In 1146845 Ontario Ltd. v. Pillar to Post Inc., 2014 ONSC 7400, the Ontario Superior Court of Justice stayed a class action brought by plaintiff franchisees against the franchisor in favour of an arbitration clause in the franchise licensing agreement.
The plaintiff franchisees alleged, among other things, that the defendant franchisor made improper changes to the franchise system and failed to comply with the disclosure requirements of Ontario’s Arthur Wishart Act (Franchise Disclosure). The alleged change to the franchise system was conversion from an exclusive territory system to a non-exclusive territory system. The plaintiff franchisors brought a motion to certify a class proceeding despite the existence of a broad arbitration provision.
The defendant franchisor applied for a stay of the class action pursuant to the Arbitration Act. In response, the plaintiffs argued that the right to associate under s. 4 of the Arthur Wishart Act includes the right to bring a class action. Perell J. ultimately agreed with the defendant and stayed the class proceeding in favour of arbitration.
Perell J. decided the case on the basis of the Supreme Court of Canada’s decision in Seidel v. TELUS Communications Inc., 2011 SCC 15, noting that whether the class proceeding should be stayed was a matter of interpreting the contract. He further held that the Arthur Wishart Act does not manifest a legislative intention mandating court proceedings over arbitration; rather, it envisages the use of both arbitration and court proceedings, and does not confer exclusive jurisdiction on either. The right to associate under the Act, according to the court, confers a cause of action on a franchisee rather than determining the question of which forum and tribunal has jurisdiction to adjudicate a franchisee’s claim. The parties were bound by the franchise agreement’s arbitration clause, and all of the issues were referable to arbitration.
The Pillar to Post case is another example of Canadian courts’ willingness to stay court proceedings in favour of arbitration where there is a broad arbitration clause. The evidentiary record in this case, however, didn’t appear to address the extent to which the arbitration process would have permitted the franchisees to collectively pursue their claims.