Court File and Parties
COURT FILE NO.: CV-17-577371 and CV-17-584058-00CP DATE: 20181022 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 1523428 Ontario Inc., Plaintiff – AND – The TDL Group Corp., Tim Hortons Advertising and Promotion Fund (Canada) Inc., Restaurant Brands International Inc., Daniel Schwartz, Elias Diaz Sese, Andrea John and Jon Domanko, Defendants
AND RE: JB & M Walker Ltd. and 1128419 Alberta Ltd., Plaintiffs – AND – The TDL Group Corp., Tim Hortons Advertising and Promotion Fund (Canada) Inc., Restaurant Brands International Inc., Daniel Schwartz, Elias Diaz Sese, Andrea John and Jon Domanko, Defendants
BEFORE: EM Morgan J.
COUNSEL: Richard Quance and Tom Arndt, for the Plaintiffs Mark Gelowitz, Jennifer Dolman and Geoff Hunnisett, for the Defendants
HEARD: October 3, 2018
Motion to Strike
I. The franchise dispute
[1] This is a franchise dispute raising a number of different statutory and common law causes of action. The Plaintiffs in both of these actions are owners of Tim Hortons franchised donut shops. The actions are framed as a potential class action, and counsel for the Plaintiffs indicates that the class could number some 3,500 franchisees. The Defendant, The TDL Group Corp. (“TDL”), is the franchisor of the Tim Hortons system. TDL moves in both actions under Rule 21.01(1)(b) of the Rules of Civil Procedure, RRO 1990, Reg 194, to strike all but certain of the claims against it.
[2] The other Defendants (collectively, the “Non-TDL Defendants”) seek to have the claims in both actions dismissed in their entirety as against them. The Defendant, Restaurant Brands International Inc. (“RBI”), is the parent of TDL and the Defendant, Tim Hortons Advertising and Promotion Fund (Canada) Inc. (“THAPF”), is a related company that holds and manages the Tim Hortons advertising fund. The Defendant, Daniel Schwartz, is the CEO of RBI, the Defendant, Sam Siddiqui, is the president of RBI, and the Defendants, Elias Dias Sese, Andrea John and Jon Domanko are directors of TDL and THAPF (collectively, the “Individual Defendants”). The Non-TDL Defendants submit that there are no material facts to support any viable cause of action against them.
[3] The dispute styled 1523428 Ontario Inc. v. The TDL Group Corp. et al., Court File No. CV-17-577371 (the “152 Action”) relates to the advertising fund that is funded primarily from Tim Hortons donut shop revenue. The dispute styled JB & M Walker Ltd. and 1128419 Alberta Ltd. v. The TDL Group Corp., Court File No. CV-17-584058-00CP (the “Walker Action”), relates to the formation by certain Tim Hortons franchisees of the Great White North Franchise Association (the “GWNFA”) and the franchisees’ right of association. Each of the actions will be addressed here in turn.
[4] The 152 Action concerns a license agreement dated 1999 and the Walker Action concerns a license agreement dated 2002. Although there are some differences between the two agreements, each of the actions are premised on the fact that the agreements at issue are versions of the standard form of franchise agreement that all Tim Hortons franchisees (i.e. all potential class members) enter with TDL and that sets out the terms of the franchise operation. Except where a specific difference between the two agreements is relevant, the two agreements will be discussed here as the “Franchise Agreement”.
II. The two actions and their pleadings
a) The 152 Action
[5] In the pleading for the 152 Action, the Plaintiff states that the Franchise Agreement requires each franchisee (i.e. each potential class member) to contribute a percentage of its sales to an Ad Fund controlled and operated by TDL. The claim goes on to allege that TDL has used the Ad Fund in impermissible ways contrary to the Franchise Agreement.
[6] The Statement of Claim further claims against TDL for conversion, breach of the Canada Business Corporations Act, RSC 1985, c. C-44 (“CBCA”), unjust enrichment, breach of fiduciary duties, and seeks declaratory relief as well as compensatory, punitive, exemplary and/or aggravated damages. TDL seeks all of these claims, with the exception of the breach of contract claim, struck out as disclosing no viable cause of action.
[7] Under the Franchise Agreement, the franchisees pay their Ad Fund contributions as directed by TDL. Those contributions have been directed by TDL to THAPF, which in turn pays all expenses related to the Ad Fund and contracts for advertising and other promotional activities. In the 152 Action, the Plaintiff alleges that THAPF has engaged in breach of trust and breach of fiduciary duties owed to the Plaintiff and other franchisees.
[8] The Plaintiff also claims breach of the CBCA and breach of fiduciary duties by the corporate Defendants, as well as claims of breach of trust and breach of fiduciary duties by the Individual Defendants. There is no breach of contract claim against RBI or the Individual Defendants, as they are not parties to the Franchise Agreement. The claims against all of the Non-TDL Defendants are largely unparticularized.
i) Breach of trust and breach of fiduciary duties
[9] The Court of Appeal has indicated that a claim of breach of trust must be accompanied by material facts on which the claim is based: Admassu v Macri, 2010 ONCA 99, at para 37. The pleading of this cause of action cannot be a bare one. “The full particulars of allegations of fraud, breach of trust or misrepresentation required by rule 25.06(8) must set out precisely what each allegation of such wrongful act is, and the when, what, by whom and to whom of the relevant circumstances”: Balanyk v University of Toronto, at para 28.
[10] The Statement of Claim in the 152 Action describes the Ad Fund arrangement under the Franchise Agreement and explains the role of THAPF as the company that collects and spends the funds at the direction of TDL. Beyond that, it does little more than announce that THAPF and the Plaintiff are in a trust relationship. It nowhere explains the basis of that relationship, except to speculate that there may be contracts in existence between THAPF and TDL about which the Plaintiff knows nothing.
[11] The description of its role and speculation about unknown arrangements, however, does not satisfy the requirement that a specific contract containing language that actually establishes a trust be pleaded: Mitchell v Lewis, 2015 ONSC 4614, at para 27. In addition, as counsel for the Defendants points out, simply asserting that TDL has directed funds to be paid to THAPF does not establish a trust relationship. The payment of funds simpliciter is not a material fact on which a trust or its breach can be based.
[12] Furthermore, the pleading contains no particulars of any breach of trust. The Defendants submit that the Ad Fund has made improper payments not permitted pursuant to the Franchise Agreement. Accepting those allegations as true, they could amount to a breach of the Franchise Agreement. But a cause of action of this nature needs to establish both that a trust relationship exists and that there has been some wrongdoing that amounts to a breach of the obligations embedded in that relationship. In the absence of contractual language establishing a trust, a breach of the contract is not in itself a breach of trust.
[13] Finally, there is nothing in the Statement of Claim that explains why the Individual Defendants are sued in their capacity as THAPF directors. There is a dearth of material facts with respect to the claim against THAPF; there is absolutely nothing with respect to its directors. The Individual Defendants are apparently included for no reason other than that they hold corporate positions.
[14] The same lack of material facts applies to the plea of breach of fiduciary duties. The Statement of Claim in the 152 Action extends a claim for damages on this basis beyond THAPF and its directors to also include RBI and its CEO. However, it fails to explain what the fiduciary duties entailed and how they were breached. RBI appears to have been included in this claim for no reason other than that it is the parent of TDL and therefore must have something to do with TDL’s conduct, and the CEO of RBI has been included for no reason other than that he holds a high corporate position with RBI. All of the material facts pleaded and all of the acts complained of, however, are those of TDL.
[15] As for the pleading of breach of fiduciary duties by THAPF and its directors, the Plaintiff’s assertions regarding the existence of fiduciary duties are conclusory, and the alleged breach of duty is stated only vaguely and in a way that lacks all particulars. A claim that fiduciary duties exist and have been breached must set out the essential elements of a fiduciary relationship: that the defendant undertook to act in the best interest of the plaintiff and to elevate the plaintiff’s interest above all others, that the defendant had some discretionary power over a vulnerable plaintiff, and that the plaintiff had some legal or vital practical interest at stake: Professional Institute of the Public Service of Canada v. Canada (Attorney General), [2010] 3 S.C.R. 660, 2010 SCC 69, paras 124-128, 138.
[16] Even where the existence of fiduciary duties is established, a pleading of this nature is required to set out particulars of the duty owed and how the duty was breached: CIT Financial Ltd. v. Sharpless, at par 36. No such particulars are contained in the present Statement of Claim, beyond the assertion that, “By permitting TDL to make improper charges to the Ad Fund, THAPF and the THAPF Directors have breached their trust and fiduciary obligations to the plaintiff and the franchisees.”
[17] This statement, unsupported by any other material facts, does not suffice to establish the breach of trust and breach of fiduciary duties causes of action. Again, THAPF is included in this claim because of its position as agent for TDL, and the directors of THAPF are included because they hold corporate positions. All of the material facts pleaded and all of the acts complained of in the 152 Action, however, are those of TDL.
[18] Finally, Defendants’ counsel submits that a claim of breach of fiduciary duties cannot succeed against TDL as franchisor. They point out that the Plaintiff has contracted itself out of that possibility by signing the Franchise Agreement.
[19] Specifically, the Franchise Agreement contains a ‘no fiduciary’ clause which expressly excludes the possibility that TDL has undertaken fiduciary obligations to the Plaintiff. There is no reason that this clause should not be enforceable as against the Plaintiff and other putative class members. The parties were all sophisticated business people who knew what they were signing.
[20] Counsel for the Plaintiff characterizes the terms of the Franchise Agreement as having been presented to the Plaintiff and other franchisees as “non-negotiable”. Accepting that that may be the case, it nevertheless does not mean that the terms were incomprehensible. If TDL is alleged to have violated the Plaintiff’s rights by directing the Ad Fund to THAPF or by misusing the fund in some way, the wrong was done in breach of contract. However, the Franchise Agreement by its very term did not establish a fiduciary relationship between TDL and the Plaintiff. There are no grounds for any further protection of the Plaintiff and other franchisees in equity: Spina v Shoppers Drug Mart, 2012 ONSC 5563, at para 195.
ii) Oppression remedy
[21] There are three corporate Defendants in the 152 Action. The Statement of Claim alleges breach of the oppression remedy under the CBCA. It is not easy to discern which of the companies this cause of action is directed towards, since they are not specifically identified in the Statement of Claim and there are no particulars accompanying this pleading.
[22] To seek relief under s. 241 of the CBCA – the oppression remedy provision – the claim must somewhere allege that the actions of the company are “oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer”. There is nothing in the Statement of Claim for the 152 Action that makes this allegation.
[23] Moreover, it is not clear how the facts that are pleaded could rise to the level of corporate oppression within the meaning of s. 241 of the CBCA. Turning first to the Individual Defendants, something more would have to be said of them other than to recite their status as corporate officers and directors in order for them to fall within the statutory cause of action. The Supreme Court of Canada observed in BCE Inc v 1976 Debentureholders, 2008 SCC 69, [2008] 3 SCR 560, at para 66, that directors do not owe duties of this nature to those outside the corporate structure:
…the directors owe a fiduciary duty to the corporation, and only to the corporation. People sometimes speak in terms of directors owing a duty to both the corporation and to stakeholders. Usually this is harmless, since the reasonable expectations of the stakeholder in a particular outcome often coincide with what is in the best interests of the corporation. However, cases (such as these appeals) may arise where these interests do not coincide. In such cases, it is important to be clear that the directors owe their duty to the corporation, not to stakeholders, and that the reasonable expectation of stakeholders is simply that the directors act in the best interests of the corporation.
[24] The same may be said about the corporate Non-TDL Defendants. The way the 152 Action is pleaded, the Plaintiff alleges surprise that the Ad Fund was moved to THAPF. It is TDL, and not THAPF (or TDL’s parent, RBI), that is claimed to have made improper charges against the funds collected from franchisees and held by THAPF at TDL’s direction. The pleading in the 152 Action essentially assumes that since THAPF acts at TDL’s direction as a holding company for the Ad Fund, and since TDL is itself owned by RBI, that TDL’s conduct impugns their conduct. However, there is nothing in the claim as against the Non-TDL Defendants that meets the type of culpability or breach of reasonable expectations that would qualify under s. 241 of the CBCA.
[25] Again, as the Supreme Court put it in BCE Inc, at para 67:
[N]ot every unmet expectation gives rise to claim under s. 241. The section requires that the conduct complained of amount to ‘oppression’, ‘unfair prejudice’ or ‘unfair disregard’ of relevant interests. ‘Oppression’ carries the sense of conduct that is coercive and abusive, and suggests bad faith. ‘Unfair prejudice’ may admit of a less culpable state of mind, that nevertheless has unfair consequences. Finally, ‘unfair disregard of interests extends the remedy to ignoring an interest as being of no importance, contrary to the stakeholders’ reasonable expectations. The phrases describe, in adjectival terms, ways in which corporate actors may fail to meet the reasonable expectations of stakeholders. [citations omitted]
[26] Accordingly, as against the Non-TDL Defendants, there are no material facts on which the Plaintiff can fit an oppression remedy claim. That claim is all about unfairness to a claimant in the sense of a breach of reasonable expectations. The Supreme Court reiterated that definition in Menillo v Intramodal Inc, 2016 SCC 51, [2016] 2 SCR 438, at para 9:
There are two elements of an oppression claim. The claimant must first ‘identify the expectations that he or she claims have been violated . . . and establish that the expectations were reasonably held’: BCE, at para. 70. Then the claimant must show that those reasonable expectations were violated by conduct falling within the statutory terms, that is, conduct that was oppressive, unfairly prejudicial to or unfairly disregarding of the interests of any security holder.
[27] On any reading of the Plaintiff’s claim, it is only TDL that is alleged to have unfairly disregarded the Plaintiff’s interest in the oppression remedy sense. The Non-TDL Defendants simply do not stand in the kind of relationship with the franchisees that could support such a claim.
[28] As for any claim under the CBCA against TDL, there is a short but definitive answer: TDL is not a CBCA corporation. It is a British Columbia corporation.
[29] Strathy J (as he then was) addressed a similar situation in Gould v Western Coal Corp, 2012 ONSC 5184, at para 339, and concluded that the oppression remedy is statute and jurisdiction-specific. If a corporate oppression claim it is brought under the wrong statute or in the wrong jurisdiction, it must be struck out:
The oppression remedy applicable to this dispute is a creation of a British Columbia statute. The statute confers the remedy and describes the manner in which it is to be enforced. I have no jurisdiction to rant the remedy because the statute expressly grants jurisdiction to the British Columbia Superior Court. It is irrelevant that the defendants may be otherwise subject to this court’s jurisdiction, or may have attorned to the jurisdiction. I have no jurisdiction over the subject matter. The oppression claim should therefore be struck.
[30] It is readily apparent that the oppression remedy claim contained in the 152 Action cannot succeed against TDL.
iii) Conversion
[31] The Statement of Claim alleges that TDL has converted funds collected from franchisees for the Ad Fund. The tort of conversion is an old one, but has recently been outlined by the court in Ernst & Young Inc v Xinduo, 2017 ONSC 5911, at para 31, as follows:
Conversion requires the wrongful taking, using or destroying of goods inconsistent with the title of the owner. There must be a voluntary act in respect of another’s goods that amounts to a usurpation of the owner’s proprietary or possessory rights. The constituent elements of the tort are: a wrongful act, involving a chattel, consisting of handling, disposing or destruction of the chattel, with the intent or effect of denying the title of another person.
[32] Counsel for the Defendants submits that the pleading in issue is analogous to that in Mitchell v Lewis, supra, were the court struck out the claim for conversion on the grounds that the Plaintiff had no proprietary interest in the funds held by the Defendant. I have already indicated above that the Statement of Claim does not plead material facts to support a claim of breach of trust. Without a trustee-beneficiary relationship being established, the Plaintiff has no proprietary interest in the Ad Funds collected pursuant to the Franchise Agreement. The funds were paid over to TDHF pursuant to TDL’s direction, as agreed upon by the Plaintiff and TDL in the Franchise Agreement.
[33] The Plaintiff, as already indicated, claims that the Ad Fund monies have been misused. Accepting that allegation as true, that establishes a claim of breach of contract as against TDL. It is TDL that is the Plaintiff’s counter-party in the Franchise Agreement. The breach of contract, however, is immaterial to a claim of conversion. The court in Mitchell, at para 34, came to the identical conclusion. A claim of conversion cannot survive on the basis pleaded:
[T]he plaintiffs have failed to plead the material facts necessary to establish a cause of action for conversion, as I have struck the trust claim relating to monies owing to the plaintiff, it is plain and obvious that the claim for conversion cannot succeed. Any monies owing to the plaintiffs pursuant to the Agreement are a debt.
[34] The Plaintiff seeks to transform a claim of debt under a contract to a claim of conversion of property, but there are no material facts which can support this transformation. The Plaintiff had contractual rights for which it can seek enforcement, but it did not own the funds which it claims to have been converted away from it. The conversion claim in the 152 Action cannot succeed.
iv) Conclusion re the 152 Action
[35] There is no valid cause of action pleaded in the 152 Action as against the Non-TDL Defendants. Moreover, the material facts are such that it appears to me to be impossible to improve the pleading in order to bring in the Non-TDL Defendants. The claims against the Non-TDL Defendants are to be struck without leave to amend.
[36] As for the portions of the 152 Action directed against TDL, the cause of action in breach of trust, breach of fiduciary duties, oppression remedy under the CBCA, and conversion, are all improperly pleaded and unsalvageable. Those claims against TDL are likewise to be struck without leave to amend.
[37] What remains of the 152 Action is a claim of breach of contract as against TDL. The Plaintiff has rights and TDL has obligations to the Plaintiff under the Franchise Agreement, and it is those contractual rights and obligations that are properly at issue in the 152 Action. That is the only cause of action which the facts as pleaded can support. The Statement of Claim must be amended so that it is limited to the contractual claim against TDL and facts that support that cause of action.
b) The Walker Action
[38] In the pleading for the Walker Action, the Plaintiffs state that they are members of the GWNFA, which was formed on March 9, 2017 for the purpose of protecting the interests of all Tim Hortons franchisees. They further allege that the Defendants have interfered with, penalized, and threatened franchisees from exercising their right to associate in the GWNFA and otherwise.
[39] As against TDL, the Plaintiffs in the Walker Action assert both contractual and statutory causes of action. They plead that TDL has breached sections 3 and 4 of the Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c. 3 (the “Wishart Act”) and similar legislation in other provinces. The Plaintiffs also plead that TDL has breached its implied duties of good faith and honest performance under the Franchise Agreement.
[40] In addition, the Walker Action alleges that TDL has breached fiduciary duties purportedly owed to the Plaintiffs. And, finally, the Plaintiffs make an oppression remedy claim against TDL for breach of the CBCA as well as breach of the British Columbia Business Corporations Act, SBC 2002, c. 57 (“BCBCA”).
i) Breach of contract
[41] Counsel for the Defendants concede that TDL and the Plaintiff, JB & M Walker Ltd. (“Walker”), are parties to a Franchise Agreement, and that allegations that TDL has not lived up to its obligations under that agreement amount to a cause of action in breach of contract. The Defendants contest the facts and legal conclusion, of course, but for the purposes of this motion under Rule 21.01(1)(b) they accept that a cause of action in breach of contract has been properly pleaded as against TDL.
[42] In my view, this must also include the claim that TDL has violated the implied duty of good faith. This is so despite the fact that counsel for the Defendants accurately observes that the breach of good faith claim is pleaded rather sparsely in the Statement of Claim.
[43] The Supreme Court of Canada has recognized that performance of contractual obligations in good faith is a fundamental principle of common law and that parties are under a duty to act honestly in carrying out their contractual obligations: Bhasin v Hrynew, 2014 SCC 71, [2014] 3 SCR 494. An allegation of breach of contract, especially in the context of a long-term relational contract such as a Franchise Agreement, can certainly carry with it an allegation of breach of the duty of good faith: see 2336574 Ontario Inc. v 1559586 Ontario Inc. (2016), 130 OR (3d) 355, at para 23.
[44] That said, the Walker Action lacks particulars as to which contractual obligations TDL failed to fulfill. It also lacks particulars as to how, precisely, TDL acted in bad faith, although it is clear from the overall context of the claim that this has to do with TDL’s treatment of the franchisees in the GWNFA.
[45] While this breach of contract claim, including a breach of duty of good faith claim, can potentially survive a challenge at this stage, it can only do so once particulars are provided. These must include some identification of the contractual terms that have been breached, the manner in which those terms were breached, and the damages that flow from the breach: Re Collections Inc. v Toronto-Dominion Bank, 2010 ONSC 6560, para 108.
[46] The Statement of Claim in the Walker Action also alleges breach of contract against RBI. Again, there are no particulars of the breach; here, however, it is impossible to imagine what particulars could possibly fill this gap. RBI is not a party to the Franchise Agreement. Nothing in the Plaintiffs’ pleading provides any theory of how contractual liability could attach to this non-party.
[47] The Statement of Claim in the Walker Action identifies RBI as TDL’s parent company. But it does not, and could not, contend that RBI is a party to the Franchise Agreement or that it is somehow legally indistinguishable from TDL and has therefore assumed all of TDL’s obligations under the Franchise Agreement. It is not possible for the claim against RBI to succeed and it should be eliminated from the Walker Action.
ii) Statutory duty of fair dealing
[48] The Walker Action asserts that the Defendants have breached the duty of fair dealing contained in s. 3 of the Wishart Act. That section provides:
3(1) Every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement.
(2) A party to a franchise agreement has a right of action for damages against another party to the franchise agreement who breaches the duty of fair dealing in the performance or enforcement of the franchise agreement.
[49] To the extent that this claim is meant to apply to the Non-TDL Defendants, it is lacking in a number of essential ingredients. Foremost among these is the fact that s. 3 of the Wishart Act augments the duties contained in franchise contracts, but is premised on there being a contract between the parties. The Wishart Act does not impose a duty of fair dealing in contract performance on non-parties to a contract.
[50] Among the Defendants, only TDL is a party to the Franchise Agreement at issue in the Walker Action. In the absence of privity of contract, the claim of breach of the duty of fair dealing under s. 3 of the Wishart Act is not viable as against the Non-TDL Defendants.
[51] As for the claim under s. 3 against TDL, the claim holds out the possibility of surviving a challenge, but like the implied contractual term of good faith, some particulars need to be set out in the pleading. The court made it clear in Fairview Donut Inc. v The TDL Group Corp, 2012 ONSC 1252, at para 516, aff’d 2012 ONCA 867, that the statutory duty of good faith arises with respect to a contract and the performance of obligations thereunder:
The duty of good faith and fair dealing is in relation to the performance of the contract that the parties made. The court’s responsibility is to give effect to that contract and to require the parties to discharge their contractual obligations fairly, and in good faith and in a commercially reasonable manner.
[52] The Walker Action alleges in a general way that s. 3 has been offended, but provides no particulars of which provisions of the contract or obligations of TDL thereunder are alleged to have been carried out contrary to the duty to fair dealing. What the claim suggests is that the very terms of the Franchise Agreement somehow amount to a breach of the duty of fair dealing under s. 3 of the Wishart Act. However, this is not a claim that can be sustained. The statutory duty does not replace or amend the contract, but rather it reinforces the performance of the contract terms: Fairview Donut, at para 500.
[53] Where the Statement of Claim does attempt to particularize the alleged wrongdoing, it refers primarily to the franchisees’ right of association in the face of TDL’s resistance. This, of course, relates to the right of association under s. 4(5) of the Wishart Act, and is the subject of a separate claim put forward in the Walker Action. Defendants’ counsel correctly points out that the two statutory provisions – sections 3 and 4 of the Wishart Act, respectively – represent two distinct statutory causes of action. Intermingling the statutory references in the way that the Plaintiffs appear to have done in the Walker Action does not satisfy the need for material facts to be pleaded to satisfy the s. 3 claim.
[54] Accordingly, for the claim under s. 3 of the Wishart Act to be sustained it must be limited to TDL, and it must be supplemented with particulars. These particulars must amount to material facts capable of anchoring the alleged breach of s. 3 to specific obligations of TDL under the Franchise Agreement.
iii) Breach of the right of association
[55] The Walker Action alleges that all of the Defendants have interfered with the Plaintiffs’ and all franchisees’ right of association, as guaranteed in s. 4 of the Wishart Act.
[56] The Wishart Act first sets out the right of association in s. 4(1), and then in s. 4(2) specifically restricts a franchisor from interfering with it:
A franchisor and a franchisor’s associate shall not interfere with, prohibit or restrict, by contract or otherwise, a franchisee from forming or joining an organization of franchisees or from associating with other franchisees.
[57] Section 4(5) of the Wishart Act goes on to provide a right of action in the event of a breach of s. 4(1):
If a franchisor or franchisor’s associate contravenes this section, the franchisee has a right of action for damages against the franchisor or franchisor’s associate, as the case may be.
[58] Counsel for the Defendants observes that while the Statement of Claim in the Walker Action pleads that TDL is the franchisor of Tim Hortons, nowhere does it plead that the Non-TDL Defendants are associates of the franchisor within the meaning of the Wishart Act. It is the Defendants’ further position that there are no material facts set out in the Walker Action pleading that could support such an assertion.
[59] The Defendants’ reading of the Statement of Claim is correct. No matter how generously one reads that pleading, it is difficult to see how a claim under s. 4 of the Wishart Act could be sustained as against any of the Defendants except TDL.
[60] In order to be an associate of TDL’s for the purposes of s. 4 of the Wishart Act, there must be material facts that could establish a serious level of control by the alleged associate. Although the Plaintiffs in the Walker Action assert that RBI, as the parent and holding company for TDL, asserted control over it, there are no material facts pleaded to support that assertion. A parent company is not an “associate” for these purposes merely by virtue of being a parent company.
[61] The Court of Appeal has held that a parent company or other alleged associate must be found to “direct and control the composition and structure of the [franchise] network], the products that will be distributed by [it] in Canada, the pricing of those products, and marketing initiatives and spending”: Addison Chevrolet Buick v General Motors, 2016 ONCA 324, para 43. There is nothing of that nature contained in the Statement of Claim in the Walker Action.
[62] Counsel for the Plaintiffs has attempted to remedy the shortcomings of the pleading in this respect by referencing in its factum that the Plaintiffs are obliged under a schedule to the Franchise Agreement to use RBI’s computer system and pay a fee for this use. To this, counsel for the Defendants complains that a factum cannot fill in material facts missing from a pleading, although counsel for the Plaintiffs responds that the Franchise Agreement is specifically referenced in the Statement of Claim and so therefore all of its terms must be considered to have been incorporated into the pleading by reference.
[63] Even if one considers the entire Franchise Agreement, with all of its detailed schedules, to be incorporated into the Statement of Claim, the Plaintiffs’ point seems to miss the point. In the first place, it is not at all clear to me that the reference to RBI’s computer system really does exist in the Franchise Agreement or schedules thereto. At the hearing of the motion, counsel for the Plaintiffs had difficulty in identifying the clause they had in mind.
[64] But even if such an obligation does exist, payment of a license fee for use of a computer system is hardly the kind of direct control of the franchise system described by the Court of Appeal in Addison Chevrolet. There is nothing in the Franchise Agreement or otherwise in the Statement of Claim that could suggest that it is RBI, and not TDL, that really runs the Tim Hortons franchise business and that directs and controls the pricing, marketing, and other initiatives of the business.
[65] None of the Non-TDL Defendants have anything to do with the rights of the Plaintiff under s. 4 of the Wishart Act except for TDL. The Walker Action alleges that TDL, as franchisor, has taken aim at the Plaintiffs and the other members of the GWNFA, in violation of their rights of association contained in s. 4. That claim is directed toward the acts of TDL; the mere fact that it has corporate officers and directors, or that it has a parent company with officers and directors does not suffice to bring those Non-TDL Defendants within the terms of s. 4.
[66] The Plaintiffs’ claim under s. 4 of the Wishart Act cannot be sustained as against any of the Defendants except TDL.
iv) Oppression remedy
[67] The Walker Action alleges breach of the oppression provisions of both the CBCA and the BCBCA. This claim, however, suffers from all of the shortcomings discussed above with respect to the oppression remedy pleaded in the 152 Action.
[68] The real target of the oppression claim in the Walker Action is TDL; the non-TDL corporate Defendants are not alleged to have done anything in particular to oppress the Plaintiffs, and the Plaintiffs are not alleged to have been oppressed in any capacity that fits within the categories of claimants specified under s. 241 of the CBCA.
[69] More specifically, the Plaintiffs in the Walker Action are not corporate insiders such as shareholders, and there is nothing in the Walker Action pleading which would bring the Plaintiffs within the meaning of a “creditor” under s. 241 of the CBCA, even given the extended meaning of “creditor” that the courts have applied to that term in the context of the oppression remedy. The Plaintiffs are not alleged to have not been denied any payment or other rights by the corporate acts of RBI. All of the wrongdoing alleged in the Statement of Claim in the Walker Action is that of TDL. RBI appears to have been included in the claim of corporate oppression as if for good measure, and for no reason other than for the fact of its status as parent company of TDL.
[70] As for TDL, it is a British Columbia corporation. The CBCA does not apply to it. The Ontario courts have no jurisdiction to impose an oppression remedy under the BCBCA: see Gould, supra, at para 339.
[71] It is evident that the oppression claim cannot succeed against any of the Defendants.
v) Conclusion re the Walker Action
[72] The breach of contract claim, including breach of the contractual duty of good faith, can only be continued as against TDL, not RBI or any other Defendant. As against TDL, particulars must be provided in order to sustain the contractual claim. The same is the case with the claim of breach of s. 3 of the Wishart Act; TDL is a proper target of that claim (and the only proper target of that claim), but sufficient particulars are lacking in the Statement of Claim for the Walker Action.
[73] The claim of breach of s. 4 of the Wishart Act can survive as against TDL, but not as against any of the Non-TDL Defendants. As for the claim of corporate oppression, it cannot survive as against any of the Defendants and is to be removed from the Walker Action altogether.
III. Rule 21.01(1)(b) disposition
[74] This matter has been outstanding for some time. The motion to strike was first raised with counsel for the Plaintiff in the 152 Action in December 2017. In February 2018, the Notice of Motion was served. In response, the Plaintiff amended the Statement of Claim in the Walker Action in May 2018. The Statement of Claim in the 152 Action has never been amended.
[75] In Sheridan v Ontario, 2015 ONCA 303, the Court of Appeal upheld the judgment of Mew J. striking out a claim with no leave to amend where the plaintiff had had several months to contemplate the Rule 21 motion but had failed to amend. At para 29, the Court observed:
[29] The motion judge refused the appellant leave to amend those parts of the pleading he struck out. He reasoned as follows:
First, the OPP defendants delivered their motion materials at the end of February. There has been more than ample opportunity for amendments to be made. Second, if a 38 page pleading is as bereft of substantive material facts supporting the causes of action pleaded as this one is, it is, I find it unrealistic to expect that there are facts which could be pleaded which would cure the present deficiencies.
[30] We note that although the motion materials were delivered in February, the motion was not argued until June 24. We see no error in the motion judge's exercise of his discretion on these facts to refuse leave to amend.
[76] The test for striking out a claim under Rule 21.01(1)(b) on the ground that it discloses no reasonable cause of action is whether it is “plain and obvious” that the claim has no reasonable prospect of success: Hunt v Carey Canada Inc., [1990] 2 SCR 959, at para 33. While the facts as pleaded are taken as proved, “facts must be pleaded so that the causes of action are clearly identifiable and are supported by the facts material to the establishment of those causes”: CIT Financial Ltd. v. Sharpless, at para 7. In addition, the Statement of Claim “must adequately identify the roles allegedly played by the various defendants in relation to each cause of action, and must also state both how the individual defendants have harmed the plaintiff, and what the nature of that harm is”: Ibid.
[77] I am conscious of the admonition of the Court of Appeal that in a Rule 21 motion a pleading must be read generously: Gaur v Datta, 2015 ONCA 151. As outlined above, I have concluded that the claims against the Non-TDL Defendants in both the 152 Action and the Walker Action are not viable. Even with the most generous of readings, it is plain and obvious that they cannot succeed.
[78] The Defendants have had ample time to amend their pleadings in order to add material facts to support the claims against the Non-TDL Defendants, but have not done so. It is not difficult to conclude that the reason for this is that there are no such material facts that could be pleaded. Accordingly, claims against all of the Non-TDL Defendants are struck out of both the 152 action and the Walker action, without leave to amend.
[79] In the 152 Action, all of the causes of action against TDL except for the breach of contract claim are also struck out without leave to amend. Again, the Plaintiff has had substantial time to amend its pleading, but has never done so. In my view, and on a generous reading of the Statement of Claim, no amount of particulars could possibly salvage the various non-contractual causes of action leveled against TDL in the 152 Action, and it is plain and obvious that they cannot succeed.
[80] Only the breach of contact claim against TDL remains alive in the 152 Action. I am reluctant to strike out specific paragraphs of the Statement of Claim and leave other paragraphs to remain, as the strike outs would be so extensive that it might leave the parties with a barely readable pleading. The Plaintiff shall therefore serve an amended Statement of Claim that eliminates all of the causes of action that have been struck out and is re-drafted in a way that is limited to the breach of contract claim against TDL.
[81] In the Walker Action, all claims against the Non-TDL Defendants are struck out without leave to amend. It is plain and obvious that those causes of action cannot succeed, and no amount of generosity in reading or addition of particulars can salvage those claims.
[82] The claim of breach of s. 4 of the Wishart Act can remain in the Walker Action as against TDL.
[83] The claims of breach of contract, including breach of the implied contractual duty of good faith, as well as breach of s. 3 of the Wishart Act, can potentially be salvaged as against TDL if additional material facts are added to the Statement of Claim. Those claims are therefore struck out with leave to amend to add necessary particulars as discussed in sections II(b)(i) and (ii) above.
[84] In order for the Plaintiffs to end up with a coherent pleading, I am again reluctant to strike out specific paragraphs of the Statement of Claim in the Walker Action. Rather, the Plaintiff shall serve an amended Statement of Claim that eliminates all of the causes of action that have been eliminated and that adds the necessary material facts to support the causes of action that remain or that can be salvaged.
[85] Given the passage of time, I am exercising my discretion to limit the time for amending the pleadings to 30 days. If the Plaintiffs do not serve amended Statements of Claim in the 152 Action and in the Walker Action within 30 days of the date of this endorsement, those pleadings shall be struck out in their entirety, without further leave to amend.
IV. Declaratory relief
[86] Counsel for the Defendants has also submitted that the request for declaratory relief in both actions be struck out.
[87] They contend that the Plaintiffs seek, among other things, declarations that the Defendants have breached their rights, and that this form of relief bumps up against a long line of cases holding that a declaration must serve a practical purpose and help to resolve the dispute between the parties: Hugh W. Simmons Ltd. v Foster, [1975] SCR 324, at para 25. Defendants’ counsel therefore submits that there are other, more effective ways to bring the issues before the courts, Kourtessis v Minister of National Revenue, [1993] 2 SCR 5, at para 49, and that the requests for declaratory relief should therefore be struck.
[88] I am not inclined to address the declaration issue at this time.
[89] To be clear, I am aware of the cases that discourage declaratory relief in all but rather limited circumstances. I certainly accept that private parties generally have no right “asking the Courts for declarations to the effect that provisions of statutes have been breached simply on the basis that they assert an interest in having the declaration made”: McConnell v Rabin, [1986] OJ No 119 (HCJ), at para 11. I also agree that some declarations can be little more than legal opinions, and that “It is not in the business of this Court to give opinions on questions of fact or points of law which may be puzzling the [parties]”: MacLeod v White (1955), 37 MPR 341, at para 100 (NB SC).
[90] With all of that in mind, I am of the view that the question of whether declaratory relief is warranted in the circumstances is one for final judgment, and not one to be contemplated at the pleadings stage. If, following trial or summary judgment motion, facts are found which establish some of the admittedly limited circumstances where a declaration is the appropriate remedy, then the trial or motion judge will issue the declaration at that time. And if facts are not found which can appropriately ground declaratory relief, then the trial or motion judge will decline to issue the declaration at that time.
[91] It is premature to consider that possibility now. In amending the pleadings, the Plaintiffs may include a request for declaratory relief or not include such a request, as they and their counsel deem appropriate.
V. Costs
[92] Counsel may make written submissions addressing costs. I would ask that these include a Costs Outline and brief submissions of no more than 3 pages. Counsel for the Defendants is requested to send their submissions by email to my assistant within 2 weeks of today, and counsel for the Plaintiff is requested to send their responding submissions within 1 week thereafter.
Morgan J. Date: October 22, 2018