The Door is Open for Class-Wide Arbitration of Franchise Disputes – But For How Long?

While it may be the case in Canada that consumer protection legislation has foreclosed the possibility of resolving disputes under form consumer contracts via arbitration,[1] it remains to be seen whether the policy rationale underlying these decisions will be similarly applied to franchise disputes.  The question remains whether the arbitration vehicle in Canada will be considered by the courts to be sufficient to deal with these types of class-wide claims, but at least in principle the option remains open.

In Ontario the Arthur Wishart Act (“AWA”) entitles franchisees to associate with one another.[2]  It has been held by the Ontario Court of Appeal that this right cannot be contracted out of in a franchise agreement.[3]  The relationship between class actions and section 4 of the AWA was discussed by Justice Perell in 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corporation.[4]  Justice Perell dealt with a motion for certification of a class action proceeding on behalf of all Canadian franchisees of the Quizno’s chain alleging, inter alia, price fixing and breach of contract.  Quizno’s brought a concurrent motion to stay the proceedings on the basis that (1) the franchisees had contracted out of the CPA, and (2) that the agreements contained an exclusive jurisdiction clause in favour of British Columbia.

The plaintiffs submitted that contracting out of the CPA was illegal because it is contrary to the right to associate in section 4 of the AWA.  Justice Perell noted that in Ontario there is no express statutory bar with respect to contracting out of class proceedings as there is in British Columbia.  He found for a number of reasons justifying the stay, but went on to state:

I wish to be clear that in refusing a stay, I am not categorically striking down agreements that contract out of the Class Proceedings Act, 1992.  There may be instances where contracting parties may be able by contract to shape the contours of a class proceeding in whole or in part.  The case at bar, however, is not one of those cases.[5]

This statement could be interpreted to apply to an arbitration clause in a franchise agreement and to suggest that, depending on the circumstances and its wording, such a clause might not be invalid.[6]  If such a clause could be crafted and would be accepted by the courts, the legislation in Ontario at least supports the possibility of class-wide arbitration.

The Ontario Arbitration Act does not prohibit class or joint arbitration.[7]  Section 8(4) of that Act provides that, on the application of all the parties to one or more arbitrations, the court may order that the arbitrations be consolidated or conducted simultaneously or consecutively.  Section 8(6) of the Act states that 8(4) does not prevent the parties from agreeing to consolidate.[8] It has been held that these provisions do not permit a judge to order a single consolidated arbitration absent application of all the parties,[9] but it is conceivable that a procedure could be crafted that is consistent with the Arbitration Act, and provides that the agreement is or includes the express consent to consolidate.

It remains to be seen whether the courts will consider class-wide arbitrations in franchise cases as being a permissible vehicle for dealing with these disputes.  The contrary view has been expressed in consumer protection class actions, and it has been held that often times arbitration agreements are used not because of a genuine wish to provide an alternative to court proceedings, but rather large companies seek to “immunize themselves from the seat of justice altogether.”[10]  If franchise contracts can be crafted which protect the right to associate, yet also provide for arbitration instead of court proceedings, it may yet be possible to see the public policy goals of franchise, arbitration, and class proceedings legislation satisfied.

[1] See Seidel v. TELUS Communications Inc., [2011] 1 S.C.R. 531.

[2] Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3, at section 4.

[3] See 405341 Ontario Limited v. Midas Canada Inc. [2009] O.J. No. 4354 (O.N.S.C.), appeal dismissed, 2010 ONCA 478.

[4] (2008), 89 O.R. (3d) 252 (S.C.J.), rev’d (2009), 96 O.R. (3d) 252 (Div. Ct.); appeal dismissed 2010 ONCA 466 [Quizno’s].

[5] Quizno’s, in Justice Perell’s decision, at para 79.

[6] Justice Perell’s decision to deny certification was overturned by the Divisional Court on the basis that he made an error of law in applying the certification test and the Divisional Court’s decision was upheld by the Court of Appeal.  Quizno’s did not appeal Justice Perell’s decision to deny the stay, and therefore neither the Divisional Court nor the Court of Appeal considered his remarks.

[7] Arbitration Act, 1991, S.O. 1991, c. 17.  See 3GS Incorporated v. Altus Group Limited, 2011 ONSC 5755 where Justice Boswell noted that the Arbitration Act does not prohibit class proceedings: “[T]he goal of avoiding multiple proceedings does not rise to the level of an absolute prohibition against them. There may indeed be circumstances where multiple proceedings are desirable, or if not desirable, at least unavoidable.” (at para. 24)

[8] Similar provisions are found in section 7 of the Ontario International Commercial Arbitration Act, R.S.O, 1990, c. I.9

[9] See Diamond Systems Inc. v. McKibbon et al., 2007 CanLII 9232 (O.N.S.C.), [2007] O.J. No. 1085 (S.C.J.) (Master).

[10] Smith v. Moneymart , 2008 CanLII 27479 (O.N.S.C.) at para. 118, aff’d by 2008 ONCA 746

arbitration clause Arthur Wishart Act (“AWA”) class-wide arbitration franchise disputes franchisees Justice Perell Ontario Court of Appeal The Ontario Arbitration Act



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