Addison Chevrolet Buick GMC Limited et al. v. General Motors of Canada Limited et al., 2015 ONSC 3404

COURT FILE NO.: CV-14-10816-00CL

DATE: 20150528

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Addison Chevrolet Buick GMC Limited et al., Plaintiffs/Responding Parties

AND:

General Motors of Canada Limited et al., Defendants/Moving Parties

BEFORE: Mr. Justice S.F. Dunphy

COUNSEL: Jonathan Lisus and James Renihan, for the Plaintiffs/Responding Parties

Larry Lowenstein, Gillian Scott and Geoffrey Hunnisett, for the Defendants/Moving Parties General Motors Company and General Motors LLC

Kent Thomson and Nicholas Van Exan for the Defendant/Moving Party General Motors of Canada Limited

HEARD: March 27, 2015

REASONS FOR DECISION

[1] On June 1, 2009, General Motors Corporation (“Old GM”) filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code before the United States Bankruptcy Court for the Southern District of New York. This was a trip into bankruptcy court from which Old GM would never emerge, its principal assets were soon transferred to the “new” General Motors Company or its subsidiary General Motors LLC ( collectively, “GM US”) following which Old GM was ultimately dissolved. The shares of the Canadian subsidiary of Old GM, the defendant General Motors of Canada Limited (“GMCL”) were transferred to GM US in 2009 as part of that United States bankruptcy reorganization process.

[2] The governments of Canada and Ontario invested substantial public funds in GM US in a transaction the plaintiffs describe as a bailout. While financial support from the Canadian and Ontario governments was initially requested by GMCL in 2009 prior to the bankruptcy filing of Old GM, the actual bailout funds referred to in the Further Amended Statement of Claim were invested in preferred and common shares of GM US issued as part of the United States bankruptcy proceedings in 2009.

[3] The plaintiffs are dealers of GM automobiles in the Greater Toronto Area (or “GTA”). They claim that sales of GM vehicles in the GTA have failed to recover as anticipated since the restructuring in 2009. Despite a reduction in the number of GM dealers in the GTA arising from the 2009 restructuring, they are failing to sell enough automobiles in order to achieve adequate profitability.

[4] They plaintiffs allege that the bailout monies invested by Canada and Ontario in GM US as part of the restructuring should have been used in part to bail them out by being deployed so as to permit GMCL to offer a level of financial support to the plaintiffs similar to what GM US has done with dealers in the United States. The allege that GMCL and GM US owe them a duty of good faith performance of their franchise agreements as well as a statutory duty of fair dealing under the Arthur Wishart Act (Franchise Disclosure), 2000, S.0. 2000, c. 3 (the “AWA”). Those duties, they allege, imply an obligation (i) not to put their own interest in selling automobiles at a profit ahead of the plaintiff dealers’ interest in obtaining maximum volume or “throughput” of vehicles[1]; (ii) to provide the plaintiffs with financial support similar to that provided to dealers in the United States in recognition of the greater foreign competition and higher costs the plaintiffs face in the denser urban markets; and (iii) to consider the dealers’ interests when requiring them to expend substantial funds renovating and updating their dealership locations under the “re-imaging” obligations agreed to by the plaintiffs in their franchise agreements.

[5] By way of remedy, the plaintiffs claim various declaratory relief, “an order requiring the Defendants to provide an appropriate level of financial support and assistance to the Plaintiffs in order to permit them to fairly compete in the market areas in which they operate and to earn a reasonable return on their investment”, relief from their obligations to “re-image” their dealer locations until the defendants have provided them with the claimed support and assistance and damages in the amount of $400,000,000.

[6] GM US has brought a motion to strike the claim in its entirety as against them under Rules 21.01(1)(b), 21.01(3)(d), Rule 25.06(1),(2),(8) and Rule 25.11 of the Rules of Civil Procedure. Co-defendant GMCL has brought a narrower motion to strike only paragraphs 9, 63, 69 and 91 of the Further Amended Statement of Claim (which allege, inter alia, the misapplication of “bailout” funds from Ontario and Canada contrary to representations alleged to have been made to such governments) as against it on the grounds that they are scandalous and an abuse of process under Rule 25.06 and 25.11 of the Rules of Civil Procedure.

[7] No evidence is admissible on motions pursuant to Rule 21.01(1)(b) and none was called in this case. The moving parties did however make a number of very specific demands for particulars from the plaintiffs including demands for production of documents referenced in the pleading. The responses to these demands have been included in the motion materials and are relied upon by the defendants/moving parties in support of these two motions. The parties agree that the produced documents are deemed to be incorporated by reference in the Further Amended Statement of Claim or are a representative set of such documents incorporated by reference. All documents referenced in these reasons are among those incorporated documents.

Test on Motions to Strike

[8] There is no dispute between the parties as to the test to be applied in motions to strike pleadings under Rule 21.01(1)(b) of the Rules of Civil Procedure. By way of short summary:

a. It must be “plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action” or the claim “has no reasonable prospect of success”: R. v. Imperial Tobacco Canada Limited, 2011 SCC 42, [2011] 3 S.C.R. 45 (at para. 17);

b. “The power to strike out claims that have no reasonable prospect of success is a valuable housekeeping measure essential to effective and fair litigation”: Imperial Tobacco (at para. 19);

c. “It is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim. A claimant is not entitled to rely on the possibility that new facts may turn up as the case progresses”: Imperial Tobacco (at para 22);

d. “On a motion to strike a pleading, the court must take the facts alleged in the challenged pleading as true unless they are patently ridiculous or incapable of proof”: Transamerica Life Inc. et al. v ING Canada Inc. 2003 CanLII 9923 (ON CA), 68 O.R. (3d) 457 (at para. 38); and

e. “the motion must be determined on the adequacy of the contents of the impugned claim and any documents that have been incorporated into the claim by reference”: Dale v. Toronto Real Estate Board, 2012 ONSC 512.

[9] The last two points are of some added importance in this case where substantial numbers of documents have been incorporated by reference in the pleading. The court may, in appropriate cases, conclude that allegations in the claim which are contradicted by the documents incorporated by reference are incapable of proof. Where a party has been invited to provide particulars in relation to such matters and has declined to do so, the court may more readily reach that conclusion.

[10] GMCL’s motion is framed under Rule 25.06 and 25.11 of the Rules of Civil Procedure and is more targeted – seeking to strike only four discrete paragraphs. The rules applicable to such motions are very similar to Rule 21.01(1)(b) motions and the two rules are very often employed in tandem in motions to strike allegedly abusive pleadings. In the case of Air Canada et al. v. WestJet Airlines Ltd. et al., 2004 CanLII 66339 (ON SC), Nordheimer J. summarized the principles to be applied in considering cases under Rule 25.11 in a manner which I find to be a useful starting point (at para. 6):

“It is this paragraph and others related to it that the plaintiffs seek to strike out pursuant to rule 25.11 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The plaintiffs claim that the impugned paragraphs contain allegations that are irrelevant to the issues in the action and, if not struck out, will prejudice or delay the fair trial of the action. Before turning to the paragraphs themselves, it is worthwhile to set out the principles that have been established regarding motions under rule 25.11. Those principles include:

(a) motions under rule 25.11 should only be granted in the "clearest of cases" -- see Wernikowski v. Kirkland, Murphy & Ain (1999), 1999 CanLII 3822 (ON CA), 50 O.R. (3d) 124, 181 D.L.R. (4th) 625 (C.A.);

(b) any fact which can effect the determination of the rights of the parties can be pleaded but the court will not allow facts to be alleged that are immaterial or irrelevant to the issues [page674] in the action -- see Duryea v. Kaufman (1910), 21 O.L.R. 161, [1910] O.J. No. 118 (C.J.);

(c) portions of a pleading that are irrelevant, argumentative or inserted for colour, or that constitute bare allegations should be struck out as scandalous -- see George v. Harris, [2000] O.J. No. 1762 (S.C.J.);

(d) facts may be pleaded but not the evidence by which those facts are to be proved -- rule 25.06(1) of the Rules of Civil Procedure;

(e) similar facts may be pleaded as long as the added complexity arising from their pleading does not outweigh their potential probative value -- see Garwood Financial Ltd. v. Wallace (1997), 1997 CanLII 12276 (ON SC), 35 O.R. (3d) 280, 14 C.P.C. (4th) 277 (Gen. Div.).”

(a) Background

(i) 2009 Bankruptcy of GM US

[11] At the time Old GM commenced its Chapter 11 bankruptcy proceedings on June 1, 2009, GMCL was a wholly-owned subsidiary of Old GM. The defendant GMCL did not itself make a bankruptcy filing in the United States or Canada.

[12] In the preceding months, Old GM and GMCL had approached their respective governments for financial and other assistance. Copies of the presentations[2] made by them to their respective governments are before the court on this motion.

[13] The three components of GMCL’s restructuring plan as presented to the Ontario and Canadian governments were stated to be (1) “Implement further “self help” cost reduction actions and adopt a new beneficial “Contract Manufacturer” business model”; (2) “Obtain the CAW’s agreement to changes sufficient to achieve legacy cost reductions and align worker wages and benefits to benchmark levels; and (3) “Complete financing agreements and related actions with the Ontario and Federal Governments sufficient for GMCL to sustain its operations and restructure its balance sheet in order to address legacy burdens and ensure viability”. In seeking assistance from the Ontario and Canadian governments, GMCL indicated its acceptance of the stated requirement of the two governments that their participation be on the basis of proportionality – proportional to US government assistance to Old GM and that “proportional levels of production in Canada, compared to that in the US and Canada, be maintained”.

[14] The February 20, 2009 presentation by GMCL to the two Canadian governments contains no specific request for financial assistance in relation to payments to be made to strengthen retained dealers in general or the plaintiffs in particular although it did discuss in general terms the continuing process of consolidation and reduction in the number of dealers intended to strengthen the dealer network.

[15] On July 10, 2009, GMCL became a wholly-owned subsidiary of GM US as part of the United States bankruptcy restructuring. In that transaction, GM US acquired certain of the restructured business assets of Old GM including the shares of GMCL. Old GM was eventually dissolved and the governments of Ontario and Canada became shareholders of GM US.

[16] On August 7, 2009, GMCL sent a letter to each of the plaintiffs. The letter noted that each of the plaintiffs had received a previous letter dated May 20, 2009 informing them that GMCL wished to retain them as dealers in its restructured dealer network. The plaintiffs were thus notified of their selection as “retained dealers” before Old GM filed for bankruptcy or GM US entered the picture as shareholder of GMCL on July 10, 2009. The August 7 letter indicated that GMCL had “key expectations” of its retained dealers “all as contemplated under your current Dealer Sales and Service Agreement” (such agreement being referred to below as a “DSSA”). The reference to “current” DSSA is important since it makes it clear that there was no new DSSA given to the plaintiffs at that time (the plaintiffs were all “retained dealers”). The existing 2005 DSSA between GMCL and each of the plaintiffs then outstanding remained in place until it was renewed and replaced in 2010.

[17] In broad terms the August 7, 2009 letter indicated that dealers would be offered transition assistance in connection with the discontinuance of the Pontiac brand and medium duty trucks. Dealers offered such assistance would be required to enter into an agreement which would include a release of all claims against GMCL or its affiliates arising from the discontinuance of the Pontiac brand or the discontinuance of medium duty truck manufacturing. Finally, dealers would be offered the opportunity to participate in new brands as part of the consolidation of the dealership network provided they agreed to enter into Participation Agreements that would be offered to them.

[18] As announced in the August 7, 2009 letter, each of the plaintiffs were offered and entered into Transition Assistance Agreements and Participation Agreements effective August 31, 2009. The Participation Agreement contains the following recital:

“Recent unprecedented economic conditions in the United States and Canada and in the automotive industry have made it necessary for [GMCL] to restructure its business and operations significantly, including restructuring [GMCL’s] current dealer network as contemplated under Article 4.1 of the Dealer Agreement, in order to maintain [GMCL]’s long term viability. Dealer and Dealer Operator recognize that as part of [GMCL’s] restructuring efforts, [GMCL] will be (i) reducing the number of [GMCL] dealerships across Canada, and accordingly, a number of [GMCL] dealers have been given notice of non-renewal of their respective dealer agreements effective on the expiration of their dealer agreements on October 31, 2010 (“Notice of Non-Renewal”); and (ii) focusing on four core brands in the future, and selling or discontinuing other brands, including without limitation, the Pontiac brand and medium duty trucks.”

[19] The Participation Agreement and the Transition Agreement entered into by each plaintiff contained releases in favour of GMCL and its affiliates (including GM US) of any and all claims arising out of the discontinuance of the Pontiac brand or the discontinuance of the manufacturing of medium duty trucks. Documents incorporated by reference in the claim indicate that at least some of the loss of market share and “throughput” alleged by the Plaintiff dealers arises from those two events and would thus be contemplated by the releases contained in these two documents. It cannot, however, be concluded from the pleading alone that these two events have been the sole cause of the loss of throughput or volume which lies at the root of the complaint made by the plaintiffs.

(ii) Dealer Sales and Service Agreements

[20] Each of the plaintiffs is party to a substantially identical DSSA between the dealer and GMCL, each such agreement having a common start and expiry date. The plaintiffs admit that GM US is not a party to the DSSA.

[21] The DSSA is a short document containing only five articles reciting term of the agreement, incorporating the Standard Provisions by reference, stipulating ownership and location of the dealer and reciting the lack of any payment by the dealer for the agreement. The various addenda attached and the “Standard Provisions” contain the detailed provisions outlining the arrangements between the parties. Each of the two DSSA exemplars referenced in the pleading (2005 and 2010) had a five year term, expiring on October 31, 2010 and 2015 respectively.

[22] There is some issue as to whether the DSSA is a franchise agreement at all under the AWA. The DSSA notes that the dealers have paid no franchise fee. GMCL has reserved its rights on that issue to another day. However, I have proceeded to consider this motion by giving the plaintiffs the benefit of the doubt and assuming that the AWA applies. GMCL may, if it wishes, pursue that issue on a full evidentiary record at another time. None of my comments in this motion should be taken as affecting that issue which was neither argued by the parties nor considered by me.

[23] In providing for a five year term, Article 1 of the DSSA also provides “Dealer is assured the opportunity to enter into a new Dealer Agreement with GMCL at the expiration date if GMCL determines Dealer has fulfilled his obligations under this Agreement”[3].

[24] The standard terms which form part of the DSSA contains an “entire agreement” clause in article 17.11 pursuant to which the parties acknowledge that the agreement cancels and supercedes all previous agreements between the parties relating to the subject matter and confirming that there are no other agreements, whether oral or in writing, relating to the subject matters of the agreement.

[25] While there are doubtless some differences of wording between the 2005 and the 2010 versions of the DSSA and their various appendices, none are referenced in the pleading nor were they pointed out in argument. A review of the two documents revealed no material changes relating to any matter at issue in the litigation at least. The renewal of the DSSA in 2010 appears to have left the matrix of rights and obligations between the parties essentially unchanged – at least as regards the matters in dispute in this case.

[26] In particular, none of the provisions of the DSSA or its appendices has been identified by the plaintiffs as requiring GMCL to provide the plaintiffs with “support and financial assistance” as claimed in paragraph 1(c) and (d) of the Further Amended Statement of Claim or not to prefer its own interests. In the absence of express contractual rights upon which to found such a claim, the plaintiffs rely upon the statutory “fair dealing” obligation in s. 3 of the AWA and the common law doctrine of good faith performance of contractual obligations.

[27] The dispute in relation to the re-imaging obligations is on a quite different footing since there are express contractual terms on this subject which the plaintiffs claim the defendants may only apply having due regard to their interests in light of the overarching duties of good faith and fair dealing applying to franchise agreements.

(iii) Allegations in Statement of Claim - Overview

[28] The Statement of Claim has been revised on two occasions and has been the object of extensive demands for particulars some of which have been responded to and many others dismissed by the plaintiffs as unnecessary. The GM US defendants complain that the last round of amendments were made after they had filed their factum in respect of this motion and with an evident view to repair pleadings deficiencies noted therein. I think nothing in particular turns on that fact as far as the merits of the motion are concerned. That fact may have some relevance to the question of costs or whether leave to amend ought to be granted if the defendants are successful in their motion.

[29] The factual allegations underpinning the Further Amended Statement of Claim were well summarized in paragraph 12 of the factum of GM US as follows:

“(a) The Plaintiffs do not sell enough new vehicles (or have high enough vehicle “throughput”) to make a reasonable return on investment;

(b) The Plaintiffs operate their dealerships in the Greater Toronto Area (the “GTA”), a market that has higher operating costs than other dealers’ markets. Further, the market share for GMCL vehicles in the GTA has been declining;

(c) GMCL and GM US have contractual, statutory and common law obligations to provide the Plaintiffs with financial assistance, and they have not;

(d) GMCL and GM US have prioritized their own interests, and the interests of GM US dealers, ahead of those of the Plaintiffs, in breach of their obligations pursuant to the AWA, the DSSA, and common law; and

(e) GMCL and GM US’s failures to take any meaningful steps to address the Plaintiffs’ competitive disadvantage are in breach of their obligations (pursuant to the AWA, the DSSA and the common law) to the Plaintiffs.”

[30] It can be safely presumed that the defendants have no secret plan to make as little money as possible and that disappointing sales and declining market share have not been the subject of celebration among the defendants either. The plaintiffs’ claim is that the pain resulting from declining market share is not being shared in a manner they consider to be consistent with the “good faith” or “fair dealing” obligations of the defendants. Consistent with this theme, paragraph 94 of the Further Amended Statement of Claim alleges that the defendants “have structured the dealer network and the products sold therein with the aim of maximizing their own profitability at the expense of the Plaintiffs”.

[31] Peeling the onion back a further layer, the core of the commercial complaint appears to be found in paragraphs 95-101 of the Further Amended Statement of Claim. GM US and GMCL earn their profits primarily from the sale of new vehicles on which they earn a “contribution margin”. The plaintiffs, on the other hand, earn only a small profit from new vehicle sales per se but instead rely primarily upon revenue generated from ancillary activities such as taking in trade-ins (for profitable resale) or in providing post-sale servicing and parts for GM vehicles. Their interest lies in having the maximum number of GM vehicles sold (throughput) to increase the number of trade-ins available to them and to increase the size of the fleet of GM vehicles driven in their market area which they can seek to service profitably.

[32] In short, the plaintiffs allege a conflict between the manufacturers’ desire for contribution margin and the dealers’ desire for raw volume or throughput without regard to profit. GM, they say, has restructured its business to sell fewer cars at a healthier profit margin instead of opting to sell more cars at lower profit or a loss (a habit not unconnected with Old GM’s fate in US Bankruptcy Court). The net result, as pleaded in paragraph 101 is that the defendants “have preferred their own self-interests in complete disregard for the disastrous financial consequences that these actions have had and are having on the plaintiffs”. Paragraph 102 pleads that the defendants “intentional refusal to provide assistance to its dealers in the GTA has had a devastating impact”.

(b) Issues

[33] There are two separate motions before me arising from a single Further Amended Statement of Claim. While the factual backdrop of the motions is clearly in common, the motions themselves raise separate issues and are thus dealt with separately.

[34] GM US has brought a motion to strike the claim in its entirety as against it, raising the issues of:

a. Does GM US owe the plaintiffs any duties pursuant to s.3 of the AWA?

b. Have the plaintiffs pleaded a case sufficient to “pierce the corporate veil” and attribute alleged breaches of contractual duties of good faith by GMCL to GM US?

[35] GMCL has brought its motion under Rule 25.06 and 25.11 of the Rules of Civil Procedure to strike paragraphs 9, 63, 69 and 91of the Further Amended Statement of Claim which allege that GMCL preferred its own interests and that it misrepresented how the “bailout funds” invested by the governments of Ontario and Canada would be invested on the basis that the impugned paragraphs of the Further Amended Statement of Claim are scandalous, irrelevant and an abuse of process. This motion thus raises the question of what rights, if any, the plaintiffs can assert in respect of the negotiations between Ontario, Canada and GMCL in connection with the 2009 restructuring of Old GM as well as whether GMCL owed any duties to the plaintiffs not to prefer its own interests.

(c) Discussion

(i) Does GM US owe the plaintiffs any duties pursuant to s. 3 of the AWA?

[36] The plaintiffs alleges that GM US is a “franchisor’s associate” within the meaning of the AWA. As such, the plaintiffs claim that GM US is subject to the duties of fair dealing imposed by s. 3 of the AWA and the plaintiffs therefore have a cause of action against GM US under s. 3(2) of the AWA.

[37] GM US responds that the duties in s. 3 of the AWA can only be imposed upon a “party” to a franchise agreement and that GM US is neither a “franchisor’s associates” nor a party to a franchise agreement. As such, they claim, GM US owes no duties to the plaintiffs under the AWA and the claim as against them must be dismissed.

[38] The Further Amended Statement of Claim alleged breaches of s. 4 and s. 5 of the AWA in addition to the claims under section 3. However, the plaintiffs advised in oral argument that the claims under s. 4 and s. 5 of the AWA are not being pursued. Accordingly, the sole issue under the AWA before me is whether GM US can be sued by the plaintiffs for an alleged breach of s. 3 on the facts as pleaded.

[39] Pursuant to s. 1 of the AWA, "franchisor's associate" means a person:

“(a) who, directly or indirectly,

(i) controls or is controlled by the franchisor, or

(ii) is controlled by another person who also controls,

directly or indirectly, the franchisor, and

(b) who,

(i) is directly involved in the grant of the franchise,

(A) by being involved in reviewing or approving the

grant of the franchise, or

(B) by making representations to the prospective

franchisee on behalf of the franchisor for the

purpose of granting the franchise, marketing the

franchise or otherwise offering to grant the

franchise, or

(ii) exercises significant operational control over the

franchisee and to whom the franchisee has a continuing

financial obligation in respect of the franchise”.

[40] “Franchise agreement” is defined in section 1 of the AWA as “any agreement that relates to a franchise between, (a) a franchisor or franchisor's associate, and (b) a franchisee”.

[41] By referencing “any agreement” the definition of “franchise agreement” contemplates that there may be multiple agreements operative within a franchise relationship each of which is capable of being characterized as a franchise agreement governing whatever segment of the relationship a particular agreement is intended to address.

[42] In the present case, for example, the parties have produced and agreed to treat as incorporated in the pleading a number of separate agreements between GMCL and the plaintiffs. Each of these agreements appears on its face to be an agreement that “relates to” a franchise between a franchisee and franchisor. There is no reason in logic or law why the parties to each “franchise agreement” must necessarily be the same. An agreement between the franchisee and some combination of either the franchisor or the franchisor’s associate is entirely possible and is an outcome contemplated by the definition of “franchise agreement”. It follows that a franchisor’s associate may be party to a single franchise agreement without necessarily being party to each.

[43] Section 3 of the AWA provides :

“s.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.

(3) For the purpose of this section, the duty of fair dealing includes

the duty to act in good faith and in accordance with reasonable

commercial standards.”

[44] This question of whether GM US owes the plaintiffs any obligations under the AWA raises two further questions which I consider separately. The first is whether a franchisor’s associate who is not explicitly a party to the franchise agreement can nevertheless be held liable under s. 3(2) of the AWA. In short, is a franchisor’s associate deemed to be a party to every franchise agreement by reason of that status alone? The second is whether GM US is a “franchisor’s associate” at all.

Is a “Franchisor’s Associate” party to every franchise agreement?

[45] The plaintiffs argued that GM US is a “franchisor’s associate” with the meaning of the AWA and is thereby liable to be pursued under s. 3 of the AWA. These are, with respect, entirely separate questions.

[46] While section 3(2) of the AWA provides for a cause of action both for and against a “party” to a franchise agreement to enforce the fair dealing obligation, no provision of the AWA deems a franchisor’s associate to be a party to the franchise agreement. Section 3(1) and (2) thus are applicable on their face to parties to a franchise agreement and to no others. This cannot be assumed to be a simple error or omission. The concept of privity of contract is as well-known and central to the law as are the legislative techniques to avoid the doctrine where there is sufficient reason in the judgment of Parliament or the Legislature to do so.

[47] I conclude that unless a franchisor’s associate is also a party to the relevant franchise agreement, the franchisor’s associate may not be sued under s. 3(2) of the AWA.

[48] This conclusion is not only compulsory upon a straightforward application of the words used in the statute, it is also consistent with the scheme of the Act. The AWA does not impose blanket joint liability upon a franchisor’s associate for any and all of the actions or obligations of a franchisor. There is a clear difference in approach between section 3 (which applies to parties to a franchise agreement) and sections 4-7 which imposes specific obligations on franchisors and franchisors associates. That contrast (between “party” and “franchisor’s associate” or “franchisor” as the case may be) is carried forward in section 8 of the AWA which addresses joint and several liability. Subsection 8(1) of the AWA assigns joint and several liability solely for actions under s. 3(2) to parties to the franchise agreement and makes no mention of franchisor’s associate, thereby closely tracking the language of section 3 to which it refers. By contrast, subsections 8(2) and (3) of the AWA apply to franchisor’s associates directly and potentially affix them with joint and several liability if the circumstances therein mentioned are found.

[49] Certainly a franchisor’s associate may be a party to a franchise agreement but the conclusion is a permissive one only. The franchise relationship may be composed of a related series of agreements and there is no reason why a franchisor’s associate might not – in some relationships – be a party to some or all of them. In the present case, however, GM US is not a party to any franchise agreement.

[50] The plaintiffs argued their case as if the mere conclusion that GM US is a “franchisor’s associate” as claimed automatically carried with it the conclusion that GM US is subject to the fair dealing obligations of s. 3 and liable to suit under s. 3(2) for violations of such duty as if jointly and severally liable with GMCL. A franchisor’s associate is not subject to claims under s. 3(2) of the AWA unless the franchisor’s associate is also a party to the franchise agreement under consideration.

[51] The plaintiffs claim that it is not plain and obvious that a franchisor’s associate is not liable under s. 3 of the AWA and suggest that the matter is sufficiently unclear that it should proceed to trial prior to making a determination. I disagree.

[52] The construction of section 3 of the AWA in relation to franchisor’s associates is a pure question of law and not one that requires an additional factual framework to be applied. This is precisely the sort of question that motions under Rule 21.01(1)(b) are intended to permit to be dealt with in performing the “valuable housekeeping” that the Supreme Court recommended in Imperial Tobacco (supra, at para. 19).

[53] Statutory interpretation is quintessentially a matter of law. Factual context may be necessary in some cases to determine the application of a statute to particular facts where the facts are in doubt or heavily contested. In a Rule 21.01(1)(b) motion, the plaintiff is given the opportunity to paint the picture in the best possible light with its pleading – if the interpretation of the statute is clear even in that light, there is no reason not to proceed to dispose of the matter. In the case of Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, for example, the Supreme Court of Canada was able to dismiss a claim against children’s aid authorities on a Rule 21.01(1)(b) motion on the basis of a lack of a duty of care owed to the parents without an evidentiary record to establish exactly what actions had been taken. In the present case, it is admitted that the defendants in question are not parties to the franchise agreement. There is no need to impose upon a non-party the expense and disruption of years of litigation in order to arrive at a conclusion that is plain and obvious from the outset.

[54] The plaintiffs suggest that the AWA must be interpreted generously in their favour and that the courts have not precluded franchisors from pursuing franchisor’s associates under s. 3(2) of the AWA in the past. Therefore, they say, the law is “not settled” and the case should proceed. None of the cases cited by the plaintiff have considered the point and none have in fact found a franchisor’s associate liable under s. 3(2) of the AWA without first finding them party to one or more franchise agreements or otherwise directly involved in actions which justify piercing the corporate veil.

[55] The case of Beer v. Personal Service Coffee Corp., 2005 CanLII 25180 (ON CA), [2005] O.J. No. 3043 (C.A.) provides a useful framework for analysing the rights and obligations of parties subject to the AWA and in particular the contrast between s. 3 (which imposes bilateral rights and obligations on all parties to a franchise agreement) and sections 4 through 7 (which impose obligations upon the franchisor for the protection of the franchisee).

[56] In Beer, the plaintiff had exercised his rescission rights due to non-receipt of the disclosure required under the AWA and was alleged to have immediately commenced a competing business using the customers, equipment and know-how supplied by the franchisor. The Court of Appeal allowed the franchisor’s appeal of the dismissal of its claim for damages, finding that there was a triable issue regarding the franchisee’s fair dealing obligations to the franchisor under s. 3 and s. 9 of the AWA. MacFarland J.A. reviewed the legislative history of the AWA and found (at paras. 28-29):

“[28] It is clear, therefore, that the focus of the Act is on protecting the interests of franchisees. The mechanism for doing so is the imposition of rigorous disclosure requirements and strict penalties for non-compliance. For that reason, any suggestion that these disclosure requirements or the penalties imposed for non-disclosure should be narrowly construed, must be met with scepticism.

[29] However, while the Act imposes fairly onerous disclosure requirements on franchisors, it is not entirely one-sided. In particular, s. 3 of the Act imposes a duty of fair dealing on "each party" to a franchise agreement with respect to performance and enforcement and gives the parties a right to damages for breaches of this duty of fair dealing. In this way, the Act obliges both the franchisor and the franchisee to deal fairly with one another.”

[57] The plaintiffs cite the decision of D.R. Cameron J. in WP (33 Sheppard) Gourmet Express Restaurant Corp. v. WP Canada Bistro & Express Co., [2010] ONSC 2644 () as authority for the proposition that a motion under Rule 21.01(1)(b) ought not to be entertained to deal with potentially “unsettled” issues under the AWA and that franchisor’s associates may be subject to claims under s. 3 of the AWA. In WP (33 Sheppard), there were specific pleadings of each of the required components of the definition of “franchisor’s associate” (including the grant of the franchise and the continuing financial obligations of the franchisee) and the defendants were actual parties to various franchise agreements directly with the plaintiffs. The control party defendants in WP (33 Sheppard) had direct financial dealings with the plaintiffs, were alleged to have made direct misrepresentations to the franchisee and were alleged to have direct contractual obligations to provide funding. The court left to a fuller evidentiary record the task of determining the inter-relationship of the various franchise agreements, but the named defendants were each parties to one or more franchise agreements. The question of extending s. 3 AWA liability to non-parties did not therefore arise. By contrast, in this case, it is admitted that GM US is not a direct party to any of the franchise agreements.

[58] The case of Madinat Qaboos Services LLC v. Mucho Burrito International Inc., [2012] ONSC 1959 () was referred to by the plaintiffs but is also of no assistance since the franchisor’s associates in that case were specifically involved in the actual grant of the franchise and the case involved disclosure, misrepresentation and rescission obligations where a franchisor’s associate’s direct liability is specifically provided for by s. 8(2) and (3) of the statute. The case is no authority for the proposition that franchisor’s associates bear liability under s. 3 of the AWA even if they are not parties to the franchise agreement in question.

[59] The plaintiffs have admitted that GM US is not a party to any of the franchise agreements between the plaintiffs and GMCL. The plaintiffs’ factum seeks to argue that GM US is nevertheless “for all practical purposes” a party by virtue of its degree of control over GMCL. That is not what s. 3(2) requires. The fact that GM US is not a party to the franchise agreement is fatal to any claim to impose liability under s. 3(2) or s. 8(1) of the AWA upon GM US.

Is GM US a “franchisor’s associate”?

[60] GM US deny being a franchisor’s associate in any event. In the event a higher court should disagree with my interpretation of the word “party” in s. 3(2) of the AWA, I set forth below the reasons for my conclusion that GM US is not, in any event, a “franchisor’s associate” either.

[61] The definition of “franchisor’s associate” (reproduced above) has two distinct parts. The first part (subparagraph (a)) may be described as imposing a “control test” while the second part of the test (subparagraph (b)) examines actions taken by the alleged franchisor’s associate in relation to the particular franchise in question. The test is clearly conjunctive such that a party must satisfy both (a) and (b) in order to be considered a franchisor’s associate.

[62] The plaintiffs cited the case of 1146845 Ontario Inc. v. Pillar to Post Inc., 2013 ONSC 4374 to argue that the conjunctive nature of the test is not “settled law” and thus cannot be dealt with in the context of a Rule 25.01(1)(b) motion. I disagree. The pleading in that case specifically alleged that the two individuals added as franchisor’s associates had direct involvement in the granting of the franchise and controlled the franchisor, thus fully meeting the requirements of the statutory definition. While Perell J. may have summarized the AWA definition of franchisor’s associate using the word “or” where the statute used the word “and”, there can be no doubt that the statutory test was satisfied on the facts pleaded in that case and there was no issue raised in the case as to whether the test was to be read conjunctively.

[63] The language employed in the definition of “franchisor’s associate” is clear that the test requires satisfaction of both the (a) and (b) portions of the definition. The form and phrasing of this conjunctive test is so common and well-known in legislative drafting as to be beyond argument in my view.

[64] There is no dispute in this case that GM US satisfies the control party test set forth in part (a) of the definition. GMCL is a wholly-owned subsidiary of GM US and GMCL is clearly the franchisor under the 2010 DSSA if that agreement be considered the “franchise agreement” under which the plaintiffs claim rights. There being no allegations of any of the plaintiffs having any continuing financial obligation to either of the GM US defendants, the only question is whether either or both of the GM US defendants can be said to satisfy part (b)(i) of the test as being “directly involved in the grant of the franchise”.

[65] In my view, the pleading fails to allege any factual basis for determining that either of the two GM US defendants was “directly involved in the grant of the franchise, (A) by being involved in reviewing or approving the grant of the franchise, or (B) by making representations to the prospective franchisee…” (emphasis added). No representations to the “prospective” franchisees are at issue in this case and thus part (B) is not relevant and we are thus solely concerned with whether GM US had involvement in the “grant” of the franchise.

[66] The plaintiffs are each long-standing dealers of the defendant GMCL with dealerships ranging between 24 and 94 years in age. The representative DSSA provided in the Motion Record is in respect of the plaintiff City Buick Cadillac GMC Ltd. (“City Buick”), a dealer that paragraph 17 of the Further Amended Statement of Claim states has been in operation since 1921. Two successive forms of DSSA between GMCL and City Buick were among the documents agreed to be treated as incorporated by reference in the pleading.

[67] Both at the time the 2005 DSSA’s were entered into and at the time the plaintiffs were notified by GMCL of their retention as dealers on May 20, 2009, GMCL (the franchisor) was a subsidiary of Old GM and GM US had thus not yet entered the picture. While there is no evidence on the record before me as to when each of the franchises of the plaintiffs were granted, if the City Buick documents are representative of all of the plaintiffs as agreed, then it follows that each of the plaintiffs received the grant of their franchise on or before November 1, 2005. GM US cannot be described as being involved in the “grant” of the franchise since GM US cannot have granted something before it was born[4].

[68] Two arguments were advanced to suggest that GM US was involved in the “grant” of the plaintiffs’ franchises. The first was that GM US was involved in the selection of which dealers would be retained and which would be terminated in the 2009 bankruptcy restructuring process. The second is that GM US was involved in reviewing the terms of the 2010 DSSA when each of the plaintiffs renewed their franchise at that time.

[69] The plaintiffs plead that other dealers were not renewed as part of the overall restructuring effort of the defendants in 2009 on the theory that not selecting them for termination is somehow equivalent to “granting” the franchise. The statement does not withstand scrutiny. The rights of “non-renewed” dealers are not the object of this proceeding. Those who had their agreements renewed in accordance with their terms cannot claim to have been “granted” a new lease on life merely because others were not. Furthermore, the pleaded fact that the decision to retain the plaintiffs was communicated on May 20, 2009 six weeks before GM US acquired its interest in GMCL is fatal to the claim. The 2009 restructuring provides no foundation to plead that GM US was involved in the grant of the plaintiffs’ franchises.

[70] I also reject any notion that the determination of status as a “franchisor’s associate” can be tied to the date of the last-dated franchise agreement in a potentially lengthy series of such agreements. The AWA definition of “franchisor’s associate” refers to the “grant of the franchise” and not to the entering into of a particular franchise agreement. There may be multiple franchise agreements which collectively form the whole “franchise” arrangement and those agreements may have different terms or be renewed from time to time.

[71] The franchise agreement is not like the phoenix, born anew with each cycle of expiry and renewal. The plaintiffs each had an existing right granted by the 2005 DSSA to receive the 2010 DSSA subject to fulfillment of the specific conditions mentioned. Where the particular franchise agreement is renewed in accordance with a prior existing renewal right, the date of the “grant” of the franchise cannot reasonably be read as the date of the latest renewal. This would appear all the more plain and obvious when there is no suggestion that the renewed agreement contained any clauses that were materially different (as relating to any matter at issue in the litigation at least). The plaintiffs all had agreements in 2005 and each of those agreements were renewed in accordance with their terms in 2010. I cannot construe the word “grant” as applying to such a renewal. There is no ambiguity and the meaning of the word “grant” in this context is plain and obvious[5].

[72] The pleading in this case have incorporated a number of different agreements relating to the franchise which make the distinction between the “grant of the franchise” and the effective date of a particular franchise agreement plain and obvious. The parties have agreed that the Further Amended Statement of Claim incorporates by reference the following agreements (among others):

• Dealer Sales and Service Agreement and addenda effective November 1, 2005;

• Purchase and Bailment Agreement dated February 12, 2009;

• Dealer Sales and Service Agreement effective November 1, 2010;

• Participation Agreement effective September 1, 2009;

• Transition Assistance Agreement effective September 1, 2009;

• Corvette ZR1 Specialty Vehicle Agreement dated October 20, 2010;

• GM Goodwrench Service Agreement effective as of November 1, 2010;

• Amendment to GM Goodwrench Service Agreement dated May 5, 2014;

• Optimum Certified Used Vehicles Process Agreement dated October 7, 2010;

• Two Mode Hybrid Specialty Vehicle Agreement effective November 1, 2010;

• Volt Specialty Vehicle Agreement – Sales and Service Dealers dated October 18, 2013.

[73] Clearly, the “grant” of the franchise is not tied to the disparate effective dates of these myriad agreements.

[74] Even if it were argued that the renewal of a particular franchise agreement upon the coming into force of the 2010 DSSA could be treated as the “grant” of the franchise of that plaintiff for purposes of the AWA, the pleading nevertheless fails to plead a sufficient link between the GM US and the renewal of the franchise agreement in respect of any individual plaintiff in 2010.

[75] In order to be found to be a franchisor’s associate in respect of a particular franchise agreement, the control party would have to have been actually involved in the review or approval of the grant of each plaintiff’s franchise. There is no such pleading in this case and a pleaded generic review of a standard form agreement does, in my view, fall within the definition.

[76] The pleading has sought to finesse this issue by ignoring it. Paragraph 35 of the Further Amended Statement of Claim pleads:

“The Plaintiffs are all parties to an identical DSSA with GMCL. The DSSA, a contract of adhesion, is a franchise agreement governed by the AWA. GM [US] reviewed and approved the terms of the DSSA, thereby reviewing and approving the terms under which the Plaintiff’s franchises were granted. GM [US] was therefore directly involved in reviewing or approving the grants of the Plaintiff’s franchises”.

The conclusions pleaded do not follow from the facts. Review and approval of the terms of a standard form alleged “contract of adhesion” is not the same as being involved in the grant of each particular franchise.

[77] Paragraph 10 is scarcely more precise, pleading that the plaintiffs’ investments in re-imaging of their dealerships were made “after the Defendants’ review of the grants of the franchise”.

[78] The plaintiffs would have the category of “franchisor’s associate” relegated to the status of a mere pleadings speed bump. The Legislature did not set the bar so low. The qualitative criteria to be satisfied in determining status as a franchisor’s associate are relevant to the specific liability fixed upon a franchisor’s associate under s. 4 – s. 7 of the AWA. The Legislature clearly has deliberately chosen to require a qualitative assessment of the involvement of the franchisor’s associate directly with the particular franchisee, whether through intervention in the grant of the franchise or through a control of and direct financial relationship with the franchisee. The criteria are directly relevant to the type of liability imposed.

[79] The plaintiff suggests that “a full review of the circumstances surrounding the GM restructuring and their impact on the AWA” is required before the court can conclude that the AWA might be “interpreted in such a manner that allowed franchisor’s associates to wash away any liability under s. 3 by simply transferring the business to a new operating entity.” I disagree.

[80] The documents incorporated by reference clearly establish that General Motors Company acquired some but not all of the assets of Old GM and was established as part of the United States bankruptcy process to do so in order to restructure that business. There is nothing “coy” in advancing this fairly straightforward and obvious fact and there is no reason why a pleadings motion should not examine such a straightforward legal issue. This court should not need to delve into the furthest corners of a foreign bankruptcy process completed five years prior to the issuance of the Statement of Claim in order to determine how Ontario law will treat the product of that process.

[81] If it be objected that the record does not establish the date of incorporation of General Motors LLC or its role in the 2009 US bankruptcy, the fault lies with the plaintiffs’ pleading. The plaintiffs have pleaded no facts whatsoever unique to General Motors LLC which is simply subsumed into the identity of its parent company General Motors Company in an omnibus defined term “GM” in the pleading. Whether General Motors LLC has or has ever had a single employee or has done anything in its existence beyond being a passive holding company is neither pleaded nor to be presumed from as vague and imprecise a pleading as this.

[82] General Motors LLC has a separate right to know what is alleged against it. GM US was clearly born of the 2009 restructuring on the record before me. The plaintiffs have chosen to plead nothing to distinguish General Motors LLC from General Motors Company, compelling me to treat the two entities as one since the Further Amended Statement of Claim has done so.

[83] The plaintiffs had ample opportunity to plead any distinct facts in relation to General Motors LLC. They have not been taken by surprise by the defendants’ argument – to the contrary, they had a preview of the defendants’ factum before making their last set of amendments. I am entitled to infer that they have amended as far as the facts known to or reasonably inferred by them will support. If the claim as pleaded fails as against General Motors Company, it must also fail as against General Motors LLC given the lack of any basis to distinguish the two entities as the claim has been pleaded by the plaintiffs.

[84] GMCL as franchisor has not “washed away” any potential liability upon its sale to a new owner within the US bankruptcy process. There is not the tiniest suggestion here of shell games to create judgment-proof defendants. The franchisor, GMCL, after all, is the entity which did not file for bankruptcy. The plaintiffs have been dealing with GMCL directly for decades – in some cases almost 100 years - without having or requiring a covenant of its parent. GM US emerging from bankruptcy is in no different position than any other simple purchaser of a business and it is no greater or more difficult a task to apply the AWA in the context of a sale of the business than it is to apply it to a sale or transfer as part of a foreign bankruptcy. Indeed, comity would suggest a greater and not lesser degree of deference to the finality of such proceedings.

[85] The idea that GM US would start its new life post-bankruptcy restructuring with a clean slate is neither surprising nor foreign to our own conceptions of such things in Canada nor indeed does it require any more analysis in terms of the AWA than that required in the case of a simple sale of a shares of a franchisor in a change of control transaction.

[86] The plaintiffs urged that resort might also be had to subsection (b)(ii) of the definition of “franchisor’s associate”, claiming that GM US exercises significant operational control over the plaintiffs and that the plaintiffs owe a continuing financial obligation to GM US.

[87] The Further Amended Statement of Claim fails to plead the material facts necessary to sustain that position. There is no specific allegation that GM US exercises operational control over the plaintiffs directly apart from a generic allegation that GMCL and GM US exercise control through the “re-imaging” requirement. The plaintiffs’ replies to demands for particulars clarified that the re-imaging obligations in question were all to be found in agreements with GMCL alone. GM US is only implicated in that controversy by allegations of knowledge and acquiescence. Those allegations are a long way from establishing operational control over the plaintiffs.

[88] Even if the plaintiffs’ obligation to renovate their own premises for their own use could be characterized as a financial obligation owed “to” the franchisor, it is certainly not one that can in any way be said to be owed to GM US. Having regard to the admissions contained in the Response to GMCL’s Demand for Particulars, not a single instance of a operational control by GM US over the plaintiffs nor of any direct financial obligation owed by the plaintiffs to GM US was pleaded. Subparagraph (b)(ii) is plainly inapplicable.

[89] For the foregoing reasons, I conclude that GM US is not a “franchisor’s associate” within the meaning of the AWA based upon the allegations contained in the Further Amended Statement of Claim. Since GM US is neither a franchisor’s associate nor a party to any franchise agreement referenced by s. 3 of the AWA, all claims against GM US founded upon the AWA must accordingly be dismissed under Rule 21.01(1)(b) of the Rules of Civil Procedure.

[90] Rule 1.04 of the Rules of Civil Procedure requires a “liberal” construction of the rules “to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”. I do not consider the retaining of GM US in a proceeding for the purpose of dragging into an Ontario civil proceeding an apparent fishing expedition aimed re-hashing the details of a six year old United States bankruptcy restructuring with no bearing upon the issues before the court in Ontario to be the best means of securing a just, expeditious or least expensive resolution of the actual matters the plaintiffs raise.

(ii) Other Contractual Claims: Piercing the Corporate Veil

[91] The plaintiffs’ factum frankly concedes that GM US is not a party to the DSSA but suggests that “the facts as pleased disclose an unusual situation in which [GM US] is, for all practical purposes, a party to the DSSA. Given the relationship between [GM US] and GMCL, this is an appropriate circumstance for the court to pierce the corporate veil and assign contractual liability to [GM US] on that basis”.

[92] There is no dispute in the present case that GM US controls GMCL. GMCL is a private company and a wholly-owned subsidiary of GM US. The plaintiffs were all “retained” dealers in the context of the 2009 restructuring (in court in the case of Old GM, out of court in the case of GMCL). The claim to pierce the corporate veil appears to be founded on the following allegations contained in the Further Amended Statement of Claim:

a. GM US directs and controls all network, product and marketing decisions for GMCL including the composition and structure of the dealer networks, the products distributed, the pricing of those products and whether and to what extent financial assistance and support will be extended (para. 32);

b. GM US reviewed and approved the essential terms of the DSSA’s which the Plaintiffs are party to (para. 35);

c. GM US directed the restructuring of the GMCL dealer network in 2008-2009, including how many dealerships were to be terminated and what offers of financial assistance were to be offered to dealers (para. 54 and para. 59).

[93] The question to be determined is whether these allegations, alone or in combination, provide a reasonable foundation for a claim to pierce the corporate veil and hold GM US liable as a party for alleged breaches of the franchise agreement by GMCL. In my view they do not.

[94] There is no presumption in favour of piercing the corporate veil thereby rendering a shareholder liable for the obligations of a corporation. To the contrary, the presumption since the case of Salomon v Salomon & Co. [1897] A.C. 22 is that a corporation is an entity separate and distinct from its shareholders. This presumption has not only been a fundamental premise of the common law for over a century, it is also an explicit consequence of s. 45(1) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (the “CBCA”) which provides that “the shareholders of a corporation are not, as shareholders, liable for any liability, act or default of the corporation”.

[95] The fact that courts have exercised discretion to pierce the corporate veil in a wide variety of circumstances does not constitute a free license to inoculate an otherwise defective pleading from being struck out simply by the ritual repetition of the talismanic phrase “pierce the corporate veil”.

[96] In the case of 642947 Ontario Limited v Fleischer et al., 2001 CanLII 8623 (ON CA), the Court of Appeal reviewed the doctrine of piercing corporate veil in the context of an undertaking as to damages given by a party seeking an injunction. The principals of the moving party had been aware that, in tendering the undertaking, the corporation lacked any assets with which to make good its undertaking. Speaking for the court, Laskin J.A. summarized the doctrine as follows (at para. 68):

“Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated "those in control expressly direct a wrongful thing to be done": Clarkson Co. v. Zhelka at p. 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 at pp. 433-34 (Gen. Div.), affd [1997] O.J. No. 3754 (C.A.): "the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct."

[97] In Shopper’s Drug Mart Inc. v. 6470360 Canada Inc., 2014 ONCA 85, Pepall J. A. (at para. 43) quoted the above passage from Fleischer and concluded that “Fleischer is the appropriate test to piercing the corporate veil in Ontario”, commenting that “only exceptional cases that result in flagrant injustice warrant going behind the corporate veil”.

[98] The Further Amended Statement of Claim pleads the desired conclusion (piercing the corporate veil) but pleads none of the facts required to enable a court to reach that conclusion applying Fleischer and Shoppers Drug Mart beyond the simple fact of control. Corporate control alone, including its exercise in the ordinary course, does not carry with it any presumption of joint and several liability for contracts freely entered into with a subsidiary.

[99] There is no adequate foundation in the pleading to permit a finding of the extraordinary circumstances that must exist to justify piercing the corporate veil and making GM US liable for the actions of its subsidiary. GMCL is not pleaded to be to be a shell or a straw man inserted into transactions with the plaintiffs to shield GM US from liability under the AWA or otherwise. To the contrary, GMCL has been operating in Ontario for a very long time, employs thousands of people and has been dealing directly with the plaintiffs as dealers for between 24 and 94 years.

[100] Cases where the corporate veil has been pierced in the franchise context have often involved closely-held operations where the control party has been directly involved, often as the prime actor wearing multiple hats, in all or substantially all aspects of the wrongful conduct complained of. For example, in MAA Diners Inc. et al. v. 3 for 1 Pizza & Wings (Canada) Inc. et al. 2003 CanLII 10615 (ONSC)[6], Spiegel J. found that the principal of the franchisor had told the franchisee that all of the defendants were the same company enabling her to find that the principal was in fact a franchisor.

[101] The plaintiffs have an onus to plead very specific and material facts which would justify a court in treating as a sham a corporate entity as substantial as GMCL. They have not discharged that onus by merely pleading the conclusion and the simple fact of control and its ordinary incidents.

[102] In considering what pleading would be adequate to sustain an allegation that the corporate veil should be pierced notwithstanding s. 45(1) of the CBCA, it is relevant to note that no hint of fraud or dishonesty is alleged in this case[7]. The AWA has specifically addressed the issue of when and in what circumstances control parties in the franchise context ought to respond for the obligations of the franchisor. The balance struck by the Legislature ought not lightly to be disturbed in favour of an ad hoc approach to piercing the corporate veil. If exceptional circumstances exist which would warrant piercing the corporate veil in this case, the plaintiffs’ had the onus of pleading them with particularity and, despite amendments already made, have not been able to do so.

(iii) Scandalous or Irrelevant Claims against GMCL

[103] GMCL seeks to strike out four specific paragraphs of the Further Amended Statement of Claim on the basis that they are scandalous, vexatious or an abuse of process.

[104] The impugned paragraphs are as follows:

a. Paragraph 9 which alleges that GMCL has breached claimed obligations of support and preferred its own interests to those of the plaintiff by introducing financial assistance programs for dealers in the US “funded in substantial part by bailout monies provided to GMCL by the Canadian and Ontario governments, which funds were intended to provide support for GMCL and the Canadian dealer network based on representations and assurances made by GM and GMCL at the time the bailouts were sought”;

b. Paragraph 63 which pleads that the defendants had “represented that any such [bailout] funds provided would be fairly allocated to both the US and Canadian dealer networks, and in particular to the major metro markets or “A” markets in both networks” and that the defendants “assured the dealers that increasing throughput and profitability in “A” markets was a top priority for the companies moving forward through the restructuring process”;

c. Paragraph 69 which pleads that “despite the fact that the Canadian and Ontario Governments provided bailout funds to GMCL based on the representations made and assurances given by GM and GMCL referred to in paragraph 63 above, all of the $10 billion received from Canadian taxpayers were directed to GM in the United States”; and

d. Paragraph 91 which pleads that “the decision to allocate funds to provide assistance to dealers in the United States nearly three years ago while providing nothing to dealers in Canada is an unjust preference of the former over the latter by GM, and is an improper use of bailout funds provided by the Ontario and Canadian governments to GM and GMCL and a breach of the fundamental statutory and common law duties of good faith and fair dealing”.

[105] The four paragraphs under review can be seen as raising two distinct questions:

a. whether a claim that GMCL “preferred [its] own interests” is sufficient to ground a claim for breach of the duty of fair dealing under s. 3 of the AWA or the obligation of good faith in performance of contractual obligations?

b. whether representations made to Ontario and Canada in 2009 regarding use of “bailout funds” provided by them to GM US are capable of being relevant to this claim.

If the answer to both questions is “no”, then the paragraphs are irrelevant and should be struck as embarrassing and an abuse of process.

Preferring own interests and the duty of good faith

[106] The plaintiffs identified no specific contractual duty in the DSSA to support the claim in paragraph 9 of the Further Amended Statement of Claim that GMCL had an obligation not to prefer its own interest. There being no express contractual foundation pleaded, support can only be found in the general statutory “fair dealing” duty under s. 3 of the AWA, the common law doctrine of good faith or not at all.

[107] The content of the statutory duty of fair dealing is not specified in the AWA and I am disinclined to attempt to delineate that duty exhaustively in a pleadings motion such as this. Whether the obligation is co-extensive with the common law obligation of good faith and honest performance of a contract or goes further I need not decide today. While I may be reluctant to define what it is, I am not uncomfortable in defining what it is not.

[108] Section 3 imposes the obligation of “fair dealing” upon all parties to a franchise agreement – both franchisor and franchisee (c.f. Beer v Personal Service Coffee Corp. supra). It follows as a simple matter of logic that both parties to a franchise agreement cannot be under the same obligation not to prefer their own interests. A claim that one side has “preferred its own interest” by itself cannot be actionable under s. 3 of the AWA. Fair dealing is an obligation shared by both the plaintiffs and GMCL equally under s. 3 of the AWA.

[109] In the absence of a contractual or statutory duty not to prefer its own interest, the plaintiffs can only support the pleading as against GMCL by reference to the common law duty of good faith.

[110] The Court of Appeal in Shelanu v. Print Three Franchising Corp. (2003) 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), makes an important distinction between fiduciary duties and the contractual obligation to act in good faith in the franchise context:

“[69] There is at least one important difference between the duty of good faith and a fiduciary duty. If, for example, A owes a fiduciary duty to B, A must act only in accordance with B's interests when A exercises its powers or exercises a discretion arising out of the relationship: see York Condominium Corp. No. 167 v. Newrey Holdings Ltd. (1981), 1981 CanLII 1932 (ON CA), 122 D.LR. (3d) 280 (Ont. C.A.), at 289, leave to appeal to the Supreme Court of Canada refused [1981] 1 S.C.R. xi (S.C.C.); Hodgkinson v.Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377 (S.C.C.). If, on the other hand, A owes a duty of good faith to B, A must give consideration to B's interests as well as to its own interests before exercising its power. Thus, if A owes a duty of good faith to B, so long as A deals honestly and reasonably with B, B's interests are not necessarily paramount: see for example Freedman v. Mason, 1958 CanLII 7 (SCC), [1958] S.C.R. 483 (S.C.C.).”

[111] In advancing a claim their claim for subsidies and financial support, the plaintiffs have been unable to point to a single provision of the franchise agreement which they allege has been breached. The plaintiffs have declined every invitation to plead particulars of the source or extent of this claimed obligation and lean heavily if not exclusively on the doctrines of good faith to suggest that silence in their agreements on the subject of the claimed special subsidies and support may yet be supplied by a visit to the judicial oracle.

[112] The doctrine of good faith is not the source of contractual obligations but a guide to the application of them.

[113] In the case of Jaffer v York University, 2010 ONCA 654, a claim of a student for damages for failure to accommodate his disability was dismissed. The plaintiff sought to ground his claim under the doctrine of good faith in the performance of contracts. Karkatsanis J. A. (as she then was) found (at para. 49):

“Jaffer’s pleadings suggest that York breached its duty of good faith. Such a duty is not a stand-alone duty that is independent from the terms expressed in the contract or from the objectives that emerge from the provisions: Transamerica Life Canada Inc. v ING Canada Inc. (2003) 2003 CanLII 9923 (ON CA), 68 O.R. (3d) 457 (C.A.), at para. 53. In order for a claim for a breach of a duty of good faith to survive, such a duty must be an express or implied term of the contract and there must be a tenable cause of action for breach of contract”

[114] In Bhasin v. Hrynew, 2014 SCC 71, the Supreme Court of Canada considered the doctrine of good faith performance as it applied to the non-renewal of a dealership arrangement which, in the absence of a franchise fee, was not subject to the statutory duty of fair dealing under the Alberta Franchises Act, R.S.A. 2000, c. F-23. Writing for the court, Justice Cromwell found that (at para. 33):

“In my view, it is time to take two incremental steps in order to make the common law less unsettled and piecemeal, more coherent and more just. The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations”.

[115] In suggesting this approach to the doctrine of good faith, Cromwell J. indicated that this “will bring a measure of coherence and predictability to the law and will bring the law closer to what reasonable commercial parties would expect it to be” (Bhasin, supra at para. 41). It would be ironic indeed if a ruling intended to bring coherence and predictability by underscoring the common sense minimum standards of honesty in the commercial context should be misconstrued as a pretext for injecting uncertainty and risk of arbitrary outcomes into the world of commercial agreements whose very raison d’être is the pursuit of predictability and certainty.

[116] Bhasin is no authority for unbridled creativity in the creation from whole cloth of obligations in a contractual context which the parties have not provided for or have addressed in a fashion which one party regrets in hindsight. Good faith and honesty are the boundaries of the field on which the contractual relationship is negotiated and performed:

“Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm’s length and are not subject to the duties of a fiduciary, a basic level of honest conduct is necessary to the proper functioning of commerce” (Bhasin, supra at para. 62) .

[117] With paragraph 9 of the Further Amended Statement of Claim, which suggests that the defendants breached a duty of good faith and fair dealing by placing their own interests ahead of those of the plaintiffs, the plaintiffs have confused the doctrine of good faith and the statutory duty of fair dealing with the much higher standard of a fiduciary. Cromwell J. carefully distinguished the two concepts in Bhasin (supra, at para. 65):

“The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, the contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While “appropriate regard” for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interest in all cases. It merely requires that a party not seek to undermine those interests in bad faith. This general principle has strong conceptual differences from the much higher obligations of a fiduciary. Unlike fiduciary duties, good faith performance does not engage the duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first” (emphasis added).

[118] Again, at paragraph 86, Cromwell J. further underscored the distinction between the duty proposed and that of fiduciary loyalty:

The duty of honest performance that I propose should not be confused with a duty of disclosure or of fiduciary loyalty. A party to a contract has no general duty to subordinate his or her interest to that of the other party. However, contracting parties must be able to rely on a minimum standard of honesty from their contracting partner to performing the contract as a reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests. That said, a dealership agreement is not a contract of utmost good faith (uberrimae fidei) such as an insurance contract, which among other things obliges the parties to disclose material facts. But a clear distinction can be drawn between a failure to disclose a material fact, even a firm intention to end the contractual relationship, and active dishonesty”.

[119] The duty of good faith performance of contractual obligations recently affirmed by the Supreme Court of Canada in Bhasin and the statutory obligation of fair dealing in relation to franchise agreements under s. 3(2) of the AWA are not licenses to invent obligations out of whole cloth divorced from the actual terms of the contract between the parties. A pleading such as paragraph 9 that a party has preferred its own interest is not sufficient to demonstrate a breach of duty. A non-fiduciary party may honestly prefer its own interests – it is quite likely that most do. Bhasin has not suggested otherwise providing the party respects the minimum boundaries of honesty in its dealings.

Relevance of Allegations regarding use of bailout funds

[120] The pleadings establish that the governments of Ontario and Canada provided substantial funds – the amount pleaded is $10 billion – by way of a purchase of an equity interest in GM US as part of the court-supervised restructuring under the aegis of the United States bankruptcy process. The plaintiffs did not provide the funds and were not parties to the negotiations. The money was provided in 2009 and the claims now launched by the plaintiffs were commenced in 2014.

[121] The particulars provided by the plaintiffs clarify any ambiguity which their initial pleading may have created. The representations regarding use of the bailout funds alleged to have been made by the defendants were made to the governments and not to the plaintiffs. The plaintiffs have no knowledge at all as to what representations were made to the governments beyond what is on the record before me and the only thing on the record before me are the presentations made by GMCL and Old GM to their respective governments more than three months before Old GM filed for bankruptcy and more than four months before the governments actually made their equity investment.

[122] In oral argument I asked the plaintiffs to explain how allegations about what representations might have been made in 2009 regarding projections and use of funds could possibly be relevant to claims arising from declining market share in the GTA in 2014 and the reaction (or lack thereof) of GMCL to that fact. The plaintiffs suggested that it could go to the question of good faith. With all due respect I disagree.

[123] Money is fungible and funds invested in equity of a parent company in 2009 cannot be said in any relevant or meaningful way to be impressed with an obligation to provide support to a third party in 2014 based on changing circumstances. No segregated fund is pleaded. GMCL and GM US are huge organizations with cash flow far in excess of the bailout funds at issue.

[124] The only particulars provided of the alleged representations was the presentation made by GMCL to the Canadian and Ontario governments in February, 2009. Nothing in that document contains any identifiable request for funds to be used for the direct benefit of the plaintiffs.

[125] If there ever were any “bailout funds” earmarked for the plaintiffs – and they have failed to plead that specific fact or specify even a range of dollar amount – the bail out funds were in fact invested in equity in the United States bankruptcy process. The uses to which those funds were required to be put are a matter for the United States bankruptcy court and the shareholders (i.e. Ontario and Canada) who made the investment. It appears to me to be self-evidently scandalous and vexatious to bring such matters into this proceeding.

[126] It is for another day to determine whether the claimed obligations to provide financial support or to modify the re-imaging program exist in light of the silence of the contracts on the subject and the limitations on the doctrines of good faith performance and the statutory obligation of fair dealing. It is sufficient for me to note that the existence of the claimed obligations is not rendered more likely by representations that might have been made to a third party on what might be done with an equity contribution once made in a foreign bankruptcy proceeding six or more years before the events at issue in this litigation. Allegations of such dealings with third parties can only be viewed as atmospheric allegations designed to embarrass or add colour without moving the needle one centimetre on the question of whether the plaintiffs have an entitlement in the first place.

[127] Allegations such as these which are not relevant to the existence of the claimed obligations in favour of the plaintiffs should be struck. The probative value upon the matter of good faith in exploring unknown facets of a private negotiation process between two governments and the defendants in the context of a bankruptcy supervised by a foreign court in 2009 today is precisely nil whereas the prejudice to the parties and to the legitimate interests of others is high.

[128] Embarrassing and scandalous allegations sending the parties down rabbit holes of expensive and immaterial inquiry involving sensitive commercial and other interests not pertaining to the plaintiffs cannot further the just and expeditious or least expensive determination of the issues between these parties as mandated by Rule 1.04 of the Rules of Civil Procedure.

[129] Each of the four paragraphs attacked in GMCL’s motion would, if left intact, involve the court in weighing and assessing the details and consequences of a complex and multi-faceted restructuring process undertaken in another court and another country and to which the plaintiffs were not party. Such a diversion would be an expensive and irrelevant abuse of process. The allegations suggesting misuse of public funds are self-evidently embarrassing and the particulars provided establish beyond doubt that they have been pleaded without any factual foundation beyond the plaintiffs’ hopes of what a fishing expedition at someone else’s expense might bring in. They are premised on a mistaken conflating of the duty of good faith and fair dealing with the higher duty of a fiduciary and should be struck.

[130] GMCL has accordingly established to my satisfaction that it is plain and obvious that all four paragraphs should be struck under Rule 25.11 of the Rules of Civil Procedure.

(iv) Leave to Amend

[131] The plaintiff has amended the Further Amended Statement of Claim on two occasions, most recently after receiving a copy of the factum of GM US. The plaintiff clearly sought to plead facts as far out on the ledge as any reasonable conception of the facts would allow them on the issues attacked on these motions. Their efforts have not been successful. They have carefully answered or rejected detailed requests for particulars and even re-amended their claim in response to the written arguments filed in respect of this motion. I can only infer that the facts known or reasonably able to be inferred by the plaintiffs short of pure invention or fantasy can go no further than the pleading has gone given the strenuous challenges to it made by the defendants. While leave to amend is only rarely to be withheld, I do not think it appropriate to grant leave to make a further attempt in this instance.

[132] The allegations which have been struck as against GMCL have been struck as irrelevant and being scandalous and vexatious. Amendments cannot make relevant a subject which is clearly irrelevant. The allegations regarding the use of the bailout funds cannot be amended into relevance and I would not grant leave to amend. Accordingly, leave to amend is not appropriate in the case of the successful motion of GMCL either.

[133] The striking of the claims against GM US and the paragraphs struck as against GMCL will leave the Further Amended Statement of Claim in a ragged and disjointed state. I think it is appropriate in the circumstances to direct the plaintiffs to file a Fresh as Amended Statement of Claim against GMCL (if they are so advised) without re-asserting the matters struck on these two motions.

(d) Disposition

[134] The entire claim as against GM US is dismissed without leave to amend.

[135] Paragraphs 9, 63, 69 and 91 of the Further Amended Statement of Claim are struck without leave to amend as against GMCL.

[136] The plaintiffs are directed to file a Fresh as Amended Statement of Claim which does not re-plead the claims struck without leave to amend.

[137] The moving parties having been successful on both of their motions, each is entitled to its costs which I would allow on a partial indemnity scale modified as noted in the paragraphs following.

[138] GMCL has provided a costs outline claiming $5,085 in respect of its very limited in scope motion. I find the costs as claimed by GMCL to be fair and reasonable having regard to the criteria enumerated in Rule 57.01(1) of the Rules of Civil Procedure and I will allow the full amount of the claim as made in the amount of $5,085.

[139] GM US has also been successful and the result has been its entire removal from this action. The stakes, issues and complexity of the motion were greater in the case of GM US than was the case for GMCL. Counsel for GM US has filed a costs outline claiming $33,480.69 in fees and disbursements. In so claiming, the moving parties claimed costs on a substantial indemnity basis in respect of the costs thrown away by the late-filed Further Amended Statement of Claim which was served after (and very likely in response to) the delivery of their factum in this matter, requiring the moving parties to deliver a new factum addressing the new issues raised in the Further Amended Statement of Claim.

[140] I accept that some recognition of costs thrown away must be allowed for in my costs award. Having regard to the criteria in Rule 57.01(1) of the Rules of Civil Procedure, I find that a significant costs award is justified. Substantial time was expended in drafting and submitting facta, in conducting legal research and revisions required by the changing pleading landscape. The plaintiffs elected to bring these defendants into a complex proceeding on grounds which were strongly suggestive of motives more tactical than substantive. In all of the circumstances, I have determined that an award in favour of GM US of $30,000 inclusive of disbursements and HST is fair and reasonable.

Sean F. Dunphy J.

Date: May 28, 2015.

[1] Dealers earn little profit from new car sales and profit primarily from trade-in opportunities and after-sales parts and service in contrast to the manufacturer whose profit is driven largely by margin on new car sales.

[2] “General Motors Corporation 2009-2014 Restructuring Plan Presented to the U.S. Department of the Treasury as Required Under Section 7.20 of the Loan and Security Agreement Between General Motors and the U.S. Department of the Treasury dated December 310, 2008” dated February 17, 2009 and “General Motors of Canada Restructuring Plan” submitted by GMCL to Industry Canada and Ontario Ministry of Economic Development dated February 20, 2009.

[3] The renewal right however is potentially modified by or at least subject to s. 1.1 and section 4.1 of the Standard Terms which acknowledge that GMCL retained the right to review its distribution network policies in consultation with the dealers and to review the number, size and location of its dealers in order to promote the objects of the DSSA. The plaintiff dealers in this case were all renewed in fact so the interplay between those provisions and Article 1 of the DSSA does not arise in this case.

[4] Even if General Motors LLC was acquired by General Motors Company in July, 2009 along with an indirect controlling interest in GMCL, the pleading fails to plead a single fact unique to General Motors LLC from which it might be inferred that General Motors LLC is a franchisor’s associate even if General Motors Company is not.

[5] I express no view on franchise agreements renewed in fact but without an express right to renew as the issue does not arise here.

[6] Her decision was upheld by the Court of Appeal in a brief endorsement at 2004 CanLII 19240 (ON CA).

[7] Misrepresentation allegations have been liberally made in the Further Amended Statement of Claim. The plaintiffs have carefully avoided claiming that any actionable misrepresentations were made to them. Instead, the “misrepresentations” all concern negotiations in the context of a restructuring of Old GM a court-supervised process in the United States and were allegedly made only to non-parties (i.e. the governments of Ontario and Canada). The non-parties have not complained. The plaintiffs have declined all invitations to provide particulars but have carefully avoided alleging any actual agreement between Old GM or GMCL and the two governments relating in any way to the plaintiffs was ever made, still less breached.