Lexpert Magazine

34 LEXPERT MAGAZINE | JUNE 2016 BIG SUITS 1250264 ONTARIO INC. AND PET VALU CANADA INC. DECISION DATE: JANUARY 14, 2016 On January 14, 2016, the Ontario Court of Appeal dismissed a $100 million class action brought against Pet Valu Canada Inc. by its former franchisee. is class action was certified in 2011 with a focus on the issue of whether Pet Valu was contractually obligated to share volume re- bates with its franchisees and, if so, whether it breached that duty. In October 2014, Pet Valu obtained sum- mary judgment dismissing five of the seven certified common issues, dealing primarily with those contractual issues. e remaining common issues related to (a) whether Pet Valu breached the duty of good faith and fair dealing under s. 3 of the Arthur Wishart (Franchise Disclosure) Act, 2000 (Wishart Act) by failing to disclose information concerning volume rebates to franchisees (common issue 6) and (b) any damages that would result from this (com- mon issue 7). In January 2015, the motion judge granted summary judgment in favour of the plaintiff on common issue 6. Pet Valu appealed. On January 14, 2016, the Ontario Court of Appeal found in favour of Pet Valu on its appeal, and dismissed the action against it. e Court of Appeal held that the motion judge's ruling against Pet Valu effectively "gave judgment on an issue that was never certified" and that doing so was "fundamen- tally unfair to Pet Valu." e certified language of the common is- sue in question asked, among other things, whether Pet Valu had a duty under com- mon law or s. 3 of the Wishart Act (the duty of good faith and fair dealing) to disclose to class members whether Pet Valu or its affili- ates received volume rebates from suppliers. e motion judge interpreted the com- mon issue so as to read into it the words "a significant level of " volume rebates. e Court of Appeal held that the addi- tion of these words was "tantamount to an amendment" of the common issue. Notably, the motion judge recast the com- mon issue aer the completion of the sum- mary judgment motion, without advising Pet Valu or affording it the opportunity to make submissions. e Court of Appeal empha- sized that parties must have the opportunity to make submissions on a theory of liability, in order to ensure that it is "tested in the cru- cible of the adversarial process." e Court held that the information that the motion judge found Pet Valu should have disclosed did not relate to the performance or enforcement of the franchise agreement, which is a requirement under s. 3 of the Wis- hart Act. Rather, it was information that, "if indeed material," should have been disclosed before the plaintiff became a franchisee. is is different from cases involving deliberate non-disclosure by a franchisor relating to a contractually-provided for renewal right of a franchisee, which, the Court held, "arose squarely within the 'performance' of the franchise agreement." e Court held that s. 3 of the Wishart Act does not include a duty to disclose in- formation necessary for franchisees to verify whether a franchisor is meeting its obliga- tions under a franchise agreement, which has been previously characterized as a "pre-litiga- tion oriented duty of disclosure," and found that the motion judge erred on that basis. Further, a franchisor's failure to include all material facts in a disclosure document does not constitute unfair dealing in the performance of a franchise agreement. e franchisor is required to provide a disclosure document before a prospective franchisee signs a franchise agreement, and the Wishart Act provides specific remedies for a failure to comply with that obligation. Lastly, there can be no breach of the duty of good faith where an alleged non-disclosure has not adversely affected franchisees. e Court held: "And there was no indication that non-disclosure once the [class members] became franchisees adversely affected them in any way. How, then, can Pet Valu be said to have not dealt fairly or in good faith in the performance of the franchise agreement?" e Court of Appeal also upheld the mo- tion judge's dismissal of the plaintiff 's mo- tion to amend its statement of claim and add new common issues. At the time the plaintiff brought the motion, Pet Valu was "in a posi- tion to obtain complete summary judgment on the common issues as well as a probable cost award." In the circumstances, allowing the amendment would have caused an injus- tice to Pet Valu not compensable in costs. e class is seeking leave to appeal to the Supreme Court of Canada. Cassels Brock & Blackwell LLP acted for Pet Valu Canada Inc. with a team that included Geoffrey Shaw, Derek Ronde and Eric Mayzel with the assistance of Rob Klig- man and Kate Byers. Sotos LLP acted for 1250264 Ontario Inc. with a team that included Louis Sokolov and Jean-Marc Leclerc. RE U.S. STEEL CANADA INC. DECISION DATE: FEBRUARY 29, 2016 On February 29, 2016, the Ontario Superior Court of Justice released a decision confirm- ing claims by United States Steel Corpora- tion (USS) in the aggregate amount of over $2 billion in the ongoing insolvency proceed- ing of U.S. Steel Canada Inc. (USSC). Two principal issues were addressed by the Court. First, whether amounts advanced by USS to USSC (USS's indirect wholly owned subsidiary) were properly characterized as debt obligations or "equity claims" under the Companies' Creditors Arrangement Act (Can- ada). Second, whether certain secured claims were unenforceable for lack of consideration or void as fraudulent preferences under the Bankruptcy and Insolvency Act (Canada). Certain stakeholders of USSC objected to the treatment of the USS claims as debt, asserting that such claims were in substance equity claims for CCAA purposes. e ob- jectors also challenged the validity of USS's secured claims. A trial regarding the determination of A LOOK AT THE ONTARIO COURT OF APPEAL DECISION PET VALU, IN WHICH THE COURT DISMISSED THE ACTION BROUGHT AGAINST PET VALU CANADA BY ITS FORMER FRANCHISEE; AND THE DECISION RE U.S. STEEL CANADA INC., IN WHICH THE COURT CONFIRMED CLAIMS IN THE ONGOING INSOLVENCY PROCEEDINGS OF U.S. STEEL CANADA

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