



COURT OF APPEAL FOR ONTARIO

CITATION: 1250264 Ontario Inc. v. Pet Valu Canada Inc., 2016
    ONCA 24

DATE: 20160114

DOCKET: C59956

Hoy A.C.J.O., MacFarland and Lauwers JJ.A.

BETWEEN

1250264 Ontario Inc.

Plaintiff
    (Respondent/

Appellant by way of cross-appeal)

and

Pet Valu Canada Inc.

Defendant
(Appellant/

Respondent by way of cross-appeal)

Geoffrey B. Shaw, Derek Ronde and Eric Mayzel, for the
    appellant/respondent by way of cross-appeal

Louis Sokolov and Jean-Marc Leclerc, for the respondent/appellant
    by way of cross-appeal

Heard:  November 3 and 4, 2015

On appeal from the judgment of Justice E. Belobaba of the
    Superior Court of Justice, dated January 7, 2015, 2015 ONSC 29.

Hoy A.C.J.O.:

I

OVERVIEW

[1]

This appeal and cross-appeal arise
    in the context of a class action against a franchisor. The franchisor, Pet Valu
    Canada Inc. (Pet Valu), moved for summary judgment on the 7 common issues
    certified in the class action. The motion judge granted judgment in favour of
    Pet Valu dismissing common issues 1-5. He invited the plaintiff, 1250264
    Ontario Inc. (the plaintiff), to move to amend its statement of claim and add
    an 8th common issue. The plaintiff accepted that invitation and the motion
    judge deferred his decision on common issues 6 and 7 until the plaintiffs
    motion was heard. While the motion judge ultimately dismissed the plaintiffs
    motion to amend and add an 8th common issue on the ground of prejudice, he read
    language into the court-established wording of common issue 6. On the basis of
    the read-in language, he then found that Pet Valu had breached its duty of fair
    dealing under s. 3 of the
Arthur Wishart Act

(Franchise Disclosure), 2000
, S.O. 2000, c. 3
    (the 
AWA
) and answered common
    issues 6(i), (iii) and (iv) in favour of the plaintiff. Common issue 7  damages
     has not yet been determined.

[2]

Pet Valu appeals the motion
    judges decision answering common issues 6(i), (iii) and (iv) in favour of the
    plaintiff. It argues that the motion judge erred by what it characterizes as
    unilaterally and unfairly amending common issue 6. It also argues that the
    motion judge made several errors in finding that it breached s. 3 of the
AWA
. The plaintiff cross-appeals the motion judges dismissal
    of its motion to amend to add an 8th common issue.

[3]

For the reasons that follow, I
    would allow Pet Valus appeal, find in favour of Pet Valu on common issues
    6(i), (iii) and (iv) and dismiss the plaintiffs cross-appeal. Given that I
    would find in favour of Pet Valu on common issues 6(i), (iii) and (iv), there
    is no need to answer common issue 7, which deals with the damages Pet Valu
    would have been required to pay if the plaintiff had succeeded on common issue
    6. In the result, I would dismiss the plaintiffs action against Pet Valu.

[4]

Below, I first set out the
    background, including the events leading to and a summary of the decision under
    appeal. I then proceed to the analysis that leads me to conclude that the motion
    judge did not err in dismissing the plaintiffs motion to amend. Next, I set
    out the analyses leading to my conclusions that the motion judge, in effect,
    improperly amended common issue 6 and erred in concluding that Pet Valu
    breached s. 3 of the
AWA
.

II

BACKGROUND

The Plaintiffs Claim is Certified

[5]

Pet Valu is a wholesaler and
    retailer of pet food, supplies, and related services. It has almost 300
    franchised stores in Canada and almost 300 corporate stores in Canada and the
    United States.

[6]

The plaintiff is a former
    franchisee. He sold his franchise at a considerable profit.

[7]

The plaintiff commenced an action against Pet Valu alleging, among other
    things, that Pet Valu had not shared volume rebates it received from suppliers
    with franchisees. The action was certified as a class action on June 29, 2011.
    The class consists of about 150 former Pet Valu franchisees. In reasons
    released January 14, 2011, the certification judge concluded that the only
    claim advanced by the plaintiff that was appropriate for certification was its
    claim in relation to the volume rebates:
1250264 Ontario Inc. v. Pet Valu
    Canada Inc.
, 2011 ONSC 287, at para. 4.

[8]

The certification judge identified
    the common issues arising out of the plaintiffs volume rebates claim and
    invited the parties to reach appropriate language to express those issues.

The Certification Judge Determines
    the Wording of the Common Issues

[9]

The parties were unable to agree
    upon the wording of the common issues and, after a further hearing, the
    certification judge released reasons on March 28, 2011 defining Volume
    Rebates and setting out the seven common issues in relation to the volume rebates
    claim included in Schedule A to these reasons:
1250264 Ontario Inc.
    v. Pet Valu Canada Inc.
, 2011 ONSC 1941.
    The certification judge wrote, at paras. 3 and 4:

My objective is to state common issues that fairly reflect the
    pleadings, the evidentiary record and the conclusions in my reasons. The common
    issues should be clear, neutrally-worded and fair to both parties. They should
    be phrased in such a way that their answers will advance the litigation.

To serve these ends, the common issues should not be framed in
    overly broad terms. Nor should they be framed in overly narrow terms in a way
    that unreasonably constrains the ability of either party to prove or disprove
    the common issue.

[10]

The
    certification judge added, at para. 8:

In my view, the term should be defined. I used the term
    "Volume Rebates" in my reasons, for convenience and for definitional
    purposes. I made findings, however, at paras. 20 and 21, based on Pet Valu's
    own documentation, that Pet Valu received rebates, allowances, discounts and
    other negotiated price reductions from suppliers. Based on my reasons, and the
    evidence, it seems to me that the following is an appropriate definition that
    includes those items which, on the evidence, were granted to the defendant by
    suppliers and manufacturers as a result of its volume purchasing:

"Volume Rebates" means all
    volume-based rebates, allowances and discounts given by suppliers and
    manufacturers to Pet Valu or its affiliates and includes any direct or indirect
    discounts of the price at which goods are supplied to the Pet Valu system, but
    does not include discounts tied to the performance of individual stores.


The Motion Judge Invites the Plaintiff
    to Move to Amend to Add a Further Common Issue

[11]

Pet Valu brought a motion for
    summary judgment on the seven common issues. Its motion was heard more than
    three years after the proceeding was certified. In the intervening period, a
    different judge assumed responsibility for case management of the class action.

[12]

In the course of that hearing, the
    plaintiff focused on a portion of an affidavit of Pet Valus CEO, Thomas
    McNeely, sworn June 16, 2014. The plaintiff submitted that the affidavit
    disclosed  for the first time  that Pet Valu had little to no purchasing
    power. The plaintiff argued that Pet Valu had misrepresented the nature and
    extent of its purchasing power. The motion judge suggested to counsel that the
    common issues be amended to add a new one, dealing specifically with the
    plaintiffs new focus on purchasing power. Pet Valu did not agree to this
    suggestion. The plaintiff advised that it would move to amend the statement of
    claim and add an 8th common issue dealing with purchasing power.

[13]

The motion judge released reasons
    on October 31, 2014, dismissing common issues 1 through 5:
1250264
    Ontario Inc. v. Pet Valu Canada Inc.
, 2014
    ONSC 6056 (the October Reasons). Common issue 1 asked whether Pet Valu had
    breached its contractual duty to class members by failing to share Volume
    Rebates with them. With respect to this common issue, which the motion judge
    characterized at para. 2 as the core issue, the motion judge wrote, at para.
    29:

I conclude that there were no undisclosed or phantom rebates;
    that all of the Volume Rebates were passed on and shared with the franchisees;
    and that the franchisors mark-ups were not unreasonable.

[14]

Indeed, the motion judge found
    that the average franchisees cost for products was about 15% lower than
    outside distributors prices and that Pet Valu negotiated the best price it
    could obtain and bestowed a range of benefits on its franchisees: at paras. 20
    and 27-28.

[15]

The motion judge indicated that,
    while he was initially of the view that common issues 6 and 7 should also be
    dismissed because common issue 6 was focused on the continuing disclosure under
    s. 3 of the
AWA

of financial information that was arguably
    non-material, he would defer his ruling on them until after the plaintiffs
    motion to amend had been heard and decided.

The Motion Judge Dismisses the Motion
    to Amend

[16]

That further motion was heard on
    December 3 and 4, 2014.

[17]

While the plaintiffs new focus
    at the hearing of the summary judgment motion was on purchasing power, the
    plaintiff proposed to amend its statement of claim to add allegations that Pet
    Valu failed to disclose to its franchisees that it did not possess substantial
    purchasing power and that it did not receive significant volume discounts
    from suppliers. It asked that if its motion to amend were granted, the
    following be certified as common issue 8:

Did the defendant have a duty at common law or pursuant to s. 3
    or s. 5 of the
Arthur Wishart Act
to truthfully disclose to
    franchisees, in the disclosure document, the franchise agreement or otherwise
    during the course of the relationship of the parties, whether it possessed
    substantial or significant purchasing power and whether it received
significant
volume discounts offered by suppliers? 
    [Emphasis added.]

If yes, did it breach its duty or duties?

If yes, what damages or remedies are the class members entitled
    to, if any?

[18]

At the outset of the hearing, the
    motion judge provided an unsolicited draft of what he believed common issue 8
    ought to be:

What I expected:

8. Did the disclosure document contain a misrepresentation
    about the defendants purchasing power or about its ability to receive volume
    discounts for the benefit of its franchisees? If so, did the class members
    suffer a loss? Are the class members entitled to damages under s. 7 of the [
Arthur
    Wishart Act
]?]

[19]

Pet
    Valu opposed the amendment.

[20]

On December 19, 2014, the motion
    judge advised the parties as follows:

I am writing to advise all counsel that I will be releasing my
    decision re the Motion to Amend/ add a new Common Issue in January  the
    decision will DISMISS the plaintiffs Motion to Amend  I would therefore
    invite both sides to make any further submissions re Common Issues 6 and 7 (if
    they wish to do so) within the next two weeks and no later than Monday January
    5.

[21]

Both
    parties made submissions.

[22]

In reasons released January 7, 2015,
    the motion judge dismissed the motion to amend on the ground of prejudice:
1250264
    Ontario Inc. v. Pet Valu Canada
, 2015 ONSC
    29 (the January Reasons). He explained, at para. 11, that the motion was
    prompted solely by the so-called revelation in the 2014 McNeely affidavit that
    Pet Valu has little to no purchasing power. However, the motion judge
    acknowledged, at para. 15, that he had misapprehended the McNeely affidavit: [o]n
    a fair reading of Mr. McNeelys 2014 affidavit, it is clear that he did not
    mean that Pet Valu had little to no purchasing power. The motion judge
    specifically found, at para. 11, that Pet Valu in fact has significant
    purchasing power.

[23]

At paras. 30-33, he explained
    further:

The defendants motion for summary judgment should have been
    concluded in full without this court suggesting and encouraging this motion to
    amend the pleadings and add a new common issue. Absent my judicial
    intervention, the summary judgment motion would have concluded and the
    defendant would likely have prevailed on most of the common issues.

I am therefore satisfied that there is actual prejudice to Pet
    Valu in respect of the proposed amendments and new common issue.
Pet Valu was in a position to obtain complete summary judgment
    on the existing common issues
as well as a probable cost award against
    the representative plaintiff. This would have ended the litigation. The
    representative plaintiff (a defunct corporation) likely has no assets that can
    satisfy a judgment

I am now satisfied that the last minute addition of a pleadings
    motion that adds a new common issue at the end of the summary judgment hearing
    tilts the class proceeding in the plaintiffs favour

The motion is therefore dismissed solely on the ground of
    prejudice. [Emphasis added.]

The Motion Judge Reads Language
    into Common Issue 6

[24]

As I have indicated above, the
    motion judge ultimately read additional language into common issue 6, as framed
    by the certification judge. For ease of reference, common issues 6(i), (iii)
    and (iv) are set out below. The language the motion judge read into common
    issue 6(i) is emphasized:

6. Did [Pet Valu] have a duty at common law to the Class
    Members or under section 3 of the [
Arthur Wishart Act
] to the Ontario
    Class Members to disclose the following information to the Class Members or to
    some of them, and if so, did it breach such duty:

(i) whether [Pet Valu] or its affiliates receives Volume
    Rebates [
received a significant level of Volume Rebates
]
in respect of purchases which are made by [Pet Valu] or its affiliates for
    wholesale to the Class Members;

(iii) the amount of Volume Rebates received by [Pet Valu] or
    its affiliates during the Class Period;

(iv) the amount of Volume Rebates retained by [Pet Valu] or
    its affiliates and the amount, if any, that was shared with Class Members  ?

[25]

The motion judge explained his
    reason for modifying common issue 6(i) at para. 60 of the January Reasons:

Strictly speaking, the question in 6(i) does not ask whether
    the franchisor received significant volume discounts offered by suppliers
    (the language in proposed Common Issue 8) but whether the franchisor receives
    volume rebates. In my view, however, 6(i) should be interpreted as also asking
    if significant volume discounts were received by the franchisor. I say this
    for two reasons. First, counsel for Pet Valu have taken this position in their
    factum  that the question about significant volume discounts in Common Issue
    8 duplicates existing Common [Issue] 6 and that Pet Valu should not have to
    face repetitive common issues. Secondly, the more reasonable interpretation of
    Common Issue 6(i) in the context of this litigation is whether Pet Valu
    received a meaningful or significant measure of volume discounts and not just
    whether they received
any
amount, however meager.

[26]

The motion judge did not advise
    the parties before releasing his reasons that he was contemplating reading
    additional language into common issue 6(i).

The Motion Judge Finds that Pet
    Valu Breached Common Issue 6(i)

[27]

Common issue 6 asks whether Pet
    Valu breached a duty at common law or under s. 3 of the
AWA
to make disclosure regarding volume rebates to the
    franchisees. Sections 3(1) and (3) of the
AWA
provide as follows:

3. (1) Every franchise agreement imposes on each party a duty
    of fair dealing in its performance and enforcement.



(3) For the purpose of this section, the duty of fair dealing
    incudes the duty to act in good faith and in accordance with reasonable
    commercial standards.

[28]

The motion judge examined the
    disclosure document provided to, and the form of franchise agreement signed by,
    the franchisees. While Pet Valu did not explicitly represent that it would
    receive significant volume rebates from suppliers, the motion judge found it
    had made such a representation: January Reasons, at paras. 24-25, 44-47 and 55.

[29]

The motion judge also found, at
    para. 48, that the fact that the volume discounts were, in his words,
    virtually non-existent was a material fact as defined in the
AWA
. (Section 5 of the
AWA
requires the franchisor to disclose material facts
    in a disclosure document that must be provided to a prospective franchisee
    before it signs the franchise agreement or any agreement relating to the
    franchise agreement or pays any consideration to the franchisor or its
    associates. If it fails to do so, the franchisee may rescind the franchise
    agreement pursuant to s. 6. The franchisee may also sue the franchisor for
    damages under s. 7(1) if it suffers a loss because of the franchisors failure
    to comply in any way with s. 5. The common issues that were ultimately
    certified in relation to volume rebates did not ask if Pet Valu breached its
    disclosure obligations under s. 5 or whether the class members were entitled to
    rescind the franchise agreement or to damages under s. 7.) And, the motion
    judge found, the fact that Pet Valu did not receive significant volume
    discounts was not disclosed to franchisees until August, 2012  well into the
    litigation: at para. 49.
[1]
The motion judge wrote that the plaintiff tried to obtain this information
    before commencing this lawsuit but was rebuffed.
[2]


[30]

The motion judge concluded, at
    para. 56, that Pet Valu had breached s. 3 of the
AWA
:

In performing its contractual obligation to share volume discounts
    on a reasonable basis, Pet Valu had to track and record the volume discounts
    and share or pass them on to the franchisees by way of pricing reductions.
    These pricing benefits, including information about the level of volume
    discounts were, to say the least, important to the franchisees. By hiding or
    refusing to disclose information about the virtual non-existence of volume
    discounts  information that was material to the matters ultimately contracted
    for in the franchise agreement and was clearly related to the performance of
    this agreement  Pet Valu did not deal fairly or in good faith with its
    franchisees.

[31]

Although the motion judge began
    his analysis at para. 41 by explaining that s. 3(1) is a codification of the
    common law, he ultimately held that a franchisors duty under s. 3 of the
AWA
is broader than its common law duty, as that duty was
    articulated by the Supreme Court in
Bhasin v. Hrynew
, 2014 SCC 71, [2014] 3 S.C.R. 494. The court in
Bhasin
, at para. 73, held that the common law duty of
    honesty in the performance of contractual agreements does not impose a duty of loyalty
    or disclosure. Instead, the duty imposes on the parties a simple requirement
    not to lie or mislead the other party about ones contractual performance. The
    motion judge distinguished this case from
Bhasin

on the
    basis that
Bhasin

dealt with good faith in the common law and not in the
    context of franchise relationships and the special considerations that arise
    under s. 3 of the
AWA
.

[32]

The motion judge held, at para.
    58, that, in a franchise context, a breach of s. 3 of the
AWA
can be found if a franchisor fails to disclose
    important and material facts that relate to the ongoing performance of the
    franchise agreement. For this proposition, he relied on
Salah v.
    Timothys Coffees of the World Inc.
,
2010 ONCA 673, 268 O.A.C. 279;
1159607
    Ontario Inc. v. Country Style Food Services Inc.
,
2012
    ONSC 881, 2 B.L.R. (5th) 315, affd 2013 ONCA 589;
Burnett
    Management Inc. v. Cuts Fitness for Men
, 2012
    ONSC 3358, 4 B.L.R. (5th) 234 and
1
323257 Ontario Ltd. v.
    Hyundai Auto Canada Corp.
(2009)
, 55 B.L.R. (4th) 265 (Ont. S.C.). He distinguished
Spina
    v. Shoppers Drug Mart Inc.
, 2012 ONSC 5563,
    saying that
Spina
only held that
    s. 3 does not impose disclosure obligations for routine or non-material
    information.

III

DID THE MOTION JUDGE ERR IN DISMISSING THE PLAINTIFFS MOTION TO AMEND
    AND ADD AN 8TH COMMON ISSUE?

[33]

The plaintiff advances two
    arguments in support of its cross-appeal.

[34]

First, it argues that the motion
    judge was obviously incorrect in finding prejudice on the basis that, but for
    the motion judges intervention, Pet Valu was in a position to obtain complete
    summary judgment on the existing common issues. This, it says, was demonstrated
    by the motion judges subsequent ruling in the plaintiffs favour on common
    issue 6.

[35]

Second,
    it argues that neither the motion judges intervention nor the late timing of
    the motion constituted prejudice warranting a refusal to amend. It says that
    class proceedings evolve as they work their way through the certification and
    case management process and  the case management judge plays an important role
    in guiding the evolution of the proceeding:
Brown v. Canada (Attorney
    General)
, 2013 ONCA 18, 114 O.R. (3d) 355, at para. 45. And, it submits, a
    plaintiff may even reformulate the class definition and common issues on
    appeal, provided there is no procedural unfairness to a defendant:
Keatley
    Surveying Ltd. v. Teranet Inc.
, 2015 ONCA 248,
125 O.R. (3d) 447,
at paras. 23-24.

[36]

I reject these arguments.

[37]

As I explain below, the motion
    judges conclusion on common issue 6 was founded on what was effectively an
    impermissible amendment of that common issue. The motion judge recognized that,
    but for his suggestion that the plaintiff move to amend its pleadings and add
    an 8th common issue, Pet Valu was in a position to obtain complete summary
    judgment on the common issues as well as a probable cost award. I agree with
    the motion judge that, in the circumstances, allowing the plaintiff to amend
    its statement of claim and add an 8th common issue would have caused an
    injustice to Pet Valu, not compensable in costs.

[38]

While the case management judge in
    a class proceeding unquestionably plays an important (and challenging) role in
    guiding the evolution of the proceeding, that role does not permit him to
    descend into the arena and make a suggestion at the conclusion of an otherwise
    dispositive summary judgment motion as to how a plaintiff might improve its
    position. The motion judge acknowledged this when he dismissed the plaintiffs
    motion to amend: January Reasons, at para. 32.

[39]

Brown
does not assist the
    plaintiff. In
Brown
, the class
    proceeding case management judge found that the current pleading did not
    disclose a cause of action for breach of fiduciary duty or negligence. However,
    he identified how such claims might be pleaded, granted the plaintiffs leave to
    amend, and certified the action, subject to the plaintiffs amending their
    statement of claim in accordance with his framing of the questions. This court
    agreed with the Divisional Court that the class proceeding case management
    judge erred in conditionally certifying the class action in the absence of a
    statement of claim that disclosed a cause of action. The effect of his doing so
    was to deprive the defendants of the opportunity to meaningfully respond to the
    application for certification.

[40]

Following the passage in
Brown
that the plaintiff quotes, the court stated that, in
    the class action context, the power to amend the statement of claim and other
    aspects of the claim, such as the proposed common issues, should be exercised
    with caution and restraint: at para. 45. When the amendment is sought at the
    conclusion of an otherwise dispositive summary judgment motion, even greater
    caution and restraint is called for.

[41]

Nor does
Keatley
assist the plaintiff. In that case, this court was
    asked to determine whether the Divisional Court erred in considering revised
    proposals for certification that differed from those presented before the
    certification judge. The court concluded that it did not. The changes proposed
    by the plaintiff did not fundamentally [change] the nature of the case
    presented  in a way that would prejudice [the defendant] and the defendant
    was not at any procedural disadvantage in arguing the point. It was given an
    opportunity to respond. The court held that, on an appeal from an unsuccessful
certification motion
,
the
    appeal court could consider a revised class definition and revised proposed
    common issues if the changes did not cause the defendant any prejudice or
    disadvantage that could not be compensated for by costs.

[42]

Keatley
therefore stands
    for the proposition that, at an appeal at the certification stage, a plaintiff should
    have some latitude to recast its case to make it more suitable for
    certification, provided that the defendant is afforded procedural fairness.

[43]

The
    circumstances of this case differ materially from those in
Keatley
. In
    this case, the motion judge found that allowing a pleadings amendment and the
    addition of the newly proposed common issue 8 would cause actual prejudice to
    Pet Valu that was not compensable in costs: January Reasons, at paras. 29-32. I
    agree. As discussed above,
the motion to amend was
    prompted by the motion judge more than three years after certification and
    followed the hearing of a summary judgment motion. A
bsent the motion
    judges intervention to suggest the adding of a new common issue  which was
    based on his misunderstanding of the 2014 McNeely affidavit  the litigation
    would have concluded and the defendant would have been in a position to obtain
    complete summary judgment on the existing common issues. Certifying a new
    common issue that was fundamentally different than the issues certified more
    than three years before would have been fundamentally unfair to Pet Valu.

[44]

Accordingly, the motion judge did
    not err in denying the plaintiffs motion to amend its statement of claim and
    add an 8th common issue.

IV

DID THE MOTION JUDGE ERR IN INTERPRETING 6(i) AS ALSO ASKING IF
    SIGNFICANT VOLUME DISCOUNTS WERE RECEIVED BY THE FRANCHISOR?

[45]

For several reasons, I conclude
    that the answer to the above question is yes and I would allow the appeal on
    this basis alone.

[46]

As I have set out above, the
    precise wording of common issue 6(i) was determined by the certification judge
    after submissions by the parties and after careful consideration.

[47]

The addition of the words
    significant volume discounts was material. They parrot the significant
    volume discount language in the rejected proposed amendments to the statement
    of claim and the proposed common issue 8. The addition of these words was
    tantamount to an amendment of common issue 6(i).

[48]

In the absence of certified common
    issues asking whether Pet Valu represented to franchisees that Pet Valu
    received significant volume discounts and breached that representation, and
    whether Pet Valu had breached its disclosure obligations under s. 5 of the
AWA
, the motion judge used these words to justify those
    very inquiries. Then, he seemingly equated non-disclosure of the breach of that
    representation to unfair dealing by Pet Valu in the performance of the
    franchise agreement to find a breach of s. 3 of the
AWA
. The motion judge himself acknowledged that, had he
    not intervened to suggest the adding of a new common issue (or, in other words,
    had he not read these words into common issue 6(i) and proceeded on the basis
    of the common issue as originally worded), the summary judgment motion would
    have concluded and Pet Valu likely would have succeeded on the summary judgment
    motion: at paras. 30-31.

[49]

Most significantly, the motion
    judge recast common issue 6(i) on his own initiative, following the completion
    of the summary judgment motion, without advising Pet Valu that he proposed to
    make this change and affording Pet Valu the opportunity to make submissions. In
    effect, he gave judgment on an issue that was never certified. Doing so was
    fundamentally unfair to Pet Valu.

[50]

At para. 60 of the January Reasons,
    the motion judge provides a summary of a submission by Pet Valu, at para. 85 of
    its responding factum, opposing the plaintiffs motion to amend:  the question
    about significant volume discounts in Common Issue 8 duplicates existing Common
    [Issue] 6. The motion judge then relied on this as one of two reasons for
    interpreting common issue 6(i) in the manner that he did.

[51]

The submission at issue read as
    follows: [t]he reference to a duty of disclosure regarding volume discounts
    duplicates existing common issues #6 and 7. Common issue 6 asks if Pet Valu
    had a duty to disclose whether it received Volume Rebates (6(i)) and the amount
    of Volume Rebates received 6(iii)).  There is overlap, but the motion judges
    addition of the words significant volume discounts to common issue 6 had
    reaching implications that Pet Valu could not reasonably have anticipated. Pet
    Valus submissions would undoubtedly have been different if it were addressing
    a proposed change to the language of common issue 6, and not the proposed
    addition of another common issue.

[52]

Moreover,
    if the parties had the opportunity to make submissions, the effect of the
    addition of the words would also have been explored. Proceeding in the manner
    the motion judge did deprived him of the benefit of the parties submissions on
    the theory of liability he adopted in his reasons. It was not tested in the
    crucible of the adversarial process:
Labatt Brewing Company Limited v. NHL
    Enterprises Canada
, L.P., 2011 ONCA 511,
106
    O.R. (3d) 677,
at para. 6, citing
Rodaro v. Royal Bank of Canada

(2002), 59 O.R. (3d) 74 (C.A.).  And, as I conclude below, the motion
    judges theory of liability was flawed.

V

DID THE MOTION JUDGE ERR IN CONCLUDING THAT PET VALU BREACHED S. 3 OF
    THE
AWA
?

[53]

I have explained that the motion
    judge erred (i) by considering whether Pet Valu had represented to franchisees
    that Pet Valu received significant volume discounts and had breached that
    representation and (ii) by effectively considering whether Pet Valu breached
    its disclosure obligations under s. 5 of the
AWA
in the absence of certified common issues asking
    those questions and in the absence of submissions by the parties on those
    issues. His conclusion that Pet Valu breached s. 3 of the
AWA
is rooted in a breach of what he found was a
    representation that Pet Valu received significant volume discounts and an
    effective breach of s. 5 of the
AWA
.  For that reason alone, it cannot stand.

[54]

I will not comment on the motion
    judges case-specific finding that the franchise agreement contained a
    representation that Pet Valu received significant volume discounts. For the
    purpose of the discussion that follows, whether his interpretation was correct
    or not is immaterial. (I say correct because in these circumstances I would
    not accord his interpretation deference.)

[55]

Nor will I address the palpable
    and overriding errors that Pet Valu alleges the motion judge made in finding:
    (a) that Pet Valu rebuffed the plaintiffs request for information; (b) that
    volume rebates were meagre; and (c) that the fact that Pet Valu did not
    receive significant volume-based benefits from its suppliers was  in the
    context of the benefits that the motion judge found the franchisor did provide
     a material fact as defined in the
AWA
.

[56]

I will however comment, briefly,
    on the motion judges conclusion that Pet Valu breached s. 3 of the
AWA
.  In my view, even if the motion judge were correct
    in finding that Pet Valu represented to franchisees that it received
    significant volume discounts in disclosure documents or the franchise agreement,
    he cast the net of s. 3 too widely.

[57]

Section 3(1) of the
AWA
imposes a duty of fair dealing on the franchisor in
    the performance and enforcement of the franchise agreement. Assuming, but not
    deciding that, post-
Bhasin
,
    non-disclosure by a franchisor in the course of the performance or enforcement of
    the franchise agreement can constitute a breach of s. 3 of the
AWA
, the non-disclosure in this case did not amount to
    such a breach.

[58]


Salah
and
Country Style
, on which the motion judge relied, involved
    deliberate non-disclosure by the franchisor regarding the status of the lease
    for the franchisees premises in the context of the contractually-provided for
    renewal of the franchise. In both cases, the franchisors conduct arose
    squarely within the performance of the franchise agreement.

[59]

In my view, the same cannot be
    said in this case.  If indeed material, the information that the motion judge
    found Pet Valu should have disclosed was information that should have been disclosed
before
the
    appellants became franchisees. The motion judge did not imply a contractual
    obligation to provide ongoing disclosure regarding the level of volume
    discounts (and I see no basis in the franchise agreement or
disclosure
document for doing so.) And there was no indication
    that non-disclosure once the appellants 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?

[60]

This case is more like
Spina
. In
Spina
, Perell J. found that it was plain and obvious that what he
    characterized as a pre-litigation oriented duty of disclosure went well
    beyond the scope of s. 3. The franchisee alleged that the franchisor breached
    s. 3 of the
AWA
by failing to
    disclose financial information necessary for the franchisees to verify whether
    the franchisor was meeting its obligations under the franchise agreement.
    Perell J. wrote at para. 218:

The Plaintiffs would require [the franchisor] to provide
    information to verify that it has not breached the [agreement], with the
    Plaintiffs themselves defining what is or is not a breach of the [agreement].

[61]

Here, the motion judge effectively
    found that Pet Valu had breached s. 3 of the
AWA
by failing to disclose information necessary for the
    appellants to verify whether or not Pet Valu had breached a representation
    under the franchise agreement that Pet Valu received significant volume
    discounts. It is akin to the pre-litigation oriented duty of disclosure
    rejected in
Spina
.


[62]

Nor would I characterize a failure
    to include all material facts in a disclosure document as unfair dealing in the
    performance of a franchise agreement. A material fact is defined in s. 1(1)
    of the
AWA
as follows:

material fact includes any information about the business,
    operations, capital or control of the franchisor or franchisors associate, or
    about the franchise system, that would reasonably be expected to have a
    significant effect on the value or price of
the franchise
    to be granted or the decision to acquire the franchise.
[Emphasis added.]

[63]

The franchisor is required to
    provide a disclosure document
before

the prospective franchisee
    signs the franchise agreement and to disclose any material change:
AWA
, s. 5. Moreover, ss. 6 and 7 of the
AWA
provide specific remedies for the franchisors
    failure to comply with s. 5.

[64]

I turn now to the disposition in
    this case.

VI

DISPOSITION AND COSTS

[65]

As I indicated at the outset of
    these reasons, I would dismiss the plaintiffs cross-appeal and allow Pet
    Valus appeal. I would also find in favour of Pet Valu on common issues 6(i),
    (iii) and (iv). There is therefore no need to answer common issue 7, which asks
    what, if any, damages Pet Valu is required to pay if it breached the duties
    which are the subject of common issue 6. In the result, I would dismiss the
    plaintiffs action against Pet Valu.

[66]

The motion judge indicated in the
    January Reasons that, but for his suggestion that the plaintiff move to amend its
    pleadings and add an 8th common issue (or, in other words, if he had considered
    common issue 6 as it was originally worded), Pet Valu was in a position to
    obtain complete summary judgment. In the October Reasons, at paras. 33-36, he
    indicated that, if s. 3 of the
AWA
could be used to compel ongoing disclosure, it could only be used to
    compel disclosure of material information. In the context of his finding that
    Pet Valu franchisees benefited from materially lower product pricing, he
    characterized information such as whether Pet Valu received Volume Rebates and
    the amount of those rebates as arguably non-material.

[67]

In the circumstances, it is
    unnecessary to return common issues 6(i), (iii) and (iv) to the motion judge
    for determination. As will be apparent from my comments above in relation to s.
    3 of the
AWA
, I agree with the
    motion judges initial view, based on the common issues as originally framed, that
    Pet Valu did not have a duty under s. 3 to disclose whether it received Volume Rebates,
    the amount of Volume Rebates it received or the amount that it shared with
    franchisees. Section 3 imposes a duty of fair dealing on the franchisor in the
    performance and enforcement of the franchise agreement. If, post-
Bhasin
, non-disclosure can breach s. 3, it did not do so in
    this case. The disclosure at issue was not withheld in bad faith in connection
    with Pet Valus performance or enforcement of the franchise agreement.

[68]

I would award Pet Valu its costs
    of the appeal and cross-appeal, fixed in the amount of $25,000, inclusive of
    disbursements and HST. Counsel advised that costs below have not yet been
    fixed. They should be fixed by the motion judge, having regard to these
    reasons.

Released: AH  JAN 14 2016

Alexandra Hoy
    A.C.J.O.

I agree J.
    MacFarland J.A.

I agree P. Lauwers
    J.A.


SCHEDULE A

Certified Common Issues

1.
Has the defendant breached its contractual duty to the
    Class Members at any time during the Class Period by failing to share Volume
    Rebates with them?

2.
If the answer to common issue # 1 is yes, has the
    defendant breached its contractual duty to the Class Members at any time during
    the Class Period by:

(a)
charging a mark-up on private label products without
    giving Class Members credit for their proportionate share of Volume Rebates in
    respect of such products?

(b)
imposing a distribution charge on the price of products
    without giving Class Members credit for their proportionate share of Volume
    Rebates in respect of such products?

3.
Has the defendant breached the duty of fair dealing to
    the Ontario Class Members under section 3 of the
Arthur Wishart Act
    (Franchise Disclosure) 2000
, S.O. 2000, c. 3 (the A.W.A.) by any of the conduct
    described in common issues 1 and 2 above, if so found?

4.
If the conduct described in common issues 1 and 2 above
    did not constitute a breach of the Franchise Agreement, has the defendant been
    unjustly enriched by such conduct, if so found?

5.
What is the aggregate amount of damages for the breaches
    of any of the duties referred to in common issues 1, 2 and 3 above, or the
    aggregate amount of compensation for unjust enrichment, if so found?

6.
Did the defendant have a duty at common law to the Class
    Members or under section 3 of the A.W.A. to the Ontario Class Members to
    disclose the following information to the Class Members or to some of them, and
    if so, did it breach such duty:

(i)
whether the defendant or its affiliates receives Volume
    Rebates in respect of purchases which are made by the defendant or its
    affiliates for wholesale to the Class Members;

(ii)
the defendants policy in respect of the allocation of
    Volume Rebates to Class Members and, in particular, whether the defendant
    complied with sections 22(e) and (f) and 23(c) of the Franchise Agreement;

(iii)
the amount of volume rebates received by the defendant or
    its affiliates during the Class Period;

(iv)
the amount of Volume Rebates retained by the defendant or
    its affiliates and the amount, if any, that was shared with Class Members;

(v)
the criteria that were used by the defendant to determine
    how much of the Volume Rebates were retained and how much, if any, were shared
    with the Class Members?

7.
If the answer to common issue 6 is yes, is the plaintiff
    entitled to an order requiring the defendant to disclose such information
    forthwith and what damages, if any, is the defendant required to pay for the
    breach of such duty?





[1]
In his affidavit of August 3, 2012 in connection with the summary judgment
    motions, Mr McNeely deposed that Pet Valu did not receive significant volume
    based benefits from its suppliers. At the time, the issue was the plaintiffs
    alleged entitlement to volume-based benefits. Pet Valus position was that it
    was not required to pass on volume-based benefits to its franchisees, but in
    fact did so.




[2]
In a letter to Pet Valu dated November 4, 2009, the plaintiff expressed concern
    about the return on its investment. It asserted that Pet Valu was obligated to
    share volume discounts with it and sought disclosure, within 14 days, of, among
    other things, the amount of volume discounts that Pet Valu had received. It
    alerted Pet Valu to the possibility of litigation. Pet Valu disputes that it
    rebuffed the plaintiffs attempts to obtain information and points to a
    responding letter it sent on December 1, 2009, setting out that it needed more
    time to gather the information due to a recent change in company ownership and
    that it was willing to discuss any issues raised in the November 4 letter on an
    ongoing basis. The plaintiff issued its statement of claim in the class action
    eight days later on December 9, 2009.


