The Ontario Court of Appeal recently released its decision in Spina v. Shoppers Drug Mart, 2024 ONCA 642, an appeal in a class action brought by franchisees of Shoppers’ Drug Mart. In the underlying summary judgment motion decision, the franchisees were successful in establishing that Shoppers had breached a franchise agreement when it failed to remit $955 million in professional fees to franchisees. The Court of Appeal found that Shoppers breached the duty of good faith by misallocating certain professional fees, and increased the amount awarded to the franchisees by approximately $129 million.

Summary Judgment Motion Decision

A summary by Adil Abdulla of the underlying motion decision can be found here. In that decision, the franchisees claimed that Shoppers breached its contracts and the duty of good faith in various ways.

The franchisees succeeded in their claim that Shoppers breached a  2002 franchise agreement by retaining professional allowances that should have been distributed to franchisees. Professional allowances are provided to pharmacy operators by certain generic drug producers for the provision of direct patient care. This includes running clinic days, education days and private counselling within pharmacies. The professional allowances regime was introduced in 2006 when the Ontario government enacted the Transparent Drug System for Patients Act.

The motion judge found that Shoppers had breached a 2002 franchise agreement, drafted before the introduction of the professional allowances regime, and the franchisees who had signed this agreement were entitled to receive payment of professional allowances. The motion judge found that Shoppers had not breached a separate 2010 franchise agreement, and the franchisees who had signed this agreement were not entitled to receive professional allowances.

The 2002 agreement franchisees were awarded $955 million in respect of professional allowances that Shoppers had retained.

Appeal Decision

The central issue in the appeal decision was how much Shoppers had received in professional allowances. The franchisees claimed that the motion judge understated the amount of professional allowances that Shoppers received, and they should have been entitled to recover $1.084 billion, instead of $955 million.

The motion judge found that, given the direct patient services that Shoppers and the franchisees performed, Shoppers would have been eligible to receive $1.084 billion in professional allowances. However, Shoppers only invoiced drug manufacturers for $955 million and treated the balance of payments received as rebates attributable to non-Ontario stores where rebates were allowed, and which it was entitled to retain under the 2002 franchise agreement.

The Court of Appeal found that Shoppers had a statutory duty under the Wishart Act to deal fairly and in good faith, and a common law duty of honest performance to not knowingly mislead franchisees about performance of the franchise agreement. Shoppers had discretion under the contract to allocate money it received from drug manufacturers between professional allowances and rebates, but it had an obligation to do so in good faith. Instead, it allocated revenue obtained from generic drug purchases made in Ontario to rebates for non-Ontario stores, thus removing the payment from revenue it had to share with franchisees. The court found that this was not fair dealing in accordance with the Wishart Act or honest performance of the agreement under common law.

The Court therefore found that the motion judge had understated the professional allowances that Shoppers received by about $129 million.

Key Takeaways

The appeal again highlights the importance of good faith in contractual performance. Parties cannot lie or knowingly mislead one another. As the court notes, “’knowingly misleading’ is not confined to direct lies – it can also include ‘half-truths, omissions, and even silence depending on the circumstances’” (at para. 166).

Where parties have discretion under a contract, they may be tempted to act opportunistically. Instead, they should be careful to exercise discretion in a way that is consistent with the reason the discretion was granted. If they fail to do so, they may find themselves on the hook for a large damages award.

Adrienne Boudreau, Sotos LLP

Adrienne is a partner at Sotos LLP. She has earned recognition as a leading Canadian lawyer from numerous prestigious publications, including Chambers Canada, Best Lawyers in Canada, and the Best Lawyers Global Business Edition. Adrienne is consistently recommended in the Canadian Legal LEXPERT Directory and has been acknowledged by Who’s Who Legal Canada and the Who’s Who Legal Global Guide. Additionally, she is listed as a Leading Litigation Lawyer in the LEXPERT Special Edition – Canada’s Leading Litigation Lawyers. Adrienne can be reached directly at 416.572.7321 or aboudreau@sotos.ca.

Evan Brander, Sotos LLP

Evan is an associate at Sotos LLP. He can be reached directly at 416.572.7310 or ebrander@sotos.ca.

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For automotive dealers, the investment required to establish a new dealership can be significant, covering everything from tools and machinery to vehicle inventory and due diligence, along with other associated start-up costs. Meanwhile, manufacturers face ongoing challenges of staying competitive in a rapidly evolving automotive market. A key strategy for manufacturers to remain relevant is ensuring a sufficient number of dealerships exist to meet customer demands and expectations. However, this strategy can sometimes lead to conflicts known as “encroachment”.

Understanding Encroachment

Encroachment occurs when a new dealership is opened or an existing one is relocated closer to another dealership in the same network. Such moves often lead to disputes between existing dealers and manufacturers. To mitigate these conflicts, manufacturers typically include provisions in their dealership agreements that reserve the right to establish new locations or relocate existing ones. However, beyond the agreement’s terms, both dealers and manufacturers need to be mindful of other important factors, such as standards set by the National Automobile Dealer Arbitration Program (NADAP), if applicable, and the obligation to engage in good faith dealings.

The Role of NADAP

NADAP was established to provide a structured process for resolving disputes between manufacturers and dealers for those manufacturers and dealers that have opted into NADAP. Initially, parties are encouraged to use the manufacturer’s internal dispute resolution process. However, if that process is unavailable or fails to resolve the issue, mediation through NADAP is the next step.

For encroachment disputes, Rule 6 of NADAP is particularly important. This rule grants manufacturers the right to determine the size and structure of their dealer network, including the creation of new dealer points, relocation of existing dealerships, and appointment of new dealers. However, manufacturers are required to provide notice to existing dealerships before establishing a new dealership location or relocating an existing dealer point.

Generally, in metropolitan areas, an existing dealer selling identical vehicle brands as those of the proposed new dealer point or relocated dealership may challenge a new or relocated dealership within 8 km (20 km in non-metropolitan areas). If these distance requirements are not offended, an existing dealer cannot bring its NADAP challenge. While these distance requirements are a common basis for challenges, they are not definitive. According to Rule 6(e), even if the distance requirements are met, the dealer must also prove potential losses in sales and profits as a precondition for obtaining relief.

Good Faith Obligations

Separate and apart from any NADAP rules regarding new dealer points and relocation, pursuant to Canadian law, automotive manufacturers are required to exercise the powers granted to them by a dealership agreement honestly, fairly, and in good faith. Given the potential power imbalance between local dealerships and automobile manufacturers, courts work to ensure that neither party engages in conduct that undermines the core purpose of their business relationship.

How are courts dealing with claims of encroachment?

1. Consideration of dealer interests: Courts have clarified that even when a manufacturer retains broad powers under a dealership agreement, it must still consider the interests of existing dealers. Manufacturers are required to evaluate the potential adverse impact on individual dealers before making decisions that could affect them.
2. Case-by-case approach: Courts emphasize that every encroachment case is unique. As a result, an existing dealer must provide substantial expert evidence demonstrating that a new or relocated dealership would harm its financial interests.

Conclusion

When a dealer is granted an exclusive selling territory or a designated market area, it has a reasonable expectation that the manufacturer will not encroach on its territory. Manufacturers are under an obligation to treat their dealers fairly, and exercise the powers they have reserved for themselves under the dealership agreement in such a manner so as to not unfairly disadvantage their dealers. At the end of the day, a well planned dealership network not only meets the needs of the marketplace, but it provides its dealers with a favourable environment in which to obtain a reasonable return on their investment.

John Yiokaris, Partner

John Yiokaris is a partner with Sotos LLP in Toronto, Canada’s leading franchise law firm. He has been recognized by Chambers Canada, LEXPERT, Who’s Who Legal, Lexology, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. John can be reached directly at 416.977.3998 or jyiokaris@sotos.ca.

Bailee Kleinhandler, Associate

Bailee is an associate in the corporate and commercial group of Sotos LLP. She is building a diverse practice in corporate and franchise law. Bailee can be reached by email at bkleinhandler@sotos.ca or by phone at 416.572.7311.

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In addition to the firm’s recognition, we are honoured that five of our lawyers – John Sotos, Allan Dick, Peter Viitre, John Yiokaris, and Adrienne Boudreau – have been individually ranked for their expertise in the field.

According to the research conducted by Chambers Canada:

What the team is known for:

Sotos LLP is a franchise law boutique that is known for its representation of both franchisor and franchisee clients. The Toronto-based law firm regularly handles the preparation of franchise agreements and disclosure documents, as well as advising on regulatory compliance. It also offers substantial litigation and arbitration expertise, including in relation to rescission, termination and the enforcement of non-compete covenants. The law firm assists a wide range of clients across various industries, including the automotive, food and beverage, and hospitality sectors, and is well placed to act on expansion mandates.

Strengths:

“Sotos is a proven specialist in franchise law.”

“I have dealt with numerous people at Sotos and all have vast knowledge. Responses are quick and detailed.”

“Sotos were always available, responsive and provided spot-on advice. The team’s knowledge, experience and expertise made the difference.”

“Sotos houses a highly adaptable team that is always quick to respond to enquiries and provide its expertise in complex franchise matters. The team is always eager to support our needs.”

“I trust Sotos to handle complex matters with speed and precision.”

Notable practitioners:

Firm founding partner John Sotos is a Toronto-based lawyer who often acts on franchise agreements and related arbitration matters. “John Sotos is a great representation of the firm. His attention to detail and management of the firm are definite strengths.” “He is outstanding.”

Allan Dick is a Toronto-based lawyer. He is experienced in negotiating retailer agreements and is active in disputes in this field, including arbitrations and rescission claims. “Allan Dick is very professional and knowledgeable.” “Allan Dick always knows the facts and details of litigation.” “Allan Dick does not trivialise matters and recognises that matters raised to him cause anxiety to us as clients. He has made us aware of practices in our industry that may be of interest to us.” “Allan Dick’s creative problem solving makes him the foremost lawyer in delivering the most legally and commercially sound solutions for his clients.” “Allan Dick can always be relied upon to respond to any legal queries that we have, whether simple or complex matters.”

Peter Viitre is a Toronto-based lawyer who often provides counsel to clients in sectors such as automotive and food and beverages. He frequently advises on rescissions and drafting master franchise agreements, as well as assisting international clients with expansion into Canada. “Peter Viitre is very professional and informed.” “Peter Viitre has been extremely helpful and always provides great advice. I enjoy working with him and will continue to do so. He understands our business and the franchise system well.” “Peter Viitre provides an exceptional level of dedication to our needs. He is highly responsive, efficient and pleasant to work with.” “Peter Viitre’s experience with complex matters that are framed squarely in the everyday reality of business makes him my go-to sounding board.” “He is very experienced and provides able corporate commercial representation.”

John Yiokaris is based in Toronto and possesses experience acting for both franchisors and franchisees. He is notably active in the automotive industry and leads the firm’s sector practice in this area. He assists clients with contentious matters, transactions and master franchise agreements.

Adrienne Boudreau is a Toronto-based lawyer who is active on franchising matters across a range of sectors, including hospitality, food and beverages, and cannabis. She is particularly experienced in franchisee rescission cases, and also provides advice on related corporate and litigation matters. “Adrienne Boudreau is sharp and provides excellent service. It is easy to work with her.” “Adrienne Boudreau has been an incredibly dedicated, professional, caring and knowledgeable lawyer. I feel very secure and confident in her work, leadership and understanding of franchise law.” “Adrienne Boudreau is fantastic and provides highly trusted counsel.” “Adrienne Boudreau is a talented lawyer who fiercely advocates for her clients.” “Adrienne Boudreau is a credit to Sotos and the law profession in general. I am glad she is my legal representative.”

Chambers Canada is often referred to as ‘the gold standard’ and is a highly regarded legal publication. Chambers Canada ranks eminent lawyers and law firms based on rigorous independent research.

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In its recent decision, Edmonton (City) v AW Holdings Corp, 2024 ABCA 92, Alberta’s top court has upheld a decision by the province’s Land and Property Rights Tribunal (LPRT), which dealt with the issue of whether a franchisor who neither owns title to, nor leases land, can be an owner through possession or occupation of that land, or have an interest in it, under provincial expropriation legislation.

The key point here was that the LPRT held, based on a very fact-specific analysis, that the franchisor’s interest in the business operated by its franchisee on land leased by the franchisor’s leasing corporation, pursuant to the franchise agreement was different and separate from an interest as a franchisee and as a sublessor. Based on its interest as a franchisor under its franchise agreement, the franchisor was entitled to control over the business activities of the franchisee and to income for the use of the franchise system, which was based on a right for compensation for expropriation of that land.

The case is novel, as it indirectly, and in the limited context of expropriation under the Expropriation Act, RSA 2000, c E-13 (“Act”), recognizes and affirms the party’s interests within a franchise relationship. The case recognizes that, for brick-and-mortar locations, where there is a sublease relationship, the franchisor (and not just the franchisor’s leasing company) may have an interest in the land. The overreaching implications of this case may be limited, as the court’s analysis is highly fact-dependent and dependent on the specifics of the Act. However, a takeaway for Canadian franchise counsel may be to balance the protective intent of having a separate leasing company with having some nexus between the franchisor and the premises. Counsel may find it a good idea to review their current forms of sublease to consider these issues.

Facts

As is common in franchise systems, the Booster Juice franchise system ( “System”) includes a franchisor corporation, AW Holding Corp (“Franchisor”), which owns the Booster Juice franchise and enters into franchise agreements with franchisees and includes a leasing corporation, Booster Juice Inc. (“LeasingCo”), which acquires, leases and sublets premises for the Booster Juice System.

Starting in 2001, LeasingCo entered into a lease agreement (the “Head Lease”) with Sun Life Assurance Company of Canada (“Landlord”) for Unit 11838-104 Avenue, Edmonton (the “Land”) and in turn sublet the Land (“Sublease”) to 1154264 Alberta Ltd ( “Franchisee”).

The Headlease contained a standard clause giving the Landlord control over the form of any sublease, however, this clause was crossed out.

This change in the lease enabled Franchisor to dictate the form of sublease Franchisee would have to execute with LeasingCo for the premises under its Unit Franchise Agreement (“Franchise Agreement”) between Franchisor and Franchisee. This section of the Franchise Agreement stated:

“4(a) If Franchisor or any corporation or Person linked with the Booster Juice System (including Booster Juice Inc.) enters into the lease for the Premises, Franchisee shall execute a sublease with Franchisor or such other corporation or person in Franchisor’s standard form attached hereto as “Schedule 3” concurrently with the execution of this Agreement.”

Clause 1.6 of the Franchise Agreement provided additional discretion to Franchisor, stating that the provisions of the Franchise Agreement must be read in priority to and must supersede the provisions of any sublease.

The Land subsequently became the subject of a proposed expropriation by the City of Edmonton (the “City”) to facilitate the construction of an LRT line and the City acquired LeasingCo’s sublease under an agreement with Franchisee in 2020 (the “Consent Agreement”), pursuant to section 30 of the Act which stipulates that, “the owner [of expropriated land] may consent to the acquisition of land by an expropriating authority subject to the condition that compensation for the land shall be determined by the [LPRT]”.

Franchisor, who was not a party to the Lease or Sublease, signed the Consent Agreement following the wording: “Booster Juice hereby consents to the conveyance of the Leasehold interest from [the Franchisor] to the City pursuant to the terms and conditions of this Agreement”.

The land was left vacant by the city from March 2020 until it was demolished in June 2022, resulting in Franchisor losing royalty income at that location.

The City acknowledged that Landlord, LeasingCo, and Franchisee were all “owners” and proper claimants under the Act, but disputed that Franchisor had the same status.

In August 2021, Franchisor, LeasingCo and the City submitted a joint written application to the LPRT for a determination regarding Franchisor’s status. The LPRT determined that Franchisor was a proper claimant for compensation by virtue of having both “possession” of, and an “interest” in, the Land.

Issue

The City appealed this decision submitting that the LPRT erred in its interpretation and application of the terms “possession […] of the land” under s. 1(k)(iii) of the Act, and “interest” or “interest in the land” under s. 1(k)(iv) of the Act.

Analysis

First Instance

The LPRT based its analysis on the wording of the Act and in particular on whether the Franchisor qualified as an “owner” such that they were entitled to compensation under the Act.

• Possession

Section 1(k)(iii) of the Act defines “owner” as: any other person who is in possession or occupation of the land. If a person can show possession or occupation of the land, they are an owner. In this case, the LPRT found the powers Franchisor reserved to itself under the Franchise Agreement gave it (i) control over the Land, because it could and did, dictate the terms of the sublease on the Land, and (ii) the right to possession of the Land if certain circumstances under the Franchise Agreement arose.

This finding is novel in that it confirms the context of expropriation contemplates relationships that could give rise to possession or occupation other than those through the chain of legal ownership of property. The LPRT found possession in the broadest sense is sufficient. The Franchise Agreement gives the Franchisor a degree of control over the Land, distinct from the legal ownership of freehold owner or the legal interests of the lessee or sublessee.

• Interest

Section 1(k)(iv) defines “owner” as: any other person who is known by the expropriating authority [here the City] to have an interest in the Land. It is clear. Under this section, if a person, who is known to the expropriating authority, has an interest in the Land that is different from the interests of freehold or lease hold, they are an owner for the purposes of the Act.

The Franchisor argued that the powers it reserved to itself under the Franchise Agreement gives it control over the business operations of Franchisee, and through control of the System, control over the use of the Land by Franchisee under the terms of the Franchise Agreement. In effect, Franchisor’s interest under the Franchise Agreement gives it participation in the business of the Franchisee located on the Land.

The LPRT agreed the Franchisor had a business interest in the franchised business and had significant control of the operation of the franchised business located on the Land.

Appeal

The LPRT’s decision was reviewed on a reasonableness standard in light of its underlying rationale and as a whole to determine whether it exhibited (i) justification, (ii) transparency, and (iii) intelligibility. The Court of Appeal of Alberta (“Court”) reviewed the LPRT’s analysis of the Franchise Agreement grounding “possession” of the Land for the Franchisor under section 1(k)(iii) of the Act, and upheld their decision. Having upheld the decision on the first analysis, the court did not consider whether the Franchisor had an “interest” under Section 1(k)(iv) of the Act.

The Court held that Sections 1(k)(iii) and (iv) must be interpreted broadly and strictly construed in favour of claimants. It reasoned that the terms “possession” and “interest” in those provisions have broader meanings in the expropriation context than the same terms used in the context of property law, citing Edmonton (City) v Business Care Corp, 2019 ABQB 724.

The Court affirmed the LPRT determination that the Franchisor was a party “in possession or occupation of the land”, pursuant to section1(k)(iii) based on a number of factors.

• Control Over the Sublease – Franchisor maintained control over the land by dictating the terms of the sublease in the Franchise Agreement. Part of the bundle of rights initially held by Landlord was the ability to dictate the terms of any sublease by LeasingCo. By deleting Landlord’s standard clause from the Headlease, Landlord had expressly given up its right to control the sublease terms on which the Franchisee would use the subject premises. Franchisor exercised that control through its Franchise Agreement with the Franchisee which dictated with whom the Franchisee could enter into a sublease and the use of Franchisor’s mandatory form of sublease for the subject premises.
• Control over the operation of the business on the Land – Franchisor had possession of the land by virtue of the non-exclusive rights of the Franchisee to use Franchisor’s day-to-day business operations system in the operation of the franchise outlet and the control exercised by Franchisor over that system.
• Signing the Consent Agreement – Franchisor signed the Section 30 Agreement pursuant to the Franchise Agreement with the Franchisee, thereby consenting to the City’s acquisition of the Franchisee’s sublease interest. Both parties acknowledged that there was sparse information as to how and why Franchisor came to sign the Section 30 Agreement, however the Court concluded that it was not unreasonable for the LPRT to infer from it that the Franchisee deemed it was at least prudent if not necessary, and sufficient, to obtain Franchisor’s consent to the Section 30 Agreement. It was not unreasonable for the LPRT to conclude that Franchisor’s signature was therefore another indicia of control.

Obiter Dicta

The City raised the concern with the Court that the LPRT decision creates a dangerous precedent by allowing the Franchisor, which was not on the Headlease or Sublease, to claim possession of the Land. The court commented that the LPRT did not espouse any novel principles of general application relating to the law of “possession” in the expropriation context, but rather clearly decided the matter based on the very particular facts before it.

Adrienne Boudreau, Sotos LLP

Adrienne is a partner at Sotos LLP, Canada’s leading franchise law firm. She has earned recognition as a leading Canadian franchise law practitioner from numerous prestigious publications, including Chambers Canada, Best Lawyers in Canada, and the Best Lawyers Global Business Edition. Adrienne is consistently recommended in the Canadian Legal LEXPERT Directory and has been acknowledged by Who’s Who Legal Canada and the Who’s Who Legal Global Guide. Additionally, she is listed as a Leading Litigation Lawyer in the LEXPERT Special Edition – Canada’s Leading Litigation Lawyers. Adrienne can be reached directly at 416.572.7321 or aboudreau@sotos.ca.

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• 1. Adrienne Boudreau – Franchise Law
  2. Allan Dick – Franchise Law
  3. Idan Erez – Franchise Law & Personal Injury Litigation
  4. Jean-Marc Leclerc – Franchise Law
  5. Michael Sabusco – Natural Resources Law
  6. John Sotos – Corporate Law & Franchise Law
  7. Peter Viitre – Franchise Law
  8. John Yiokaris – Corporate Law & Franchise Law
  9. Jason Brisebois – Ones to Watch – Franchise Law
  10. Daniel Hamson – Ones to Watch – Corporate and Commercial Litigation

This recognition highlights our team’s expertise across various practice areas. Congratulations to all recognized lawyers on this well-deserved honour!

About Best Lawyers:

The Best Lawyers is the oldest and well-respected guide to the legal profession. Recognition by The Best Lawyers is based on exhaustive peer-review evaluation and voting. The “Top-Listed” designation is given to the firm that has the most recognized lawyers in a particular location and practice area.

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Idan is a member of the Bar in both the Province of Ontario and the State of Georgia, bringing a wealth of experience to our litigation department. His practice focuses on a variety of subject matters, including franchising and other commercial disputes, professional liability/personal injury defense, and various types of civil litigation.

Idan’s extensive experience encompasses shareholder disputes, commercial contract disputes, injunctive proceedings, and real estate litigation. He also has a strong background in class action work, particularly in the areas of pharmaceuticals and data breaches.

Idan has earned recognition from his peers as a Franchise Times “Legal Eagle” and has been named one of Canada’s ‘Best Lawyers’ in franchise law and personal injury litigation. He has appeared before the Ontario Superior Court and Divisional Court, as well as in the Superior Court of British Columbia and the Alberta Court of Queen’s Bench.

We are confident that Idan’s expertise and dedication will be invaluable to our clients and our firm.

Welcome, Idan!

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Read the original article for ‘What does a franchise litigation lawyer do?‘ over on the Lexpert website.

Daniel Hamson, Sotos LLP

Daniel is a senior associate with Sotos LLP in Toronto, Canada’s leading franchise law firm. He has received multiple legal accolades, including being named as a “Lawyer to Watch” by the Canadian Legal LEXPERT Directory in the franchise law category, as well as in the LEXPERT Special Edition – Canada’s Leading Litigation Lawyers. Daniel can be reached directly at 416.572.7303 and dhamson@sotos.ca.

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Michael’s practice focuses on corporate and securities law, with a focus on mergers & acquisitions. He advises public and private corporations and strategic investors, and brings significant experience in private and public offerings, strategic financings, corporate takeovers and reverse takeovers, and other corporate restructuring transactions.

Before joining Sotos, Michael was a partner at a global law firm. He has acted for issuers and investment dealers and strategic investors in Canadian, cross-border, and international transactions.

Michael also has significant experience counselling clients on securities regulatory compliance, stock exchange listings and going private transactions, corporate governance, and general corporate matters. Additionally, he counsels clients across various industries, including mining and natural resources, technology, cannabis, financial services, logistics and transportation, real estate, retail, marketing, food and beverage, and health and wellness sectors.

Michael has been recognized for his extensive knowledge and experience in the following publications: The Canadian Legal Lexpert Directory: Corporate Mid-Market, and Mining; Lexpert Special Edition – Canada’s Leading Lawyers: Global Mining; and The Best Lawyers in Canada: Natural Resources Law.

His extensive experience in these areas further strengthens and expands our firm’s capabilities and commitment to providing top-tier legal services to our clients.

“We are thrilled to welcome Mike Sabusco as our newest partner.  I am beyond confident Mike will be a major asset to our corporate law group as we continue on our growth trajectory across every facet of our firm. He will play a significant role in helping us to manage, scale and evolve our mergers & acquisitions practice as we continue to accelerate our momentum in the business law space.” John Yiokaris, Co-Managing Partner

Please join us in welcoming Michael to the Sotos team.

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Nearly seven years after it began, the “Paramount Trilogy” has now concluded.

The trial[1] and appeal[2] decisions have significantly advanced the law with respect to statutory rescission under Section 6(2) of the Wishart Act.[3]  This article attempts to identify the most important aspects of these decisions and to identify, where applicable, new developments in the law in this area.

Brief facts

Three “Paramount Fine Foods” franchisees delivered notices of rescission in the fall of 2017.  The franchisor rejected the validity of the rescissions, and otherwise relied on several exemptions for its position that it need not have provided disclosure to the franchisees.

The three actions were heard together in a trial that began in late 2021.  Vermette J. (the “Trial Judge”) found one of the three rescissions valid, and granted the franchisor parties’ counterclaims for breach of contract in the other two cases.

All parties appealed nearly every aspect of the Trial Judge’s decision in three appeals and three cross-appeals.  The appeals were heard by the Court of Appeal for Ontario in June, 2024.  In the result, the Court of Appeal dismissed all appeals and cross-appeals, and affirmed all aspects of the Trial Judge’s decision.

Lessons Learned

1. The time to rescind runs from the time the franchise agreement was entered into by the franchisee

At the relevant time, the franchisor had a practice of requiring franchisees to enter into a “generic” franchise agreement.  The franchisor’s witness described this document as a “placeholder” agreement.  Its purpose was to evidence and affirm a party’s commitment to later becoming a franchisee.

The franchisor’s form of franchise grant was tied to location:  its grant gave franchisees the right “to establish and operate the Franchised Business solely at the Premises which Premises should be solely situated in the Territory.”  The generic franchise agreement failed to identify the actual “Premises” or “Territory”.

The parties that signed the “generic” franchise agreement later entered into an entirely new franchise agreement.  This agreement was not an amendment of the “generic” agreement, but a fresh and separate document that did not refer to the earlier “generic” agreement.

The franchisor later argued that the time to rescind ran from the date that the “generic” franchise agreement was entered into by the parties, and that the franchisee was therefore out of time to rescind.

The Trial Judge rejected the franchisor’s argument.[4]  She found that the franchisor’s form of grant required the premises and territory to be defined.  She found that the failure to identify a “Premises” and “Territory” made the grant of franchise incomplete and ineffective.  The parties were not granted a legally enforceable right to operate a franchise.  Accordingly, she found the generic franchise agreement was not a “franchise agreement” within the meaning of the Wishart Act, and did not effect a grant of franchise.  The franchisee’s time to rescind therefore ran from the time it entered into the second (effective) franchise agreement.

While heavily dependent on the facts of this case, franchisors should be mindful of the language of their form of grant.  Purported grants that are tied to defined terms that as yet have no meaning (for instance, “Premises” that do not exist and “Territories” that are not defined) may result in no grant, at all.  The parties should consider when a grant of franchise is complete and perfected, as this will be the date from which a franchisee’s potential right of rescission will run.

2. A franchisee can rescind post-termination

NEW:  the Court of Appeal for Ontario has now expressly confirmed that where a franchisor exercises a contractual right of termination under a franchise agreement, the franchisee may later exercise a statutory right of rescission under the Wishart Act.[5]  A franchisor cannot prevent rescission by terminating a franchise agreement.

The Trial Judge relied on the non-waiver provisions of the Wishart Act (Section 11) to conclude that the exercise of a contractual right (termination) cannot unilaterally deprive a franchisee of a statutory right (rescission).[6]  Citing the Midas[7] case, she found that if contractual termination could pre-empt access to the rescission remedy this would run afoul of the purpose of the Wishart Act, which is to protect franchisees.

The franchisor parties argued on appeal that a terminated contract “ceases to exist” and therefore cannot be rescinded.  The Court of Appeal rejected this argument.[8]  It confirmed that termination does not render a contract voib ab initio but rather absolves the non-breaching party from performing future obligations.  The Court of Appeal generally agreed with the reasoning of the Trial Judge on this point, and confirmed that the Wishart Act does not make statutory rescission conditional on non-termination, even in circumstances where the franchisee is in breach of the franchise agreement.

This outcome will likely come as no surprise to the majority of franchise practitioners.  Notably, several recent rescission cases have proceeded in the Ontario courts notwithstanding  the franchisor had earlier purported to exercise contractual termination rights.[9]  However, the issue of whether the rescission right could be exercised, notwithstanding the earlier termination, was not raised or considered by the Court in these earlier cases.

3. Exemptions

The franchisor relied on three different exemptions to advance its argument that it need not have provided a “disclosure document” to the franchisees in these cases.  All three of these arguments were rejected by the Trial Judge.  Prior to this case, certain of these exemptions had never previously received direct judicial consideration.

In all instances, the Court of Appeal agreed with the Trial Judge’s analyses and conclusions on the franchisor’s exemption defences.[10]

• 5(7)(h) – the “large investment” exemption

NEW: in considering this exemption, each grant of franchise must be considered on its own and cannot be combined with other grants of franchise; the time to assess the quantum of the franchisee’s prospective investment is at the time of the grant.

This is the first case to consider this exemption.

At the time of the grants in these cases,[11] franchisors did not need to provide disclosure to prospective franchisees who were investing in the acquisition and operation of a franchise, over a one year period, in an amount grater than $5MIL.

In these cases, the franchisor advanced two arguments:  1) the three grants made to the three franchisees should be considered a single “grant” for the purposes of the exemption, and; 2) the franchisees, collectively, invested over $5MIL in the acquisition and operation of the three restaurants in the course of their subsequent operations.

The Trial Judge rejected these arguments.[12]

The foundation of her conclusions rest on the definition of “grant” and “franchise”.  She found, as fact, that three separate grants of franchise had occurred.  She found there was no basis to combine these grants or consider them collectively for the purposes of this exemption.

She also found that the relevant time to assess the quantum of the franchisees’ investments is at the time of the grant.  In so doing, she confirmed that the expected, prospective costs of acquisition and investment are determinative for the purposes of this exemption.  The expenses actually incurred by the franchisees during their operations do not retroactively affect whether or not the franchisor had to provide disclosure to the franchisee.

• 5(7)(c) – the “additional franchise” exemption

NEW: distinct corporate franchisees that operate some aspects of their franchised businesses on a collective basis, or that have overlapping or similar shareholders, will not be considered the “same” franchisee for the purposes of this exemption; a franchisee must already be operating the franchised business for the exemption to apply.

This is the first case to directly consider the application of this exemption.[13]

The Wishart Act states that disclosure need not be provided for “the grant of an additional franchise to an existing franchisee if that additional franchise is substantially the same as the existing franchise that the franchisee is operating and if there has been no material change since the existing franchise agreement or latest renewal or extension of the existing franchise agreement was entered into.”

The franchisor argued this exemption applied to it on the basis that the corporate franchisees did not observe separate corporate personality in their operations, and had some common shareholders as among them.  In its submissions, the franchisees were therefore “the same”.

The Trial Judge rejected these arguments.[14]

She found that relevant franchisee was not an “existing franchisee” as it was only ever granted a single franchise.

The Trial Judge then went on to consider whether an “existing franchisee” could be a new corporation with principals who are involved in another corporate franchisee of the same system.  She concluded it could not.  In relying on the wording of the exemption, she found that the qualifying words “substantially the same” described the relationship between the “existing franchise” and “additional franchise.”  These words did not apply to the franchisee.  In other words, she found that the existing and additional franchise could be substantially similar, but that the franchisee had to be “the same.”

The Trial Judge also noted that a plain interpretation of s. 5(7)(c) requires an existing franchisee to be “operating” a franchise for the exemption to apply. The “operation” requirement will not be satisfied if the franchisee has only signed the franchise agreement, or is in the midst of building out/constructing the franchise, and has never actually operated the business that is the subject of the grant.  She found that none of the franchisees were operating any franchised business at the time the relevant franchisee signed its franchise agreement. In arriving at this conclusion, the Trial Judge confirmed the underlying policy rationale for this requirement, namely, that disclosure has little utility if the prospective franchisee is already familiar with the operations of the franchise system and for whom the risk of making a further investment of funds is low.

• 5(7)(a)(iv) – the “franchisee transfer” or “resale” exemption

The Trial Judge found the franchisor could not rely on the resale exemption.  The Trial Judge’s decision[15] follows a long line of case law in which this exemption has been narrowly determined by the courts.[16]

The basis of the Trial Judge’s decision is factual.  First, she found there was no grant of a franchise by a franchisee on the facts.  She found that the previous operator’s franchise agreement was terminated, and the relevant parties entered into fresh agreements.

Second, and in any event, she found that the franchisor “was directly involved and an active participant” in the relevant grant.  Among her findings, she found that the franchisor directed the franchisee to the existing operator, was involved in negotiations between the franchisee and the prior operator, had input on relevant documents, and was involved in discussions about purchase price, and otherwise acted as an intermediary  She also found that the franchisor and the franchisee met at the franchisor’s head office in the absence of the former operator.  Her decision on this defence is generally consistent with prior case law on this exemption.

4. Piecemeal disclosure remains a fatal flaw

The franchisee that validly rescinded, Premium Host Inc., did so on the basis that the Franchisor provided it with material information outside of a “disclosure document”.  In upholding the Trial Judge’s decision, the Court of Appeal confirmed a very long line of cases confirming that disclosure must be provided to a franchisee “as one document, at one time,” and that piecemeal disclosure provides a franchisee with valid grounds to rescind.[17]

Although not directly addressed, this decision also confirms a related line of case law that financial information relating to the operation of the subject unit under a previous operator will generally be “material” within the meaning of the Wishart Act.[18]

5. A franchisee bears the burden of proving a valid rescission and its entitlement to statutory compensation

NEW:  the Court of Appeal for Ontario has now expressly confirmed that a franchisee bears the burden of proving that it rescinded on valid grounds.[19]  Accordingly, a franchisee must prove:  1) what it received from the franchisor; and 2) that the purported “disclosure document” contained a defect that is so material as to render the disclosure document no disclosure at all.

On appeal, the franchisees argued that the franchisee need not prove it received materially deficient disclosure.  They took the position that upon delivery of a notice of rescission in accordance with the Wishart Act, a franchisor could defeat a statutory rescission by demonstrating that it fulfilled its disclosure obligations under the Wishart Act by providing compliant disclosure document to the (then-prospective) franchisee.

In rejecting this argument, the Court of Appeal cited its earlier decision in Raibex, in which the Court (arguably in obiter) stated:  “the Franchisee must not only demonstrate that the FDD was deficient, but also show that it was so deficient that the Franchisor effectively ‘never provided [a] disclosure document.’”[20]

In the result, the Paramount Trilogy cases are somewhat unusual in that the Trial Judge found that no purported “disclosure document” relied on by any party at trial had actually been provided to any franchisee but, notwithstanding, two of the franchisees were not entitled to rescission.  Arguably, this result is at odds with the Court of Appeal’s decision in MAA Diners, in which the Court of Appeal confirmed the lower Court’s decision that a franchisee had validly rescinded its franchise agreement in the absence of any evidence that a disclosure document was provided to that franchisee.[21]

6. Provided the franchisee proves that the expenses it claims were actually incurred in connection with the franchised business, a court may reclassify expenses as between subsections 6(6)(a)-(d)

NEW:  the Trial Judge expressly confirmed that compensation claimed by franchisees under various subsections of 6(6) could be reclassified and recovered under subsections 6(6)(a)-(d).[22]  While various earlier decisions have permitted the recharacterization of amounts claimed,[23] this is the first case to expressly address whether this practice is permissible.

At trial, the franchisor parties argued that the franchisees should not be permitted to reclassify any portion of their statutory compensation claim.  For instance, they argued that amounts originally characterized by the franchisees under 6(6)(a), 6(6)(b), and 6(6)(c) should not be permitted to be reclassified and claimed under 6(6)(d).  The need for reclassification in these cases arose largely as a result of the Trial Judge’s findings about which franchisor parties were and were not “franchisor’s associates” within the meaning of the Wishart Act.

The Trial Judge rejected these arguments and permitted the recharacterization of certain elements of the franchisees’ compensation claim.[24]

7. An employee of the franchisor may be found to be a “franchisor’s associate” on the basis that they were involved in reviewing or approving the grant of franchise

NEW:  The Court of Appeal upheld the Trial Judge’s finding that a non-director/non-officer employee of a franchisor can be “involved in reviewing or approving the grant of a franchise” for purposes of satisfying the second element of the definition of a “franchisor’s associate” under section 1(1) of the Wishart Act.

At trial, the franchisees submitted that the franchisor’s Manager of Franchising was a franchisor’s associate because the individual was controlled by the franchisor (this fact was admitted at trial by the franchisor parties) and because the individual was involved in reviewing or approving the grants of franchise.

The Trial Judge accepted this submission. In so doing, the Trial Judge relied on the fact that the individual’s role included: (a) vetting new franchisees for the initial phase of the recruitment process; (b) reviewing and evaluating franchise applications; (c) advising the franchisor’s principal about the results of this review; (d) initially meeting with prospective franchisees; and (e) advising the franchisor’s principal about these meetings.[25] In addition to performing these duties in the context of these cases, the Trial Judge also noted that the individual was in “constant communication” with the prospective franchisees, including to discuss the progress of their transactions to purchase the franchises.

On appeal, the franchisor parties submitted that the individual should not be found liable as a franchisor’s associate on policy grounds.  They took the position that insofar as individuals are concerned, the definition of a franchisor’s associate should be read to only apply to directors and officers of the franchisor. They argued that failing to do so would create potential liability for all clerical and junior employees that perform rote functions in the grant process.

The Court of Appeal rejected the franchisor parties’ proposed interpretation of the Wishart Act.[26] Moreover, while the individual was not a director or officer of the franchisor, “neither was she a clerical or junior employee”. She performed a significant role in the process of reviewing the franchisees’ applications, exercising professional judgment, and advising the ultimate decision-makers.

Sotos LLP was trial and appellate counsel to the franchisees.

Adrienne Boudreau, Sotos LLP

Adrienne is a partner at Sotos LLP, Canada’s leading franchise law firm. She has earned recognition as a leading Canadian franchise law practitioner from numerous prestigious publications, including Chambers Canada, Best Lawyers in Canada, and the Best Lawyers Global Business Edition. Adrienne is consistently recommended in the Canadian Legal LEXPERT Directory and has been acknowledged by Who’s Who Legal Canada and the Who’s Who Legal Global Guide. Additionally, she is listed as a Leading Litigation Lawyer in the LEXPERT Special Edition – Canada’s Leading Litigation Lawyers. Adrienne can be reached directly at 416.572.7321 or aboudreau@sotos.ca.

Daniel Hamson, Sotos LLP

Daniel is a senior associate with Sotos LLP in Toronto, Canada’s leading franchise law firm. He has received multiple legal accolades, including being named as a “Lawyer to Watch” by the Canadian Legal LEXPERT Directory in the franchise law category, as well as in the LEXPERT Special Edition – Canada’s Leading Litigation Lawyers. Daniel can be reached directly at 416.572.7303 and dhamson@sotos.ca.

[1] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507.
[2] Royal Bank of Canada v Everest Group Inc, 2024 ONCA 577.
[3] Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c 3.
[4] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at paras 354-361.
[5] Royal Bank of Canada v Everest Group Inc, 2024 ONCA 577 at para 11.
[6] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at para 368.
[7] 405341 Ontario Limited v Midas Canada Inc, 2010 ONCA 478.
[8] Royal Bank of Canada v Everest Group Inc, 2024 ONCA 577 at para 11.
[9] See 2352392 Ontario v MSI, 2019 ONSC 4055 at para 6, overturned on other grounds 2352392 Ontario Inc v Msi, 2020 ONCA 237, and 2364562 Ontario Ltd v Yogurtworld Enterprises Inc, 2021 ONSC 5112.
[10] Royal Bank of Canada v Everest Group Inc, 2024 ONCA 577 at para 10.
[11] We note that the language of this exemption has subsequently been amended, and now exempts a franchisor from disclosure in circumstances where a franchisee’s total initial investment is in excess of $3MIL.
[12] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at paras 326-334.
[13] Bark & Fitz Inc v 2139138 Ontario Inc, 2010 ONSC 1793 at para 26 briefly touches on whether this exemption can be relied upon where the principals of two different corporate franchisees are the same.  However, this discussion occurs in the context of evaluating whether there is a “serious issue to be tried” in an injunction hearing.  Karakatsanis J., as she then was, does not decide the matter.  3574423 Canada Inc v Baton Rouge Restaurants Inc, 2011 ONSC 6697, aff’d 3574423 Canada Inc v Baton Rouge Restaurants Inc, 2013 ONCA 39 discusses this issue in obiter, starting at para. 290.  The discussion relates primarily to whether the franchisee to whom a franchise is granted had to have previously received compliant disclosure from the franchisor to rely on this exemption.
[14] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at paras 335-342.
[15] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at paras 343-352.
[16] See, for example, 2189205 Ontario Inc v Springdale Pizza Depot Ltd, 2011 ONCA 467 at para 32.
[17] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at para 421; Royal Bank of Canada v Everest Group Inc, 2024 ONCA 577 at para 12.
[18] See, for example, 2212886 Ontario v Obsidian Group, 2017 ONSC 1643 at paras 46-53, overturned on other grounds 2212886 Ontario Inc v Obsidian Group Inc, 2018 ONCA 670, leave to the SCC denied at 2212886 Ontario Inc, et al v Obsidian Group Inc, et al, 2019 CanLII 16450. In the within case, the franchisor provided Premium Host Inc. with the weekly gross margin statements of the previous operator, which showed the business’ remaining revenue after subtraction of direct costs.  The Trial Judge’s findings that this information was “material” can be found at Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at para 421.
[19] Royal Bank of Canada v Everest Group Inc, 2024 ONCA 577 at para 4.
[20] Raibex Canada Ltd v ASWR Franchising Corp, 2018 ONCA 62 at para 40.
[21] MAA Diners Inc v 3 for 1 Pizza & Wings (Canada) Inc, [2003] OJ No 430 (Sup Ct J), aff’d Maa Diners Inc v 3 for 1 Pizza & Wings, 2004 CanLII 19240 (Ont CA).
[22] The franchisor parties pursued this matter on appeal.  In upholding the Trial Judge’s decision relating to the validity of the Premium Host Inc. rescission, the Court of Appeal by implication also affirmed the Trial Judge’s reasoning on this point, although it did not specifically comment on this matter in its Reasons for Decision.
[23] See, for example, 2122994 Ontario Inc v Lettieri, 2016 ONSC 6209 at paras 76-77, aff’d 2122994 Ontario Inc v Lettieri, 2017 ONCA 830, and 2483038 Ontario Inc v 2082100 Ontario Inc, 2020 ONSC 475 at paras 72-76.
[24] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at paras 461-465.
[25] Premium Host Inc v Paramount Franchise Group, 2023 ONSC 1507 at para 458.
[26] Royal Bank of Canada v Everest Group Inc, 2024 ONCA 577 at para 13.

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Competition (or the lack of it) in the grocery sector has been in the news a lot in the past few years. More than 80% of Canadians believe that large grocery chains are engaged in “greedflation” (link). Whether or not that is correct, the government has responded:

• In June 2023, the House of Commons Standing Committee on Agriculture and Agri-Food published “Grocery Affordability: Examining Rising Costs in Canada”(the “House of Commons Report”).
• In July 2023, the Competition Bureau published a market study tellingly titled “Canada Needs More Grocery Competition”(the “Market Study”).
• In September 2023, the government proposed the Affordable Housing and Groceries Act (“Bill C-56”), which includes amendments to the Competition Act. It received royal assent and will come into effect on December 15, 2024.
• In November 2023, the government proposed Bill C-59, which includes more amendments to the Competition Act. It has passed second reading in the House of Commons.

This article (1) summarizes the amendments to the Competition Act in Bill C-56; (2) summarizes the proposed amendments to the Competition Act in Bill C-59; and (3) discusses how these amendments might impact competition in the grocery sector, and possible implications for grocery chains, suppliers, independent grocers, and consumers.

(1) Amendments in Bill C-56

Bill C-56 contains five major changes to the Competition Act.

First, Bill C-56 allows the Competition Bureau to compel companies to provide information for market studies (ss 10.1, 11). Currently, it can only compel industry participants to produce information where there are grounds to believe that an entity has committed or will commit an offence. This change appears to have been a response to concern identified in the House of Commons Report and the Market Study that some large grocery chains refused to provide detailed information on their profit margins.

Second, Bill C-56 prohibits any person who substantially controls a class or species of business from “directly or indirectly imposing excessive and unfair selling prices” as a prohibited anti-competitive act (s 78(k)). This might be intended to:

• Eliminate “greedflation” – that would track EU and UK law, which prohibit charging prices that are far above production costs[1] or far above prices charged in similar markets with more competition;[2]
• Reduce “shrinkflation” or to push grocers towards using unit pricing – the Market Study noted that consumers find it hard to recognize shrinkflation, especially without unit pricing, and that “a lot of Canadians expressed concerns about this practice”; and/or
• Reduce fees charged to suppliers – the House of Commons Report raised concerns about large chains charging suppliers fees for shelf space, fees for merchandising costs, late fees, and short fees, or imposing new fees “arbitrarily and without explanation”.

Third, Bill C-56 broadens “abuse of dominant position” (s 79). Under the new rule, the Bureau only has to show that the dominant company (a) engaged in a practice of anti-competitive acts; or (b) their actions are likely to prevent or lessen competition substantially. Currently, the Bureau must show both anti-competitive acts and prevention or lessening of competition substantially.

Fourth, Bill C-56 increases the penalties the Bureau can impose from $15 million ($10 million for first offence) to $35 million ($25 million for first offence) (s 79(3.1)).

Fifth, Bill C-56 allows the Bureau to prohibit agreements whose purpose is to prevent or lessen competition substantially (s 90.1(1.1)). Currently, the Bureau can only prohibit agreements that would have the effect of preventing or lessening competition substantially. This might be intended to respond to the comment in the Market Study that large grocery chains use property controls to deny independent grocers access to prime locations (e.g. leases preventing commercial landlords from leasing their other space to independent grocers).

(2) Proposed Amendments in Bill C-59

Bill C-59 proposes two major changes to the Competition Act.

First, Bill C-59 would allow private claimants to get monetary remedies from the Competition Tribunal, up to the value of the benefits that the defendant obtained from the wrongful conduct, and those remedies can be distributed to “any other person affected by the conduct” (ss 75(1.2), 76(11.1), 77(3.1), 79(4.1), 90.1(10.1)).

Second, Bill C-59 would lower the standard for private claimants to be allowed to bring claims. Whereas currently they have to show that their entire business is “substantially affected” by the alleged misconduct, the new rule allows claims by businesses affected “in part” by the alleged misconduct. More importantly, it allows claims to be brought if “it is in the public interest to do so”. This might open the door to claims by consumers.

We are not suggesting that these changes will substantially increase the number of claims brought in the short term. There is considerable uncertainty. To name just a few issues:

• Whose claims are “in the public interest”?
• What “other persons” are entitled to share in distributions?
• Are monetary remedies meant to be compensatory, restitutionary, or punitive?
• Are contingency fee agreements allowed?
• Can either party recover costs?
• Can the Competition Tribunal stay overlapping claims (i.e. award carriage)?
• If a settlement is reached, does it bind anyone other than the claimant and the defendant?

It will probably take years to resolve all this uncertainty. But once the confusion is resolved, private claims may become a viable way to enforce the new prohibitions in Bill C-56.

(3) Implications for the Grocery Sector

Overall, these amendments raise three possible issues for the grocery sector, on prices, supplier fees, and property controls.

Prices: The Competition Bureau could demand information on margins, identify products with especially high margins or recent decreases in size, and then bring an application for abuse of dominant position on the basis that these are “excessive and unfair” prices.

This is unlikely. The Competition Bureau rarely exercises its enforcement powers, and it is even less likely to conduct another market study since it just finished the Market Study.

Still, if grocery chains want to further limit this risk, they should consider adding unit prices on items (e.g. $1.00/kg or $1.00/L). In the Market Study, the Competition Bureau suggested that unit prices would limit or obviate concerns about pricing.

Supplier Fees: Suppliers could challenge fees for shelf space, fees for merchandising costs, late fees, and short fees as “excessive and unfair”, especially if those fees are (1) higher than fees in comparable markets; and/or (2) imposed “arbitrarily and without explanation”.

If Bill C-59 passes, this is somewhat likely. However, the fact that suppliers have to continue working with grocery chains after a claim will make such claims relatively rare.

Suppliers interested in bringing claims should check fee schedules of different chains and in comparable markets – e.g. grocery chains in other jurisdictions, or non-grocery distributors of similar products – and compare those to the fees they are being charged.

If grocery chains want to limit this risk, they should also check fee schedules of competitors and in comparable markets,[3] and make sure that all fees charged to suppliers are disclosed in advance with a written explanation.

Property Controls: The Competition Bureau is investigating Loblaws and Sobeys relating to property controls (link). If it chooses not to proceed, then after these amendments, independent grocers could challenge clauses in leases between grocery chains and commercial landlords preventing the latter from leasing to an independent grocer.

If Bill C-59 passes, this is likely. Independent grocers have the most to gain from the amendments, as collectively they give independent grocers a basis to challenge exclusion, a procedural means to bring that claim, and a lower leave standard for doing so.

If grocery chains want to limit this risk, they should review their property controls and attempt to identify purposes for those clauses other than excluding a competitor from the market. If they are unable to do so, they should reconsider those clauses.

Finally, what does all of this mean for consumers? In the short term, probably not much. These amendments are unlikely to reduce retail grocery prices or increase competition. In the longer term, if Bill C-59 passes and once independent grocers start bringing claims, competition might increase a bit, but probably not enough to meaningfully bring down grocery bills. If that was the government’s goal, then it needs to try harder.

At Sotos LLP, our team of experts possesses an unrivalled understanding of the business structure of today’s grocery sector. Whether you wish to understand the implications of Bill C-56 and Bill C-59, assistance in negotiating improved supplier relationships, or strategic advice to enhance your market position, we are here to support you. If you would like to discuss how we can help your business thrive in this highly challenging environment, please contact us.

John Sotos, Sotos LLP

John Sotos is the founding partner of Sotos LLP and a dean of the franchising, licensing and distribution bar. John has been recognized by Chambers Canada, Canadian Legal LEXPERT Directory, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. John can be reached at 416.977.9806 or jsotos@sotos.ca if you would like to discuss this or any other topic relating to the operation of your business.

Adil Abdulla, Sotos LLP

Adil is an associate with Sotos LLP in Toronto. He can be reached at 416.572.7325 or aabdulla@sotos.ca.

[1] See United Brands Company v Commission of the European Union, EU document 61976CJ0027; Unfair pricing in respect of the supply of phenytoin sodium capsules in the UK, case CE/9742-13.
[2] See Bodson v SA Pompes funèbres des régions libérées, EU document 61987CJ0030; Latvijas Autoru apvienība v Konkurences padome, EU document 62016CJ0177.
[3] To be clear, this does not mean that grocery chains can coordinate their fees with competitors. That is still a criminal offence that can result in jail time.

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