In a recent decision in a franchisee class proceeding, Zwaniga v. Johnvince Food Distribution, Justice Perell of the Ontario Superior Court of Justice clarified the definition of a “franchisor’s associate” under the Ontario franchise legislation, the Arthur Wishart Act (Franchise Disclosure), 2000 (the “Act”). 

Background

In this action, David and Jennifer Zwaniga, the representative plaintiffs, commenced a proposed class action against Revolution Food Technology Inc. (“Revolution”), a vending machine distributor, and Johnvince Foods Distribution L.P (“Johnvince”), which is a vendor of candies and confections and the distributor of Planters peanuts in Canada.

Johnvince brought a motion for summary judgment dismissing the claims against it on the ground that Johnvince was not a partner, joint venturer or “franchisor’s associate” of Revolution.  Perell J. ultimately agreed with Johnvince’s submissions, despite the existence of a close commercial relationship between Johnvince and Revolution.

Johnvince was a supplier of various food products, including Planters peanuts, for Revolution’s vending machine program.  The vending machine program was a form of a distributorship program whereby Revolution sold vending machines to distributors. These distributors entered into an association with a buying group that would then purchase products from Revolution. In addition to acting as a supplier, Johnvince’s licensed intellectual property to Revolution, including the Planters peanut trademark.   Although Johnvince was paid for the product it supplied, it did not receive any revenue from the vending machine program.  All costs and profits associated with the vending machine program were those of Revolution.

The plaintiffs, who were distributors under the vending machine program, were dissatisfied with the program and commenced an action against both Johnvince and Revolution for misrepresentation and rescission of an alleged franchise agreement.  The plaintiffs alleged that Johnvince was more than a mere distributor and licensor of intellectual property, but was in fact Revolution’s associate.

Decision

The Court held that Johnvince was neither a partner nor “franchisor’s associate” of Revolution and granted summary judgment in favour of Johnvince.

The discrete question before the Court was whether Johnvince “directly or indirectly controlled Revolution and was directly involved in the grant of franchise by making representations to the prospective franchisee for the purpose of granting the franchise, marketing the franchise or otherwise offering to grant the franchise”.

In holding that Johnvince did not control Revolution Foods or the vending machine program, the Court relied on the fact that the management, administration, planning of day-to-day activities and long term business planning was exercised by Revolution.  The Court clarified that “Johnvince’s role as a supplier and trademark licensor did not place it in a position of de facto control over Revolution”.

The crux of the decision is the Court’s statement that “control over a franchisor in s. 1(1) of the Act involves something more than being important, being influential, or having bargaining power.  In the context of the Act, control connotes being in charge of or governing or directing or leading the franchisor”.

Comment

The plaintiffs’ attempt to elevate a distributor and licensor relationship to that of a partnership or “franchisor’s associate” relationship was properly rejected by the court.  The Court’s clarification of the definition of a “franchisor’s associate” should dissuade franchisees from naming distributors in proceedings without careful consideration of the business relationship with the franchisor. If “franchisor’s associate” were defined more liberally, there would be disincentive for distributors and licensors to engage with franchised businesses.  Accordingly, the decision strikes the appropriate balance between the rights of franchisees and distributors.