An Ongoing Duty of Disclosure?

Written by Brett Shillington, Student-At-Law

This class proceeding, 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2015 ONSC 29, began as a complaint by the class member franchisees that the defendant franchisor failed to share volume rebates (or volume discounts) as required under the franchise agreement. Pet Valu Canada, the defendant franchisor, then brought a motion for summary judgment and was largely successful. The Ontario Superior Court of Justice in this case decides the issues that were not dismissed against the franchisor.

Within the disclosure document, Pet Valu stated that it had “significant purchasing power”[1] and was “able to take advantage of volume discounts offered by suppliers.”[2] The court found that on any fair reading of this statement, Pet Valu was representing to potential franchisees that the volume discounts would be meaningful and would in some way be of benefit to the franchisees. The court also found that, contrary to such representations, Pet Valu was never able to generate a meaningful amount as was promised and expected and never told its franchisees the truth. This was found to be a “material fact” within the meaning of the Arthur Wishart Act (Franchise Disclosure), 2000 (the “AWA”).

The Ontario Superior Court of Justice found that Pet Valu decided for its own purposes to keep the volume discount information to itself and not tell its franchisees and that “the case law is clear that keeping or hiding material information from franchisees could well be a violation of the s. 3 duty of good faith and fair dealing under the AWA and could result in a significant damages award.”[3] The court ultimately held that Pet Valu “did not deal fairly or in good faith with its franchisees” because the information withheld was “material to the matters ultimately contracted for” and was “clearly related to the performance of the franchise agreement” and therefore breached the duty of good faith and fair dealing under s. 3 of the AWA.[4] Damages for the breach have yet to be determined.

SIGNIFICANCE

The key takeaway from this case is that after a franchisor enters into a franchise agreement with a franchisee, a franchisor may have an ongoing obligation, pursuant to s. 3 of the AWA, to disclose “material facts” in certain, fact-specific, situations. In this case the finding of liability was largely dependent on the franchisor’s representations made in the disclosure document and franchise agreement.