In the May 2008 issue of the Osler Franchise Review, we summarized the decision of the Ontario Superior Court of Justice in 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp., [2008] O.J. No. 833 (S.C.J.). The franchisees in that case argued that the franchisor, Quizno’s (a sandwich chain franchise), and supplier companies had conspired to dictate the prices that the franchisees paid for products and merchandise. The court refused to certify the action as a class proceeding, ruling that the preferable procedure requirement under s. 5(1) of the Ontario Class Proceedings Act, 1992 could not be satisfied due to the predominance of individual issues in the proposed action.

Certification Granted

In April 2009, the Divisional Court overturned that decision, certifying the plaintiffs’ action as a class proceeding. (See: 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp., [2009] O.J. No. 1874 (Div. Ct.).) The Divisional Court found that the motions judge had failed to appreciate that there were significant common issues among the members of the proposed class of plaintiffs. The court also found that the plaintiffs’ claim was “systemic in nature.” Although losses to each franchisee might be individual in nature, the conduct that gave rise to liability was systemic. The court found that there were a multitude of common issues that arose, including whether there had been a breach of the Competition Act, a common law conspiracy to control prices paid by franchisees, and a breach of contract by the franchisor, and whether damages could be proven in the aggregate.

Significance for Franchisors

The Divisional Court’s decision in this action may be an indicator of the willingness of the Ontario courts to certify actions where there are prima facie individual issues concerning the calculation of damages. The Ontario courts may take a holistic view of the disputes at issue to determine whether the conduct complained of is “systemic in nature” and, therefore, suitable to be tried as a class proceeding. Franchisors should be wary of such conduct, particularly concerning pricing/competition law issues and significant changes to their franchise systems. These are common areas for franchisee litigation and disputes about conduct in these areas could lead to certifiable class proceedings in Ontario.