909787 Ont. Ltd. v. Bulk Barn Foods

• Jurisdiction: Ontario
• Court: Superior Court of Justice of Ontario (Canada)
• Judge: O'Driscoll, Somers and Thomson, JJ.
• Citation: (2000), 138 O.A.C. 180 (DC)
• Date: 03 October 2000

909787 Ont. Ltd. v. Bulk Barn Foods (2000), 138 O.A.C. 180 (DC)

MLB headnote and full text

Temp. Cite: [2000] O.A.C. TBEd. OC.055

909787 Ontario Limited (plaintiff) v. Bulk Barn Foods Limited (defendant/moving party)

(Div. Court File No. 526/99; Court File No. 50261-98)

Indexed As: 909787 Ontario Ltd. v. Bulk Barn Foods Ltd.

Court of Ontario

Superior Court of Justice

Divisional Court

O'Driscoll, Somers and Thomson, JJ.

October 3 and November 7, 2000.

Summary:

The plaintiff was a franchisee. The franc­hise agreement required the plaintiff to purchase all its bulk food products from the franchisor. The franchisor undertook to strive to provide the products at a competitive price for resale. The franchisee submitted that the franchisor's true cost of purchase was substantially reduced by discounts, rebate allowances and incentives from sup­pliers, and the benefits of those were not passed on to franchisees. The franchisee sued for breach of contract and breach of fidu­ciary duty. The franchisee brought a motion under s. 5 of the Class Proceedings Act for certification of the action as a class proceed­ing on behalf of all franchisees and provid­ing for notice to the class. The franchisor opposed certification.

The Ontario Court (General Division), in a judgment reported 93 O.T.C. 66, granted the motion. The pleadings disclosed a cause of action, there was an identifiable class of two or more persons to be represented by the representative plaintiff, the claims of the class raised common issues, the class pro­ceeding was the preferable procedure to resolve the common issues, and there was a representative plaintiff who would ade­quately and fairly represent the class inter­ests, present a workable litigation plan and did not have a conflict of interest with the class on the common issues. The franchisor sought leave to appeal.

The Ontario Divisional Court, per Dunnet, J., in a judgment reported 128 O.A.C. 317, granted leave to appeal. There were conflict­ing decisions on the non-existence of a fiduciary relationship between franchisees and franchisors. There was also an issue as to whether the statutory requirements for pleading a cause of action were met. Finally, there was good reason to doubt the cor­rectness of the decision to certify a class action.

The Ontario Divisional Court allowed the appeal and set aside the order certifying a class action. In a supplementary judgment (see paragraphs 30 to 31) the court dealt with the issue of costs.

Equity - Topic 3716.2

Fiduciary or confidential relationships - Commercial relationships - Distributorship or franchise agreements - A franchisor purchased supplies for itself, then sold them to the franchisees according to a price list which it supplied - Franchisees were not obligated to purchase all that the franchisor purchased - The franchisees had no control over the contracts through which the franchisor obtained supplies - There was a mechanism for reviewing and adjusting prices paid by franchisees - A franchisee claimed breach of fiduciary duty by the franchisor's alleged overcharging for supplies - The franchisee sought cer­tification of a class action - In setting aside a certification order granted at trial, the Ontario Divisional Court held that none of the usual hallmarks of a fiduciary relation­ship existed - The trial judge erred in certifying the action on the basis of the existence of a fiduciary relationship - See paragraphs 12 to 15.

Practice - Topic 209.3

Persons who can sue and be sued - In­dividuals and corporations - Status or standing - Class actions - Certification - Considerations (incl. when class action appropriate) - A franchise agreement re­quired the franchisee to purchase all its bulk food products from the franchisor - The franchisor undertook to provide the products at a competitive price for resale - The franchisee submitted that the fran­chisor's true cost of purchase was substan­tially reduced by discounts, rebate allow­ances and incentives from suppliers, and that the benefits of those were not passed on to franchisees - The franchisee sued for breach of contract and breach of fiduciary duty - The trial judge allowed the fran­chisee's motion under s. 5 of the Class Proceedings Act for certification of the action as a class proceeding on behalf of all franchisees - The pleadings disclosed a cause of action, there was an identifiable class of two or more persons to be repre­sented by the representative plaintiff, the claims of the class raised common issues, the class proceeding was the preferable procedure to resolve the common issues, and there was a representative plaintiff who would adequately and fairly represent the class interests, present a workable litigation plan and did not have a conflict of interest with the class on the common issues - The Ontario Divisional Court set aside the certification order - It was not clear that there was a common cause of action - Given the varying locales of the franchises, there was also no identifiable class of two or more persons and any class action would be unmanageable.

Cases Noticed:

Trophy Foods Inc. v. Scott et al. (1995), 140 N.S.R.(2d) 92; 399 A.P.R. 92; 123 D.L.R.(4th) 509 (C.A.), refd to. [para. 13].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 14].

Hollick v. Metropolitan Toronto (Munici­pality) et al. (1999), 127 O.A.C. 369; 46 O.R.(3d) 257 (C.A.), refd to. [para. 26].

Mouhteros v. DeVry Canada Inc. (1998), 70 O.T.C. 138; 41 O.R.(3d) 63 (Gen. Div.), refd to. [para. 28].

Statutes Noticed:

Class Proceedings Act, S.O. 1992, c. 6, sect. 5(1) [para. 20].

Counsel:

Michael McGowan and Kirk M. Baert, for the plaintiff/respondent;

Larry P. Lowenstein, Tara James and Joe Starkman, for the defendant/appellant.

This appeal was heard on May 17, 2000, before O'Driscoll, Somers and Thomson, JJ., of the Ontario Divisional Court.

On October 3, 2000, Somers, J., released the following judgment for the Divisional Court. A supplementary judgment on costs was released on November 7, 2000.