Jul 10, 2017

[Cronk, van Rensburg and Pardu JJ.A.]

Counsel:

D. Sterns, Al. D.J. Dick, A. Seretis, B. Finlay Q.C., M. Vermette and M. Statham, for the appellant/respondent by cross-appeal Trillium Motor World Ltd.

K. Thomson, J. McCamus, S. R. Campbell, S. L. Weingarten, D. S. Morritt and K. Sachar, for the respondent/appellant by cross-appeal General Motors of Canada Limited

Keywords: Franchise Law, Arthur Wishart Act (Franchise Disclosure), 2000, section 11, 1518628 Ontario Inc. v. Tutor Time Learning Centres, LLC, 2006 CanLII 25276 (S.C.), Contracts, Enforcability, Public Policy, Class Proceedings, Class Proceedings Act, section 31(2), Costs

Facts:

This is the first of two appeals and cross-appeals that arose out of the public bailout of General Motors of Canada (“GMCL”) in the spring of 2009. This decision addresses a class action against GMCL brought by franchisees whose dealerships were terminated as part of the bailout, and a counterclaim by GMCL against the franchisees.

GMCL became insolvent in May 2009. To survive and avoid proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-26 (“CCAA”), it required bailout money. The Canadian and US governments demanded that GMCL aggressively restructure as a condition of providing the assistance. On May 20, 2009, GMCL delivered Wind-Down Agreements (“WDAs”) to 240 dealers. The WDAs offered payment in exchange for a release of all claims, including those that could be advanced under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000 c. 3 (the “Act”), and provided for an end to the dealers’ business relationships with GMCL.

The WDAs also contained a promise by the signing dealer not to sue GMCL. They required the dealer to opt out of or disclaim any interest in any future class proceeding that purported to assert claims released by the WDAs. They required any dealer who failed to opt out to indemnify GMCL against any damages and legal costs GMCL might subsequently incur by defending a class proceeding.

202 out of the 240 dealers signed the WDAs and accepted the payment offered. After GMCL made its final payments, a class proceeding was brought on behalf of all dealers who signed the WDAs, claiming that GMCL breached the rights provided to these franchisees under the Act. The appellant Trillium Motor World Ltd. (“Trillium”) was named as the representative plaintiff.

The trial judge held that GMCL acted honestly and fairly and did not breach the dealers’ rights under the Act. He further held that the releases barred the dealers’ class proceeding. Trillium appealed these rulings. The trial judge also concluded that the dealers’ promises not to sue GMCL, and to indemnify GMCL should a dealer fail to opt out of class proceedings were void on public policy grounds. GMCL cross-appealed on this ruling.

At trial, the arguments turned on whether the WDAs were settlement agreements and therefore fell within the judicially-developed exception to the application of s. 11 of the Act articulated in 1518628 Ontario Inc. v. Tutor Time Learning Centres, LLC, 2006 CanLII 25276 (S.C.) (“Tutor Time”). Section 11 of the Act provides that “any purported waiver or release by a franchisee of a right given under this Act or of an obligation or requirement imposed on a franchisor or franchisor’s associate by or under this Act is void”.

Issues:

(1) Did the trial judge err by failing to consider the remedial purposes of the Act in finding that the releases were operative?

(2) Did the trial judge err by applying the Tutor Time exception to this case?

(3) Did the trial judge err by not finding that GMCL breached its duty of fair dealing as a result of the manner in which it obtained the releases?

(4) Were the covenants not to sue and indemnify void for public policy reasons?

(5) If so, is the trial judge required to find the whole release void for public policy reasons?

Holding: Appeal dismissed. Cross-appeal dismissed.

Reasoning:

(1) No. The trial judge explicitly stated that the “overarching purpose” of the Act is to “mitigate and alleviate the power imbalance that exists between franchisors and franchisees”. The perilous financial circumstances that GMCL faced at the time were an important part of the factual context. In addition, GMCL also owed duties to the dealers who did not sign WDAs.

(2) No. According to Tutor Time, a voluntarily-negotiated settlement of existing statutory claims, entered into with the benefit of legal advice, in settlement of a dispute for existing and known breaches of the Act is not caught by s. 11 of the Act. A settlement is a voluntary arrangement that brings a dispute or potential dispute to an end: Data General Canada Ltd. v. The Molnar Systems Group Inc. (1991), 6 O.R. (3d) 409 (C.A.), at p. 415. The Court of Appeal agreed with the trial judge’s conclusion that the release in this case characterized the WDA document as a settlement. Furthermore, each dealer who signed a WDA obtained legal advice and knew that they were giving up any legal claims they might have against GMCL.

(3) No. The trial judge held that GMCL did not breach the duty of dealing fairly with the terminated dealers when presenting them with the WDAs. That conclusion was reasonably open to him and the Court of Appeal found no basis to intervene.

(4) Yes. The difference in treatment between individual litigants and members of a class is expressly contemplated by s. 31(2) of the Class Proceedings Act, 1992, S.O. 1992 c. 6. Class members, other than the representative party, are not liable for costs except with respect to the determination of their own individual claims. GMCL’s counterclaim is, in essence, a claim for reimbursement of its costs in defending the class proceeding. Given that the legislature has adopted a policy that class members are not liable for costs, the Court of Appeal saw no error in the trial judge’s conclusion that public policy barred enforcement of the covenant not to sue.

(5) No. The trial judge held that the Tutor Time exception applied, and he favoured the public policy of giving effect to settlements of known and existing claims reached with the benefit of legal advice. The dealers who signed the WDAs were enriched by execution of the agreements; they received payments to which they would not have been otherwise entitled. The Court of Appeal did not identify any palpable and overriding error in the trial judge’s conclusion that, although the release was valid, the covenant not to sue was void and severable.

Accordingly, the Court of Appeal dismissed the appellant’s appeal and the respondent’s cross-appeal.