On June 30, 2010, the Ontario Superior Court of Justice certified a class action against the Government of Ontario in which our firm represents the plaintiff class of private businesses appointed by Ontario to issue and process driver licenses, vehicle registrations and similar services for Ontarians. The private issuers comprise a network established by Ontario known as the “PIN”. The case name is Mayotte v. Her Majesty the Queen in Right of Ontario.

The PIN is in all respects a franchise system. The provisions of Ontario’s franchise legislation, the Arthur Wishart Act (Franchise Disclosure), 2000 however do not apply to the PIN be cause the government exempted itself out of the application of the legislation.

Each member of the PIN is a party to one of several forms of contract which it entered into with Ontario depending on when it entered the PIN. Regardless of the form of contract, the compensation of each member of the PIN is determined solely by Ontario.

The issues which the court certified as common issues to be determined in the class action by way of a common issue trial centre around the complaint by the PIN that Ontario has been under-compensating the PIN since August, 2003. The members of the class are seeking adjustments to the compensation paid to them by Ontario since that time.

In 1987, Ontario issued a memorandum advising the PIN that the existing system of compensation would be modified to a basis that was “fairer” and “more rational” than the previous method. The new compensation formula would compensate the private issuers based on the time and complexity of the various transactions they per formed rather than on a flat-fee basis which did not reflect the effort and time involved in processing the transaction. The new method, according to the 1987 memorandum, would ensure compensation which was “proportional to the effort required to do each transaction”, and “derived from an objectively determined standard time taken to do a transaction.”

In 1988, Ontario published the applicable rates for the formula and retroactively adjusted the PIN’s compensation to the date of the 1987 memorandum. Although there have been several mi- nor adjustments in the amounts paid by Ontario to the PIN since 1988, it is claimed that the adjustments do not match the cost to the PIN of carrying out their duties or providing other services as these duties and services have been modified by Ontario over time.

Specially, it is argued that Ontario has been in breach of its obligations to the PIN based on the following three propositions of law:

(i) the standards which Ontario set for itself in the memoranda to the issuers form part of the binding contractual relationship with the private issuers and are enforceable by private action;

(ii) whenever a contracting party reserves to itself the discretion to set another party’s compensation, the common law holds that party to a standard of good faith and commercial reasonableness in the manner in which it performs that function; and

(iii) in the alternative, Ontario has been unjustly enriched by virtue of its under-compensation of the private issuers and must compensate the private issuers on a quantum meruit basis

Upon finding that the claim satisfied all of the criteria necessary in order for an action to be certified as a class proceeding, Justice Perell certified the following common issues to be determined:

(a) Does the contractual relationship between Ontario and the private issuers include a duty on Ontario to ensure that Issuer compensation is, and remains fair, rational, objectively determined, and proportional to the effort required to do each transaction?

(b) Does Ontario have one or more of the following contractual obligations to the private issuers in respect of compensation:

(i) to adequately increase the standard commission rate table,

(ii) to update the time series analysis on which compensation was and continues to be based,

(iii) to take into consideration all steps required to perform the required transactions, and

(iv) to sufficiently increase the annual stipend?

(c) If so, has Ontario breached and is it continuing to breach any such contractual obligation?

(d) Was Ontario under a duty to increase compensation to the private issuers following the conclusions of the report of the Ministry of Transportation dated August 28, 2003?

(e) Has Ontario satisfied its duties by the increases in compensation which it has put into effect since August 28, 2003?

(f) If Ontario has not breached its contractual duties to the private issues in respect of compensation, has Ontario been unjustly enriched by having undercompensated the private issuers?

(g) If Ontario has breached its contractual duties, or has been unjustly enriched, what is the appropriate measure of past damages or compensation, including pre-judgment and post-judgment interest thereon?

Ontario has filed a motion for leave to appeal to the Divisional Court. Although Ontario disputed at the certification hearing that the claim satisfied any of the criteria for certification, the motion for leave to appeal is only challenging the court’s finding on the first of the necessary criteria, namely whether the claim discloses a cause of action. It is Ontario’s position that, as government, it is immune from certain of the claims being put forward. For Ontario to have been successful in making this argument at the certification stage of the case, it had to have been plain and obvious that Ontario’s position was correct. The certification judge did not agree that it was.

This case is expected to be legally significant as it has the potential to assist in defining the parameters of the evolving duties of good faith under Canadian law and the application of the principle to government if the case is permitted to proceed to trial.