On November 17, 2016, we published a blog post on a Superior Court of Québec judgment that authorized a consumer class action against, among others, a franchisor Corbeil Électrique inc. (Corbeil) on the basis of alleged misrepresentations in relation to the purchase of extended warranties (the Authorization Judgment).

We had noted that the Authorization Judgment was part of a trend, where Québec courts are unwilling to decide at the authorization stage whether or not there exists a legal relationship between the franchisor and a customer of its franchisee.

On September 7, 2017, this trend was confirmed by the Court of Appeal, which dismissed Corbeil’s appeal from the Authorization Judgment in Ameublements Tanguay inc. c. Cantin, 2017 QCCA 1330.

Background

The dispute concerns alleged misrepresentations in respect of an extended warranty on a household appliance purchased by the petitioner from one of Corbeil’s franchisees: Gestion Éric Dubreuil inc. (the Corbeil Franchisee). At the authorization stage, Corbeil sought to have the authorization dismissed against it, arguing that, since the warranty was purchased from the Corbeil Franchisee, there was no legal relationship between the petitioner and Corbeil. Corbeil was unsuccessful for the reasons set out in our blog post dated November 17, 2016, and the Superior Court thus authorized the commencement of a class action against Corbeil.

Reasons of the Court of Appeal

Dismissing the appeal, the Court of Appeal affirmed the findings of the authorization judge. At the outset, the Court described the low threshold to be reached at the authorization stage. The petitioner had to make allegations, which, taken as true, would establish a prima facie cause of action against Corbeil. In other words, the allegations must support the existence of a prima facie legal relationship (either contractual or extra-contractual) between the customer and the franchisor.

The Court of Appeal agreed with the first judge that there was sufficient evidence of a contract between Corbeil and the petitioner. Namely, the Corbeil logo and business name appeared on the customer’s invoice. Although the name of the Corbeil Franchisee was also mentioned, the latter was not expressly identified as the vendor. In addition, the invoice indicated that Corbeil remained the owner of the goods until final payment, and that the goods sold could not be returned without Corbeil’s agreement. Also, the Corbeil Franchisee was listed as one of Corbeil’s stores on the franchisor’s website. In light of these elements, the Court agreed that the Corbeil Franchisee may have been acting as an agent of Corbeil, such that Corbeil may have been the actual vendor.

Beyond the possibility of a contract between the customer and Corbeil, Corbeil may have incurred extra-contractual liability by application of the apparent mandate doctrine, which is found at Article 2163 of the Civil Code of Québec. According to this doctrine, a franchisor may be liable for the actions of its franchisee if (i) the franchisor gave the customer reasonable cause to believe that the franchisee was acting as its agent, and (ii) the franchisor did not take appropriate measures to avoid the confusion when it was foreseeable. The elements mentioned above, among others, supported the prima facie existence of an apparent mandate, the customer having been led to believe that he was dealing with Corbeil rather than the Corbeil Franchisee. The Court of Appeal also noted that the Corbeil logo and business name appeared outside and inside the store of the Corbeil Franchisee, adding to the possible confusion.

The Court emphasized that the determinations as to whether there exists a contract between Corbeil and the petitioner, and whether the Corbeil Franchisee acted under an apparent mandate, are factual issues. As such, they must be resolved by the trial judge, rather than the authorization judge. The Court concluded that the evidence of the legal relationship was weak, but sufficient for the purposes of the authorization.

Commentary

The judgment of the Court of Appeal constitutes a new warning to franchisors having a presence in Québec. Franchisors must ensure that their status is well understood by customers of their franchisees. For instance, the invoice could expressly clarify that the franchisee, not the franchisor, is the vendor, and that the franchisee is not acting as an agent of the franchisor. At a time where class actions are gaining in popularity as a way for consumers to apply to the court, such measures may not prevent a franchisee’s customer from launching class action authorization proceedings against the franchisor. However, they may allow the franchisor to obtain the dismissal of the authorization motion, thereby avoiding long and costly legal proceedings.