It is now generally recognized that franchise agreements qualify as “contracts of adhesion” under Québec law. Under the Québec Civil Code, “contracts of adhesion” are defined as contracts “in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his instructions, and were not negotiable” (Article 1379). In certain cases, the court may annul or reduce the scope of abusive, external, illegible or incomprehensible clauses in such contracts.

Recent Québec Superior Court decisions have come to harsh conclusions against franchisors. For example, in the May 8, 2007 decision of the Québec Superior Court in Boulevard Dodge Chrysler Jeep (2000) Inc. vs. Daimler Chrysler Canada Inc., a number of non-liability related provisions in a sub-lease were struck down by the court on the ground that they were abusive However, a Quebec Court of Appeal judgment in November, 2007 has re-introduced a bit of balance in the franchisor-franchisee debate before the Québec courts. In Ford du Canada Limitée vs. Automobiles Duclos Inc., the Québec Court of Appeal had to determine whether a franchisor (Ford) had rightfully terminated the franchise agreement of its franchisee (Duclos) on 15 days notice for fraudulent and false warranty-related claims.

Facts of Case

Duclos had been operating a dealership for almost 15 years when Ford first started to suspect that a number of warranty (and other similar) claims submitted by Duclos were fraudulent or false. Following a summary verification of such alleged wrongdoings and after Duclos refused Ford full access to its books and records, Ford terminated the franchise agreement on the grounds that Duclos: (i) had submitted a number of false or fraudulent claims (ii) had a unusually high claims record, and (iii) had refused to give full access to its books and records.

Relief for Franchisor

While the Québec Court of Appeal confirmed the predominant (and the lower court’s) view by holding that the franchise agreement at issue was a contract of adhesion, it reversed the lower court’s finding that a termination right for fraudulent claims on 15 days notice was abusive. And, the Québec Court of Appeal actually went much further in providing relief to the franchisor. It overturned the Superior Court’s factual findings and both recognized and confirmed that numerous false or fraudulent claims had been made by Duclos. The Court of Appeal stated that as soon as one single instance of fraud had been clearly established, the termination right could rightfully be invoked by Ford.

This decision is a clear step in the right direction in terms of bringing balance between franchisors’ rights and franchisees’ remedies under Québec law. Hopefully, there will be more to come in the near future. We will keep you posted!