors Can Enforce Releases

The Ontario Court of Appeal's recent decision in Trillium Motor World Ltd. v. General Motors of Canada Limited1 clarifies when franchisors can enforce releases given by franchisees without offending the Arthur Wishart Act (Franchise Disclosure), 20002 (the "AWA"). Section 11 of the AWA deems any waiver or release by a franchisee of any of its statutory rights or a franchisor's statutory obligations void. This section generally precludes a franchisor from obtaining a release of a franchisee's claims under the AWA except in very limited circumstances. The Court of Appeal's decision in Trillium provides clear guidance on what is required for a franchisor to enforce a release of a franchisee's claims under the AWA.

The Trillium decision addressed in this bulletin is one of two decisions in the case that were released concurrently by the Ontario Court of Appeal. Both appeals arise out of the Canadian government's bailout of General Motors of Canada ("GMCL") and the subsequent class action commenced against GMCL by its former dealers that accepted Wind-Down Agreements ("WDAs") to close their franchises during the bailout. In this decision, the Court of Appeal upheld the trial judge's finding that the releases contained in the WDAs were valid and enforceable to the extent they released known claims. The Court also upheld the trial judge's decision to sever from the WDAs the covenant not to sue and to indemnify GMCL if any dealer commenced a class proceeding on the basis these covenants were void and unenforceable.3

Background and the Lower Court Decision

In the spring of 2009, GMCL was on the edge of insolvency. Its share of the Canadian auto market was in decline, and the financial crisis of 2008 highlighted structural weaknesses in its dealer network, which had too many dealer points operating in single markets. As part of a bailout agreement with the Canadian government to avoid CCAA proceedings, GMCL was required to restructure and reduce the number of its dealers. GMCL advised 240 of its 705 dealers in Canada that it would not be renewing their dealership contracts, and at the same time offered WDAs those dealers which provided for a series of payments in exchange for a release of all claims against GMCL and the end of the business relationship between the parties. The WDAs included covenants that the dealers would not sue GMCL and an indemnity in favour of GMCL should a dealer sue notwithstanding the WDA. The dealers were required to respond within 6 days and were required to obtain independent legal advice. 202 of the 240 dealers who were offered the WDAs accepted.

After the payments were made, a class...