COURT FILE NO.: CV-10-414774-00CP

DATE: 2023/02/17

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

GIOVANNI SPINA, JOHN SPINA DRUGS LTD., ROMEO VANDENBURG and ROMEO VANDENBURG DRUG COMPANY LTD.

Plaintiffs

• and –

SHOPPERS DRUG MART INC. and SHOPPERS DRUG MART (LONDON) LTD.

Defendants

Proceeding under the Class Proceedings Act, 1992

Ken Rosenberg, Linda Rothstein, Odette Soriano, Paul Davis, Douglas Montgomery, and Evan Snyder for the Plaintiffs

Mark A. Gelowitz, Geoff Hunnisett, Malcolm Aboud, Lipi Mishra and Graham Buitenhuis for the Defendants

HEARD: December 15, 16, 19, 20, 21, 22, and 23, 2022

Contents

A. Introduction. 6

B. Synopsis: Answers to the Common Issues. 8

1. Optimum Fee Claims. 8

2. Shoppers Charges Claims. 8

3. Distribution Centre Claims. 9

4. Professional Allowance Claims. 10

C. Synopsis of the Rationales for the Answers to the Common Issues. 11

1. Optimum Fee Claims. 11

2. Shoppers Charges Claims. 12

3. Distribution Centre Claims. 13

4. Professional Allowance Claims. 14

D. Issues and Methodology. 15

E. Procedural Background and Chronology. 17

F. Evidence for the Summary Judgment Motion. 23

1. The Plaintiffs’ Evidence. 23

2. Shoppers’s Evidence. 24

G. Misuse of Evidence. 26

H. The Certification Motion and Evidentiary Issue Estoppels. 28

I. Factual Background: Size of the Class. 29

J. Factual Background: The Representative Plaintiffs. 30

1. Giovanni (John) Spina and John Spina Drugs Ltd. 30

2. Romeo Vanderburg and Romeo Vandenburg Drug Company Ltd. 32

K. Factual Background: The Business of Shoppers and the Associates. 33

1. Overview: The Franchise Business of Shoppers. 33

2. Overview: The Franchise Business of the Associates. 35

3. The Formation of the Relationship between Shoppers and the Associates. 37

4. The Associates Agreements. 44

5. Associates Earnings. 45

L. Factual Background: Optimum Fee Claims. 49

M. Factual Background: Shoppers Charges Claims. 50

1. Shopper’s Approach to Determining the Fee for Shoppers Charges. 50

2. The Loss Prevention Fee. 52

3. The Academy Fee. 53

4. The Retail Accounting Fee. 53

5. The Equipment Rental Fee. 54

N. Factual Background: Distribution Centre Claims. 55

1. Distribution Centre Practices. 55

2. MOGs. 57

O. Factual Background: Professional Allowance Claims. 58

1. The Supply Chain: Purchase and Distribution of Generic Drugs before the Professional Allowances Regime. 60

2. Banning Rebates and the Professional Allowance Regime. 62

3. The Professional Allowances Regime: Statutory and Regulatory Background. 64

4. Shoppers’s Purchases from Generic Drug Manufacturers during the Professional Allowances Regime 67

5. The Expense and Performance of Direct Patient Care Services. 71

6. Shoppers’s Reporting of Professional Allowances. 73

7. The Quantification of Professional Allowances. 74

P. Legal Background: Damages for Breach of Contract 75

Q. Factual Background: The Plaintiffs’ Quantification of Damages for Breach of Contract and for Unjust Enrichment 77

1. Damages: Optimum Fee Claims. 77

2. Damages: Shoppers Charges Claims. 78

(a) Loss Prevention Fee Overcharge. 78

(b) Academy Fee Overcharge. 79

(c) Retail Accounting Fee Overcharge. 79

(d) Equipment Rental Fee Overcharge. 80

(e) Damages for the Shoppers Charges. 81

3. Quantification: Unjust Enrichment and Damages for Professional Allowances. 81

R. Legal and Factual Background and Analysis: Discovery of Claims. 82

1. Legal Background: The Limitation Period Defence. 83

(a) Limitation Periods and the Discovery of Claims. 83

(b) The Appropriateness Factor 87

(c) Continuing Breaches and Rolling Limitation Periods. 89

2. The Parties’ Arguments. 90

(a) Optimum Fee Claims. 90

(b) Shoppers Charges Claims. 91

(c) Distribution Centre Claims. 92

(d) Professional Allowance Claims. 92

3. Analysis: Discovery of Claims. 93

(a) Discovery of the Optimum Fee Claims. 93

(b) Discovery of the Shoppers Charges Claims. 95

(c) Discovery of the Distribution Centre Claims. 97

(d) Discovery of the Professional Allowance Claims. 97

S. The Claim for Aggregate Damages. 99

1. Aggregate Damages under the Class Proceedings Act, 1992. 99

2. Analysis. 101

3. Mr. Jaishankar’s Bottom Up Comparative Damages Assessment 107

T. Legal Background: The Principles of Contract Interpretation. 109

U. Legal Background: Franchise Law and Good Faith and Fair Dealing and the Performance of Contracts 113

V. Liability: Optimum Fee Claims. 116

1. The Parties’ Arguments. 116

(a) The Plaintiffs’ Submissions. 116

(b) Shoppers’s Submissions. 116

2. Analysis. 117

(a) The Interpretation of Article 11.05. 117

(b) The Estoppel Argument 118

W. Liability: Shoppers Charges Claims. 119

1. The Parties’ Arguments. 119

(a) The Plaintiffs’ Submissions. 119

(b) Shoppers’s Submissions. 120

2. Analysis: Did Shoppers Breach the Associates Agreement by Charging More for its Services than the Services Cost?. 121

3. Analysis: The Equipment Rental Fee Overcharge. 122

X. Liability: Distribution Centre Claim.. 122

1. The Parties’ Arguments. 122

(a) Plaintiffs’ Submissions. 122

(b) Shoppers’s Submissions. 123

2. Analysis. 123

Y. Liability: Professional Allowances Claims. 125

1. The Parties’ Arguments. 125

(a) The Plaintiffs’ Submissions. 125

(b) Shoppers’s Submissions. 126

2. Analysis Methodology. 127

3. Analysis: Professional Allowances as an Unjust Enrichment Claim.. 128

(a) The Principles of Unjust Enrichment 128

(b) Unjust Enrichment Analysis. 129

4. Analysis: Professional Allowances as a Claim for Breach of Contract 133

5. Analysis: Professional Allowances and the Duty of Good Faith. 136

Z. Section 25 of the Class Proceedings Act, 1992 and Individual Issues Trials. 137

AA. Conclusion. 139

BB. Schedule “A” – Associate Agreement Summary. 140

CC. Schedule “B” – Excerpts from the 2002 and 2010 Associates Agreement 144

DD. Schedule “C” – Vandenburg 2004 Profit & Loss Statement 157

EE. Schedule “D” – Statutory and Regulatory Background. 158

1. Ontario Drug Benefit Act, (October 1, 2006 to March 31, 2013) 158

2. Ontario Drug Benefit Act, (October 1, 2006 to June 30, 2010) 160

3. Ontario Drug Benefit Act, (July 1, 2010 to March 31, 2013) 161

4. Ont. Reg. 201/96 (Ontario Drug Benefit Act) (October 1, 2006 to June 30, 2010) 161

5. Ont. Reg. 201/96 (Ontario Drug Benefit Act) (July 1, 2010 to March 31, 2013) 164

6. Drug Interchangeability and Dispensing Fee Act 165

7. R.R.O. 935 (Drug Interchangeability and Dispensing Fee Act) 168

PERELL, J.

REASONS FOR DECISION

A. Introduction

[1] In this certified class action under the Class Proceedings Act, 1992,[^1] the Plaintiffs, Giovani (John) Spina, John Spina Drugs Ltd., Romeo Vandenburg, and Romeo Vandenburg Drug Company Ltd. sue Shoppers Drug Inc. and Shoppers Drug Mart (London) Ltd. (collectively “Shoppers”).

[2] The Plaintiffs’ action is brought on behalf of the following Class Members and Subclass Members:

All current and former Shoppers Drug Mart franchisees, except those whose businesses were located in Québec, who entered into the standard-form franchise agreement with Shoppers between January 1, 2002 and July 9, 2013 (the “Class Members” and “Class Period”)

All current and former Shoppers Drug Mart franchisees in Ontario who performed direct patient care services between October 1, 2006 and March 31, 2013 (the “PA Class Members” and the “PA Class Period”). (“Professional Allowance Class Members” or “PA Class Members”).

[3] The Class Period is 12 years and 7 months. The PA Class Period is five-and-a half years.

[4] The Plaintiffs seek a summary judgment for $54 million for the Optimum Fee for the Class Members who signed the 2002 Associates Agreement (“the Optimum Fee Claims”).

[5] The Plaintiffs seek a summary judgment for $21.9 million for the overpayment of “Shoppers Charges” (“the Shoppers Charges Claims”). The Shoppers Charges for which claims are advanced are: (a) the Loss Prevention Fee, (b) the Academy Fee, (c) the Retail Accounting Fee, and (d) the Equipment Rental Fee.

[6] The Plaintiffs seek a declaration and an accounting for Shoppers’s having breached its statutory or common law duties of good faith and fair dealing with respect to distribution centre practices (the “Distribution Centre Claims”). It is alleged that Shoppers breached its duties of good faith by: (a) requiring Associates to purchase unordered products in shipments called MOGs (“Mass-Order Generated Goods”); and (b) implementing unfair and improper inventory practices about mistakes in the delivery of products.

[7] The Plaintiffs seek a $1.084 billion summary judgment for “Professional Allowances” (the “Professional Allowances Claim”). This is an unjust enrichment claim made on behalf of the PA Class Members. Professional Allowances were paid by generic drug manufacturers for direct patient care services performed by the PA Class Members, all of whom are from Ontario. The generic drug manufacturers paid Shoppers; however, Shoppers did not remit the Professional Allowances to the PA Class Members who performed the services.

[8] As an alternative to the unjust enrichment claim for the Professional Allowances Claim for the PA Class Members, the Plaintiffs seek a summary judgment for $256 million for Shoppers’s breach of contract in failing to remit the Professional Allowances to the PA Class Members. (“alternative Professional Allowances claim”).

[9] There is a cross-motion. Shoppers seeks a summary judgment dismissing the Plaintiffs’ action.

[10] In its cross-motion for summary judgment, Shoppers advances a two-branched defence. First, Shoppers submits that there is no substantive merit to each of the Class Members’ and the PA Class Members’ claims. Second, Shoppers submits that all the claims are statute barred under the two-year or the six-year limitation period statutes from across the country.[^2]

[11] For the reasons that follow, the Plaintiffs’ and the Defendant’s motions should be granted in part and dismissed in part.

[12] For the Alternative Professional Allowance Claims, the Plaintiffs shall have individual issues trials pursuant to s. 25 of the Class Proceedings Act, 1992. The purpose of the individual issues trials is to quantify the damages from Shoppers’s breach of the 2002 Associates Agreement by failing to remit Professional Allowances. For PA Class Members, the claims before November 19, 2008 are statute barred. The evidence of the summary judgment motions shows that individual damages assessments are possible and that on an individual basis, there may be claims worth pursuing. My guestimate is that there may be individual claims worth approximately $86 million. An aggregate damages award is not feasible, but there is adequate data for individual calculations. It may be possible to use the resources of s. 25 of the Class Proceedings Act to simplify or expediate the individual issues trials.

[13] For the Distribution Centre Claims, the Plaintiffs shall have a summary judgment for individual issues trials pursuant to s. 25 of the Class Proceedings Act, 1992. The purpose of the individual issues trials is to determine whether Shoppers breached its statutory or common law duty of good faith by unilaterally imposing procurement and inventory policies. For Class Members from British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador, the claims before November 19, 2008 are statute barred. For Class Members from Prince Edward Island, Yukon, Northwest Territories, and Nunavut the claims before November 19 2004 are statute barred. It may be possible to use the resources of s. 25 of the Class Proceedings Act to simplify or expediate the individual issues trials.

[14] Save as aforesaid, the Plaintiffs’ summary judgment motion should be dismissed.

[15] Save as aforesaid, Shoppers’s summary judgment motion should be granted in part and dismissed in part.

[16] With this very divided success, there shall be no Order as to costs of the summary judgment motion or the action.

B. Synopsis: Answers to the Common Issues

[17] In their summary judgment motions, both parties move for answers to the certified common issues. By way of a synopsis, the answers to the common issues for the Class Members are as follows.

1. Optimum Fee Claims

[18] The answers to the common issues about the Optimum Fee Claims are as follows.

[19] Shoppers did not breach (a) Article 11.05 of the 2002 Associate Agreement or (b) its duties of good faith and fair dealing under s. 3 of the Arthur Wishart Act (Franchise Disclosure), (“AWA”)[^3] or under comparable provincial franchise legislation (Alberta, Manitoba, New Brunswick, Prince Edward Island),[^4] by charging an Optimum Fee.

[20] If there had been a breach with respect to the Optimum Fee, the period of the breach would have been from December 28, 2002 (when the 2002 Associates Agreement was introduced) to the end of term of the 2002 Associates Agreements, circa 2011 at the latest for an Associate who in 2009, signed a 2002 Associates Agreement, which had two automatic one year renewals.

[21] If there had been a breach, none of the Optimum Fee Claims would be statute barred.

[22] There is no viable aggregate damages methodology for the Optimum Fee Claims.

[23] If there had been a breach, the assessment of damages for any Optimum Fee Claims would have been a matter for individual issues trials pursuant to s. 25 of the Class Proceedings Act, 1992.

2. Shoppers Charges Claims

[24] The answers to the common issues about the Shoppers Charges Claims are as follows.

[25] Shoppers did not breach the Associate Agreements by charging fees in excess of the actual costs it incurred for the services enumerated in (a) Article 11.05(i) - (iv) of the 2002 Associate Agreement, and/or (b) Article 11.07(i) - (v) of the 2010 Associate Agreement, and/or (c) Article 6.03 of the Associate Agreements.

[26] Shoppers did not breach its statutory duty of fair dealing under s. 3 of the AWA (or under comparable provincial franchise legislation), or its common law duty of good faith by charging fees in excess of the actual costs it incurred for the services and programs enumerated in (a) Article 11.05(i) - (iv) of the 2002 Associate Agreement, and/or (b) Article 11.07(i) - (v) of the 2010 Associate Agreement, and/or (c) Article 6.03 of the Associate Agreements

[27] Shoppers did not breach its statutory duty of fair dealing under s. 3 of the AWA (or under comparable provincial franchise legislation), or its common law duty of good faith or by charging fees in excess of commercially reasonable rates for these services and programs.

[28] Shoppers was not unjustly enriched by charging fees in excess of its actual costs incurred in providing the services and programs to Class Members pursuant to (a) Article 11.05(i) - (iv) of the 2002 Associate Agreement; and (b) Article 11.07(i) - (v) of the 2010 Associate Agreement, and/or (c) Article 6.03 of the Associate Agreements.

[29] With respect to the fees charged to Class Members for equipment rental, Shoppers did not breach its contractual obligations under the Associate Agreements, its statutory duty of fair dealing under the AWA (or under comparable provincial franchise legislation) and/or its common law duty of good faith to the Class Members by: (a) unilaterally imposing equipment leasing fees on Class Members without regard to its obligation under Article 5.01(b) of the Associate Agreements to lease equipment to the Class Members on “terms and conditions to be mutually agreed upon between the Associate and [Shoppers]”; (b) charging equipment leasing fees at a commercially unreasonable rate; or (c) profiting from the equipment leasing fees, rather than setting the equipment leasing fees at a cost recovery rate.

[30] If there had been a breach, none of the Shoppers Charges Claims would be statute barred.

[31] There is no viable aggregate damages methodology for the Shoppers Charges Claims.

[32] If there had been a breach, the assessment of damages for any Shoppers Charges Claims would have been a matter for individual issues trials pursuant to s. 25 of the Class Proceedings Act, 1992.

3. Distribution Centre Claims

[33] The answers to the common issues about the Distribution Centre Claims are as follows.

[34] Shoppers was not unjustly enriched through the imposition of the procurement and inventory policies for the distribution centres.

[35] If Shoppers had been unjustly enriched, the Distribution Centre Claims of the Class Members from British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador would have been statute barred for the period before November 19, 2008.

[36] If Shoppers had been unjustly enriched, the Distribution Centre Claims of the Class Members from Prince Edward Island, Yukon, Northwest Territories, and Nunavut would have been statute barred for the period before November 19, 2004.

[37] Shoppers may have breached its statutory duty of fair dealing under the AWA (or under the comparable provincial franchise legislation) and/or its common law duty of good faith to individual Class Members by unilaterally imposing procurement and inventory policies upon that Class Member (“Distribution Centre Claims”), that: (a) require Class Members to accept and pay for mass-order generated goods ("MOGs") that they do not order; (b) deny Class Members the right to make certain inventory adjustment claims; and/or (c) direct Class Members not to receive inventory on an itemized basis.

[38] The Distribution Centre Claims are entirely idiosyncratic; there is no class-wide breach.

[39] Any Distribution Centre Claims of Class Members from British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador are statute barred for the period before November 19, 2008.

[40] Any Distribution Centre Claims of Class Members from Prince Edward Island, Yukon, Northwest Territories, and Nunavut are statute barred for the period before November 19, 2004.

[41] The determination of liability and assessment of damages for any Distribution Centre claims is a matter for individual issues trials pursuant to a protocol to be determined pursuant to s.25 of the Class Proceedings Act, 1992.

4. Professional Allowance Claims

[42] The answers to the common issues about the Professional Allowance Claims are as follows.

[43] Generic drug manufacturers paid and Shoppers received $955 million for Professional Allowances.

[44] Shoppers expended $77.2 million at the central office level for direct patient care.

[45] Shoppers was not unjustly enriched by retaining the Professional Allowances it received that relate to the direct patient care services that were performed by the PA Class Members.

[46] Under the 2002 Associates Agreement Shoppers breached its contractual obligations, its statutory obligations under s. 3 of the AWA (or under comparable provincial franchise legislation) and/or its common law duty of good faith to the PA Class Members by failing to remit Professional Allowances that relate to direct patient care services that were performed by the PA Class Members.

[47] The period of the breach of the 2002 Associates Agreement begins with the introduction of the Professional Allowance Regime in 2006 to the end of term of the 2002 Associates Agreements circa 2011 for an Associate who signed in 2009 the 2002 Associates Agreement, which had two automatic one year renewals.

[48] The Professional Allowance Claims of PA Class Members before November 19, 2008 are statute barred.

[49] Under the 2010 Associates Agreement, Shoppers did not breach its contractual obligations, its statutory obligations under s. 3 of the AWA (or under comparable provincial franchise legislation) and/or its common law duty of good faith to the PA Class Members by retaining Professional Allowances and failing to remit Professional Allowances that relate to direct patient care services that were performed by the PA Class Members to the PA Class Members.

[50] If Shoppers had breached its obligations with respect to Professional Allowances under the 2010 Associates Agreement, the Professional Allowance Claims of the PA Class Members would not be statute barred.

[51] There is no viable aggregate damages methodology for the Professional Allowance Claims.

[52] If Shoppers had breached its obligations with respect to Professional Allowances under the 2010 Associates Agreement, the assessment of damages is a matter for individual issues trials pursuant to a protocol to be determined pursuant to s. 25 of the Class Proceedings Act, 1992.

C. Synopsis of the Rationales for the Answers to the Common Issues

[53] Synopses for the reasons for the above answers to the common issues for the Class Members are as follows.

1. Optimum Fee Claims

[54] The rationale for the conclusion that Shoppers did not breach the 2002 Associate Agreement and its duties of good faith and fair dealing under s. 3 of the Arthur Wishart Act (Franchise Disclosure), (“AWA”) (or under comparable provincial franchise legislation) by charging an Optimum Fee is as follows.

[55] Article 11.05 of the 2002 Associate Agreement provides that the Associate agrees that the payments required for certain defined services and for "other services […] rendered by the Company to the Associate that are not included in the services furnished by [Shoppers] to Associates generally at the present time, shall be in addition to the fees payable by the Associate.” This language had been in the Associates Agreements since 1992.

[56] Shoppers introduced the Optimum Program in 2000. The Associates signing the 2002 Associates Agreement, which was introduced on December 28, 2002, would know about the Optimum Program, and they would know that Associates had historically shared some of the expense of the Optimum Program.

[57] Thus, having regard to what the parties would have understood at the time of the contracting as affecting their understanding of the language of their contract, the Optimum Program was a service included in the services furnished by Shoppers at the time of the introduction of the 2002 Associates Agreement for which it could charge (and was charging) at the time of the introduction of the 2002 Associates Agreement. Therefore, Shoppers did not breach Article 11.05 of the 2002 Associates Agreement by charging an Optimum Fee.

[58] Moreover, the Associates are estopped from alleging that there was a breach of the 2002 Associates Agreement. This is an estoppel by a representation that was relied upon to Shoppers’s detriment. It is not a promissory estoppel nor an issue estoppel.

[59] If there had been a breach of Article 11.05 of the 2002 Associates Agreement, the period of the breach would have been from December 28, 2002 (when the 2002 Associates Agreement was introduced) to the end of term of those Agreements circa 2011 for an Associate who in 2009 signed his or her 2002 Associates Agreement with its two automatic rights of one-year renewals.

[60] If there had been a breach of Article 11.05 of the 2002 Associates Agreement, the Optimum Fee Claims would not be statute barred. The claims would not have been discoverable until January 2010 when Shoppers introduced the 2010 Associate Agreement, which specifically provided for a fee for “loyalty programs”.

[61] If there had been a breach of Article 11.05 of the 2002 Associates Agreement, a methodology to assess Shopper’s liability with respect to the Optimum Fee on an aggregate basis has not been proven.

[62] If there had been a breach of the Article 11.05 of the 2002 Associates Agreement, the assessment of damages for the Shoppers’s breach of contract would have been a matter for individual issues trials pursuant to a protocol to be determined pursuant to s. 25 of the Class Proceedings Act.

2. Shoppers Charges Claims

[63] The rationales for the conclusions that Shoppers did not breach its contractual obligations and did not breach its duties of good faith with respect to the (a) the Loss Prevention Fee, (b) the Academy Fee, (c) the Retail Accounting Fee, and (d) the Equipment Rental Fee are as follows.

[64] It is alleged that Shoppers was unjustly enriched or that it breached the Associate Agreements or that it breached its common law or statutory duty of fair dealing under s. 3 of the AWA (or under comparable provincial franchise legislation) by charging a fee that was in excess of the costs it incurred for: (a) the Loss Prevention Fee, (b) the Academy Fee, (c) the Retail Accounting Fee, and (d) the Equipment Rental Fee.

[65] All these claims fail because properly interpreted, Shoppers was not precluded from charging a fee in excess of the costs it incurred for the: (a) the Loss Prevention Fee, (b) the Academy Fee, (c) the Retail Accounting Fee, and (d) the Equipment Rental Fee.

[66] Properly interpreted, under the Associates Agreements, Shoppers was empowered to charge fees “in the good faith exercise of its judgment […] on a basis consistent with the basis on which such fees are determined for other Associates in the [Shoppers] system.” In the circumstances of the immediate case, charging fees in excess of the costs it incurred was not a breach of contract or an act of bad faith performance of either the 2002 Associates Agreement or the 2010 Associates Agreement.

[67] Further, the Class Members failed to prove that Shoppers charged fees in excess of commercial reasonable rates for the: (a) the Loss Prevention Fee, (b) the Academy Fee, (c) the Retail Accounting Fee, and (d) the Equipment Rental Fee.

[68] Further, with respect to the Equipment Rental Fee, the Plaintiffs failed to prove that Shoppers charged a fee in excess of the actual costs it incurred for the service it provided.

[69] Further, with respect to the Equipment Rental Fee, Shoppers did not unilaterally impose fees without regard to its obligation under Article 5.01(b) of the Associate Agreements to lease Equipment to the Class Members on “terms and conditions to be mutually agreed upon between the Associate and [Shoppers].”

[70] If there had been a breach, none of the Shoppers Charges Claims would be statute barred. There never was a time when on a class wide basis, the Class Members knew or ought to have known about the Shoppers Charges Claims.

[71] If there had been a breach, there is no viable aggregate damages methodology for the Shoppers Charges Claims.

[72] If there had been a breach, the assessment of damages for any Shoppers Charges Claims would have been a matter for individual issues trials pursuant to s. 25 of the Class Proceedings Act, 1992.

3. Distribution Centre Claims

[73] The rationale for the conclusions about the Distribution Centre Claims is as follows.

[74] The Plaintiffs allege that Shoppers breached its statutory duty of fair dealing under the AWA (or under the comparable provincial franchise legislation) and/or its common law duty of good faith to individual Class Members by its distribution centre practices (the “Distribution Centre Claims”).

[75] The evidence on the summary judgment motion reveals that the Distribution Centre Claims are entirely idiosyncratic.

[76] The distribution centre policies and the use of MOGs were very sophisticated, and on a class-wide basis, the distribution policies and the MOGs were highly beneficial to the Associates. The occasional misadventures with product deliveries and with the MOGs, which Class Counsel described metaphorically as pebbles in the shoe, were suffered on an individual basis.

[77] In any event, while there may be individual claims, Shoppers was not unjustly enriched through the imposition of the procurement and inventory policies for the distribution centres.

[78] There is no class wide breach and any individual Distribution Centre Claims by Class Members from British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador would be statute barred for the period before November 19, 2008.

[79] Any individual Distribution Centre Claims by Class Members from Prince Edward Island, Yukon, Northwest Territories, and Nunavut would be statue barred for the period before November 19, 2004.

[80] The appropriate Order is that the Distribution Centre Claims should be determined pursuant to s. 25 of the Class Proceedings Act, 1992, at individual issues trials.

4. Professional Allowance Claims

[81] The rationales for the conclusions that Shoppers committed no wrongdoing under the 2010 Associates Agreements with respect to Professional Allowances but did so with respect to the 2002 Associates Agreement are as follows.

[82] The government of Ontario introduced its Professional Allowance Regime in 2006 - after the 2002 Associates Agreement came into existence - and before the 2010 Associates Agreement came into existence. Thus, Professional Allowances were not a part of the factual nexus for the 2002 Associates Agreement, which was introduced on December 28, 2002, but Professional Allowances were part of the factual nexus for the 2010 Associates Agreement.

[83] Construing the words of the 2002 Associates Agreement in their contractual nexus produces the result that Professional Allowances are not covered by Article 11.04 of the 2002 Associates Agreement but are revenue under Article 7.00 of the Associates Agreement. It follows that Shoppers breached the 2002 Associates Agreement by failing to remit the Professional Allowances to the PA Class Members governed by the 2002 Associates Agreement. The PA Class Members governed by the 2002 Associates Agreement have a breach of contract claim, but they do not have an unjust enrichment claim.

[84] Construing the words of the 2010 Associates Agreement in their contractual nexus produces the result that Professional Allowances are encompassed by Article 11.10 of the Agreement. These words of the 2010 Associates Agreement interpreted in the factual nexus for that Agreement mean that Shoppers did not breach its contractual obligations under the 2010 Associate Agreements, its statutory obligations under s.3 of the AWA (or under comparable provincial franchise legislation) and/or its common law duty of good faith to the PA Class Members by failing to remit Professional Allowances that relate to direct patient care services that were performed by the PA Class Members governed by the 2010 Associates Agreement.

[85] The PA Class Members are wrong in asserting that they have a $256 million claim for aggregate damages. A methodology to assess Shopper’s liability with respect to the Professional Allowances on an aggregate basis has not been proven.

[86] What the PA Class Members have is individual claims for Professional Allowances for the period after November 19, 2008 to the end of the terms of their respective 2002 Associates Agreements circa 2011 for the PA Class Members who signed their 2002 Associates Agreement in 2009. The claims before November 19, 2008 are statute barred.

[87] The Professional Allowance Claims that are not statute barred may be proven at individual issues trials pursuant to a protocol to be determined pursuant to s. 25 of the Class Proceedings Act.

D. Issues and Methodology

[88] With both parties moving for summary judgment, there was no dispute that the case is an appropriate one to decide summarily.

[89] Had the point been contested, I would have concluded that there was a more than adequate evidentiary record to fairly and justly decide the case by summary judgment. (The nature and extent of the evidentiary record is described below.)

[90] When all the passionate rhetoric in this battle between labour and capital is removed, the Representative Plaintiffs’ action is a breach of contract action. The factual and forensic background is extraordinarily complex, and a fortune of money is involved, but the essence of the Plaintiffs’ action is the allegation that Shoppers has perpetrated seven counts of breach of contract and breaches of Shoppers’s common law or statutory obligations to perform its standard form franchise contracts with the Class Members in good faith. The Class Members are franchisees of Shoppers pursuant to franchise agreements. They are known as “Associates” under the agreements. Two franchise agreements, the 2002 Associates Agreement, which was introduced at the end of 2002 and the 2010 Associates Agreement, which was introduced at the end of 2009 for January 2010, are the subject matter of the class action. The Plaintiffs allege that Shoppers has breached the Associate Agreements, and its common law and statutory duties of good faith and fair dealing. There are seven allegations of breach of contract.

[91] First there is the Optimum Fee breach of contract allegation, which concerns only the 2002 Associates Agreement. This counts for a $54 million claim (the Optimum Fee Claims).

[92] The Plaintiffs’ allegation that Shoppers overcharged for four Shoppers Charges counts for four more breaches of contract with a value of $21.9 million. (the Shoppers Charges Claims).

[93] The sixth breach of contract claim, for which the Plaintiffs seek an accounting of the consequent damages, is connected to Shoppers’s statutory or common law obligations of good faith and fair dealing with respect to Shoppers’s distribution centre practices (the “Distribution Centre Claim”).

[94] The seventh breach of contract claim, the PA Class Members’ claim for more than a billion dollars, relates to “Professional Allowances,” which are a concept introduced in Ontario in 2006 by the Ontario government (the Professional Allowances Claim). This is the largest claim, and it concerns the interpretation of the 2002 Associates Agreement and the 2010 Associates Agreement for the PA Class Members who operated Shoppers’s stores in Ontario.

[95] The Plaintiffs allege that Shoppers breached the Associate Agreements or its duty of good faith and fair dealing, or has been unjustly enriched, by retaining Professional Allowances relating to direct patient care services that were performed by the PA Class Members and by failing to remit these payments to the PA Class Members. The Plaintiffs submit that the Professional Allowances were not governed by the Associate Agreement and that Shoppers was unjustly enriched at their expense. The Plaintiffs claim $1.084 billion. Alternatively, they claim damages of $256 million for Shoppers’s breach of contract and breach of its statutory and common law duties of good faith and fair dealing with respect to the Professional Allowances.

[96] Thus, what emerges from the Plaintiffs claims are seven counts of breach of contract connected to: (1) the Optimum Fee; (2) the Loss Prevention Fee (3) the Academy Fee; (4) the Retail Accounting Fee; (5) the Equipment Rental Fee (6) distribution centre practices; and (7) Professional Allowances. What also emerges is that Shoppers makes seven denials of breach of contract, and it submits that each and every of the alleged breaches is not actionable because the Class Members’ claims are untimely and therefore are statute barred.

[97] The alleged breach of contract with respect to the Professional Allowances for which the PA Class Members claim $1.084 billion for unjust enrichment or $256 million for breach of contract has additional and unique issues to resolve because Professional Allowances, which are a human abstraction that does not exist in nature, did not exist even as abstractions until after the 2002 Associates Agreement was negotiated and signed.

[98] The Ontario government invented Professional Allowances after the 2002 Associates Agreement was signed by PA Class Members. Professional Allowances were invented by the Ontario government as a part of its procurement law for drugs for its health care system. However, as will emerge from the description of the law and the facts below, it is Shoppers’s position that Professional Allowances are rebates already governed by the 2002 Associates Agreement and under the 2010 Associates Agreement.

[99] Although there are seven complex claims being advanced, all of which are defended and all of which are alleged to be statute-barred, what is required to decide the summary judgment motions is that I must, in each of the seven instances of alleged breaches of contract perform five main tasks (and a countless number of ancillary tasks); namely: (a) interpret the Associates Agreements; (b) determine whether Shoppers breached the Agreements; (c) determine whether Shoppers breached its statutory or common law duties of good faith; (d) determine whether the claims are statute-barred as untimely in whole or in part; and (e) quantify the damages for any claims that are not statute barred.

[100] My methodology for the seven instances of contract interpretation, analysis of contract performance, analysis of the running of limitation periods, and quantification of damages also involves describing the law of unjust enrichment, contract interpretation, statutory and common law duties of good faith, limitation periods, contract damages assessment, and the availability of aggregate damages under the Class Proceedings Act, 1992.

[101] My methodology for these Reasons for Decision also involves describing the procedural background to the summary judgment motions and the evidentiary background to the summary judgment motions. And the methodology involves making findings of fact about: (a) the factual nexus of the 2002 Associates Agreement; (b) the factual nexus of the 2010 Associates Agreement; and (c) the performance of the Associates under the Associates Agreements, which includes analyzing the business model as amongst Shoppers and the Associates and the day-to-day, year-to-year operation of a typical Shoppers store.

[102] I also must make findings about the operation of Shoppers’s merchandise supply chain and how Shoppers went about purchasing and distributing merchandize. Moreover, I must analyze and making findings about the Ontario government’s Professional Allowance Regime and its impact on Shoppers’s relationship with its Associates under the 2002 Associates Agreement and the 2010 Associates Agreement.

[103] An outline and ordering of my methodology to address the numerous factual issues and also the law may be found by reviewing the Table of Contents to these Reasons for Decision.

E. Procedural Background and Chronology

[104] On November 19, 2010, the Plaintiffs commence a proposed class action by Notice of Action.

[105] On December 20, 2010, the Plaintiffs deliver a Statement of Claim.

[106] On December 7, 2011, Angelo Mariano of Shoppers is cross-examined for the purposes of the certification motion, Mr. Mariano is and was a senior executive at Shoppers.

[107] On February 28, 2012, the Plaintiffs deliver an amended Statement of Claim.

[108] In August 2012, the Plaintiffs move for certification, and Shoppers brings a cross-motion under Rule 21 to strike certain causes of action.

[109] On October 3, 2012, I grant Shoppers’s Rule 21 motion, in part, but I conclude that there are causes of action that satisfy the cause of action criterion. I adjourn the balance of the certification motion for additional evidence to be filed.[^5]

[110] On March 15, 2013, the Plaintiffs deliver a Fresh as Amended Statement of Claim.

[111] On April 17, 2013, Mr. Mariano of Shoppers is cross-examined again.

[112] On July 9, 2013, I certify the action as a class proceeding.[^6]The Plaintiffs’ causes of action are: (a) unjust enrichment; (b) breach of contract; (c) breach of a common law duty of good faith; and (d) breach of statutory duties of good faith and fair dealing under the Arthur Wishart Act (Franchise Disclosure), 2000, and comparable provincial franchise legislation.

[113] On April 30, 2014, Shoppers delivers its Statement of Defence.

[114] On May 29, 2014, the Plaintiffs deliver a Request to Inspect Documents.

[115] On June 20, 2014, Shoppers delivers a Response to the Demand for Particulars and Request to Inspect.

[116] On June 25, 2014, Shoppers responds to the Plaintiffs’ Request to Inspect.

[117] On July 21, 2014, the Plaintiffs respond to Shoppers’s Requests.

[118] On December 1, 2014, there is a Discovery Plan motion.[^7]

[119] On January 15, 2015, the Discovery Plan is finalized.

[120] On April 18, 19, 2017, Jeff Léger of Shoppers is examined for discovery. During the Class Period, Mr. Léger was a senior executive at Shoppers. He is now the President of Shoppers.

[121] On May 23, 24, 26, 2017, Mr. Mariano of Shoppers is examined for discovery.

[122] On June 5, 6, 8, 2017, Mr. Spina is examined for discovery.

[123] On June 13, 14, 2017, Mr. Vandenburg is examined for discovery.

[124] On June 20, 22, 28, 2017, Mr. Mariano’s examination for discovery continues but it is not completed.

[125] On May 23, 24 2019, Robert Baker of Shoppers is examined for discovery. Mr. Baker is Senior Director of Pharmacy Finance. Previously, he had been Director of Pharmacy Finance and Director of Distribution Accounting. Before that, he was Manager of Distribution Accounting for Shoppers.

[126] On July 19, 22 2019, Mr. Mariano’s examination for discovery is completed.

[127] On July 22, 2019, the parties consent to an Order amending the common issues set out in the Certification Order and the Plaintiffs amend the Second Fresh as Amended Statement of Claim.

[128] For the purposes of the summary judgment motions, the common issues for the Entire Class are as follows:

1. Did the Defendants, or either of them, breach the Associate Agreements with the Class by charging the Class Cost Recovery Fees in excess of the actual costs they incurred for the services and programs enumerated in Article 11.05(i) - (iv) of the 2002 Associate Agreement and/or Article 11.07(i) - (v) of the 2010 Associate Agreement and/or Article 6.03 of the Associate Agreements?

2. Did the Defendants, or either of them, breach their statutory duty of fair dealing under s. 3 of the Arthur Wishart Act (Franchise Disclosure), 2000, S. O. 2000, c. 3 (“AWA”) (or under comparable provincial franchise legislation), or their common law duty of good faith by charging the Class Cost Recovery Fees in excess of the actual costs they incurred for the services and programs enumerated in Article 11.05(i) - (iv) of the 2002 Associate Agreement and/or Article 11.07(i) - (v) of the 2010 Associate Agreement and/ or Article 6.03 of the Associate Agreements or by charging Cost Recovery Fees in excess of commercially reasonable rates for these services and programs?

3. Have the Defendants, or either of them, been unjustly enriched by charging Cost Recovery Fees in excess of their actual costs incurred in providing the services and programs to Class Members pursuant to Article 11.05(i) - (iv) of the 2002 Associate Agreement and Article 11.07(i) - (v) of the 2010 Associate Agreement and/or Article 6.03 of the Associate Agreements?

4. Have the Defendants, or either of them, breached Article 11.05 of the 2002 Associate Agreement or their duty of good faith and duty of fair dealing under the AWA (or under comparable provincial franchise legislation), by charging the 2002 Agreement Class an Optimum Fee?

5. With respect to the fees charged to Class Members for Equipment rental, did the Defendants, or either of them, breach their contractual obligations under the Associate Agreements, their statutory duty of fair dealing under the AWA (or under comparable provincial franchise legislation) and/or their common law duty of good faith to the Class Members by:

a. unilaterally imposing Equipment leasing fees on Class Members without regard to their obligation under Article 5.01(b) of the Associate Agreements to lease Equipment to the Class Members on “terms and conditions to be mutually agreed upon between the Associate and [Shoppers]”?

b. charging Equipment leasing fees at a commercially unreasonable rate?

c. profiting from the Equipment leasing fees, rather than setting the Equipment leasing fees at a cost recovery rate?

6. Did the Defendants, or either of them, breach their statutory duty of fair dealing under the AWA (or under the comparable provincial franchise legislation) and/or their common law duty of good faith to the Class Members by unilaterally imposing procurement and inventory policies upon the Class, that:

a. require Class Members to accept and pay for mass-order generated goods ("MOGs") that they do not order;

b. deny Class Members the right to make certain inventory adjustment claims; and/or

c. direct Class Members not to receive inventory on an itemized basis?

7. If so, have the Defendants, or either of them, been unjustly enriched through the imposition of the procurement and inventory policies?

[129] The common issues for the PA Class Members are:

1. Did the Defendants, or either of them, breach their contractual obligations under the 2002 and 2010 Associate Agreements, their statutory obligations under s. 3 of the AWA (or under comparable provincial franchise legislation) and/or their common law duty of good faith to the Professional Allowance Class Members by retaining Professional Allowances and failing to remit Professional Allowances that relate to direct patient care services (as defined in both the Drug Interchangeability and Dispensing Fee Act,[^8] and the Ontario Drug Benefit Act,[^9] that were performed by the Professional Allowance Class Members to the Professional Allowance Class Members?

2. Were the Defendants, or either of them, unjustly enriched by retaining the Professional Allowances they received that relate to the direct patient care services (as defined in both the Drug Interchangeability and Dispensing Fee Act,[^10] and the Ontario Drug Benefit Act,[^11] that were performed by the Professional Allowance Class Members?

3. If the answer to 1 or 2 is yes, what is the amount that the Defendants received for Professional Allowances?

4. If the answer to 1 or 2 is yes, what is the amount that the Defendants expended at the central office level for direct patient care?

[130] There was one common issue that the Plaintiffs’ abandoned in their factum for the summary judgment motion. Shoppers, however, had contested this common issue in its summary judgement motion. Given the abandonment of this one common issue, I am all for decertifying it as a common issue, discontinuing it, treating it as moot, and or dismissing it on technical grounds. I shall not make any finding on the substantive merits of this question. The simplest thing to do is to decertify it, which is what I proposed to do; order accordingly.

[131] The moribund common issue is as follows:

With respect to the fees charged to Class Members on account of the lease of their franchise premises, did the Defendants, or either of them, breach the Associate Agreements, their statutory duty of fair dealing under the AWA (or under comparable provincial franchise legislation) and/or their common law duty of good faith to the Class Members by:

a. failing to provide copies of lease agreements with third party landlords to the Class Members?

b. failing to disclose the existence and amount of all third party landlord inducements to Class Members?

c. failing to adjust the amount of lease payments charged to Class Members to include the benefit of the landlord inducements?

d. charging Class Members a leasing fee in excess of the lease obligations incurred by the Defendants for the franchised premises, or in excess of a commercially reasonable rate for those franchised premises that are owned by the Defendants?

[132] On August 19, 2019, the Plaintiffs deliver the Amended Second Fresh as Amended Statement of Claim.

[133] On June 27, 2020, I release my decision on a refusals motion and documentary production motion brought by the Plaintiffs.[^12]

[134] On July 26, 2021, the Plaintiffs deliver their twenty volume (10,910 pages) Summary Judgment Motion Record and Shoppers delivers its Summary Judgment Motion Record (3,746 pages)

[135] On December 2, 2021, the Plaintiffs deliver their Responding Summary Judgment Motion Record (68 pages).

[136] On December 3, 2021, Shoppers delivered its Responding Summary Judgment Motion Record (3,886 pages).

[137] On February 9, 2022, the Plaintiffs delivered their Reply Summary Judgment Motion Record (248 pages) and Shoppers delivers its Reply Summary Judgment Motion Record (53 pages).

[138] On February 28, 2022, Mr. Vandenburg is cross-examined.

[139] On March 1, 2022, Mr. Spina is cross-examined.

[140] On March 3, 2022, Patrick Dean of Shoppers and Mr. Daniel D’Ercole of Shoppers are cross-examined. Messrs. Dean and D’Ercole are and were senior executives at Shoppers.

[141] On March 8, 2022, Harpal Randhawa is cross-examined. Mr. Randhawa is a senior executive at Shoppers.

[142] On March 10, 2022, Paul Grootendorst is cross-examined. Dr. Grootendorst is an Associate Professor at the Leslie Dan Faculty of Pharmacy at the University of Toronto. He was retained by the Plaintiffs to testify about Professional Allowances.

[143] On March 11, 2022, Brent Fraser and Chris Potter are cross-examined. Mr. Fraser is a witness for Shoppers who testified about Ontario’s Professional Allowance Regime. Mr. Potter is a senior executive at Shoppers.

[144] On March 14, 2022, Vilangadu G. Narayanan is cross-examined. Dr. Narayanan is an expert retained by the Plaintiffs to provide accounting and damages assessment evidence.

[145] On March 15, 2022, Eltjo (Ed) Schoonveld and Kevin Whibbs are cross-examined. Mr. Schoonveld is an economist retained to testify about the marketing of drugs. Mr. Whibbs was a senior executive at Shoppers, whose responsibilities included the operation of its distribution centres.

[146] On March 9, 2022, Mr. Mariano is cross-examined.

[147] On April 21, 2022, the Plaintiffs deliver their Supplementary Summary Judgment Motion Record (36 pages).

[148] On April 27, 2022, Mr. Mariano is cross-examined.

[149] On April 29, 2022, Scott Davidson is cross-examined. Mr. Davidson is an expert retained by Shoppers to provide damages assessment evidence.

[150] On May 3, 2022, Howard Rosen is cross-examined. Mr. Rosen is a professional business valuator and damages quantification expert, who was retained by the Plaintiffs.

[151] On May 10, 2022, Sid Jaishankar is cross-examined. Mr. Jaishankar is a professional business valuator and damages quantification expert, who was retained by Shoppers.

[152] On December 15, 16, 19-23, 2022, the summary judgment motion was argued. The Motion Records comprised 21,080 pages. The Joint Brief of Transcripts, Answers to Undertakings, and Exhibits comprised 2,133 pages. The Plaintiffs’ Moving Factum (109 pages) had hyperlinks to 42 authorities. Shoppers’s Moving Factum (137 pages) had hyperlinks to 53 authorities. The Plaintiffs’ Reply Factum (89 pages) had hyperlinks to 56 authorities. Shoppers’s Reply Factum (100 pages) had hyperlinks to 64 authorities. During the course of the summary judgment hearing, compendia were delivered. The Plaintiffs delivered the following compendia: (a) Optimum and Cost Recovery Fees (283 pages); (b) Professional Allowances (710 pages); (c) Remedies Vol. 1 (283 pages) and (d) Remedies Vol. 2 (254 pages). Shoppers delivered the following compendia: (a) Optimum Fee (405 pages); (b) Store Charges (633 pages); (c) Equipment Rental Fee (73 pages); (d) Inventory Policies (243 pages); (e) Professional Allowances (580 pages); (f) Aggregate Damages Vol. 1 (472 pages) and Aggregate Damages, Vol. 2 (254 pages)

[153] During the course of the hearing of the summary judgment motion, I asked Class Counsel to obtain a supplementary report from Mr. Rosen, calculating the PA Class Members’ claim for damages: (a) based on the imputed sum of $1.084 billion less the $77.9 million of direct patient care services provided by Shoppers; (b) based on the $955 million invoiced by Shoppers to generic manufacturers for Professional Allowances; and (c) based on the $955 million invoiced by Shoppers to generic manufacturers for Professional Allowances less the 77.9 million of direct patient care services provided by Shoppers.

[154] On December 23, 2022, notwithstanding Shoppers objection to the admission of the evidence on the basis that the Plaintiffs should be held to their tactical decision as to how to calculate their claim, I admitted Mr. Rosen’s supplementary report (17 pages). There was no merit to Shoppers’s objection. The supplementary report was relevant. It was not prejudicial to Shoppers, and it reduced its alleged liability for breach of contract from $256 million to $204 million.

F. Evidence for the Summary Judgment Motion

1. The Plaintiffs’ Evidence

[155] In addition to relying on evidence from the examinations for discovery of Shoppers’s representatives, the Plaintiffs supported their summary judgment motion and resisted Shoppers’s motion with the following witnesses, all of whom delivered affidavits and all of whom were cross-examined.

[156] Brent Fraser is a licensed pharmacist and a member of the Ontario College of Pharmacists. For eighteen years, he was a public servant at the Ontario government’s Ministry of Health and Long Term Care (“MOHLTC” or “the Ministry”). He is currently the Vice-President of Pharmaceutical Reviews at the Canadian Agency for Drugs and Technologies in Health. While with the Ontario government, Mr. Fraser was involved in developing the Professional Allowances Regime, which was implemented in 2006 through amendments to the Ontario Drug Benefit Act (“ODBA”)[^13] and the Drug Interchangeability and Dispensing Fee Act (“DIDFA”)[^14] and their regulations. He was directly involved in extensive consultation processes between his Ministry and the drug manufacturers and pharmacies, including Shoppers.

[157] Dr. Paul Grootendorst is an Associate Professor at the Leslie Dan Faculty of Pharmacy at the University of Toronto. He obtained an Honours Bachelor's degree in economics from the University of Victoria in 1988, a MA in economics from Queen's University in 1990, and a PhD in economics from McMaster University in 1995. He completed post-doctoral work at St. Joseph's Hospital in Hamilton, and then was employed as an Assistant Professor at the Department of Clinical Epidemiology and Biostatistics at McMaster University from 1996 until 2002. Since 2002, he has been at the Faculty of Pharmacy at the University of Toronto. Dr. Grootendorst’s research includes studying the pharmaceutical sector with a focus on policy issues. He has acted as a consultant for pharmaceutical companies, health economics groups, global health initiatives, pharmacist associations, and funding agencies. He was retained by the Plaintiffs to provide expert testimony on the question “What are Professional Allowances, and do they differ from rebates?”

[158] Suzan Mitchell-Scott is a law clerk at Paliare Roland Rosenberg Rothstein LLP, Class Counsel.

[159] Dr. Vilangadu G. Narayanan is the Thomas D. Casserly, Jr. Professor of Business Administration at Harvard Business School in Boston, Massachusetts. In 1988, he obtained a B. Comm. from the University of Madras in India, and he became a chartered accountant. In 1990, he obtained an MBA from the Indian Institute of Management Ahmedabad. He moved to the United States where he obtained an MSc in statistics in 1993, an MA in economics in 1994, and a PhD in business in 1995, all from Stanford University in California. Since September 1994, he has been a professor at Harvard Business School, where his research focuses on management accounting. He was retained to answer four questions about Shoppers Charges from an accounting perspective.

[160] Howard Rosen of Toronto Ontario is a valuator and damages quantification expert at Secretariat Advisors LLC. His education background is: BBA (1979), Chartered Accountant (1981), Chartered Business Valuator (1984), Accredited Senior Appraiser (1988), and Certified Fraud Examiner (1992). Since 1981, he has been engaged in business valuation, damages quantification and corporate finance related matters. He has been qualified as an expert witness in over two hundred valuation matters in courts in Canada and the United States, and in international arbitration hearings in Canada, the United States, Europe, the Middle East, and Asia. He has been a court appointed administrator, monitor, and inspector and has been an arbitrator.

[161] Eltjo (Ed) Schoonveld is the Managing Principal at ZS Associates, a global management consulting firm, where he specializes in drug market access and pricing, health economics and outcomes research. He has a Master's Degree in Engineering from the Delft Technical University in the Netherlands and an MBA (1998) from the UCLA Anderson School of Management. Between 1988 and 2009, he worked at various pharmaceutical companies in executive positions. In 2009, he joined ZS Associates. He is the author of The Price of Global Health, now in its 3^rd edition. The topics of the book are global drug pricing and market access issues, including the role of governments and public policy in setting drug prices and the impact of government intervention on the competitive environment.

[162] John Spina is one of the Representative Plaintiffs. Mr. Spina’s individual case is discussed later in these Reasons for Decision.

[163] Romeo Vandenburg is one of the Representative Plaintiffs. Mr. Vanderburg’s individual case is discussed later in these Reasons for Decision.

2. Shoppers’s Evidence

[164] In addition to relying on evidence from the examinations for discovery of the Representative Plaintiffs, Shoppers supported its motion for a summary judgment and resisted the Plaintiffs’ motion with the following witnesses, all of whom delivered affidavits and all of whom were cross-examined.

[165] Scott Davidson is a Managing Director in the Toronto office of Duff & Phelps, where he leads the disputes, investigations, and valuation services practice. He is a graduate of the Ivey School of Business, University of Western Ontario, a Chartered Professional Accountant, a Chartered Business Valuator, and a past director of the CICA Investigative and Forensic Accounting Alliance. He joined Duff & Philips in 2010. He has thirty years of experience in business valuation, financial advisory services, and he has provided expert testimony at courts and arbitrations in the disciplines of economics and quantum of damages.

[166] Daniel D’Ercole is a Senior Director Finance, Pharmaceutical Partnerships & Medical Cannabis at Shoppers. He joined Shoppers in 2003 as a Financial Analyst, Design & Construction. In 2004, he became Manager Accounting Services. In January 2012, he became Senior Manager Real Estate and Accounting Services. In 2016, he became Director Real Estate Finance. In February 2018, he became Senior Director Finance, Merchandising, Distribution, and Real Estate. In 2021, he assumed his current position. Between 2004 and 2013, his responsibilities included accounting for all fixed assets including the equipment in the stores, and he was responsible for the Shoppers’s Equipment Rental Fee.

[167] Patrick Dean is the Senior VP Front Store & Category Management at Shoppers. He joined Shoppers in 1996 as Manager of Marketing Projects. In 1997, he became Director Category Management Development. In 1998, he became VP Category Management Development. In 2000, he became VP Corporate Brands. In 2002, he became VP Merchandising. In 2010, he became Senior VP Category Management. He assumed his current position in 2016. His responsibilities included implementing the Optimum Program in 2000. He was responsible for Shoppers’s use of MOGs (“Mass-Order Generated Goods”) between 2002 and 2013.

[168] Sid Jaishankar is a Managing Director in the Toronto office of Duff & Phelps, and he practices in disputes, investigations, and valuation advisory services. He specializes in business and securities valuation and damages quantification. He is a Chartered Professional Accountant and a member of the CFA Institute and the CBV Institute. He obtained his Bachelor of Mathematics and Master of Accounting degree at the University of Waterloo.

[169] Angelo Mariano is the VP Finance, Pharmacy & Healthcare Businesses at Shoppers. In 1995, he joined Shoppers’s predecessor, Imasco Retail Inc., as Director, Retail Accounting. In 1997, he became Director, Corporate Accounting. In 1999, he left Imasco to return to Shoppers as VP, Retail Accounting. In 2010, he assumed his current position.

[170] Chris Potter is the Senior VP, Healthcare Businesses at Shoppers. Before he joined Shoppers, in 2009, as the Director of Generics, he worked at Apotex, a generic drug manufacturer, in various marketing roles. In 2012, he became Senior Director, Generics at Shoppers. From 2013 to 2016, he was VP Pharmaceutical Partnerships. In 2016, he became VP Pharmaceutical Partnerships & Specialty Health at Shoppers and in 2018, VP Specialty Health & Wellness. In 2019, he assumed his current position.

[171] Harpal Randhawa is the VP Finance, Financial Planning & Analysis at Loblaw Companies Limited, which owns Shoppers. He joined Shoppers in 2005 as Manager, Accounting Policy. By 2015, he had become VP Finance, and in 2017, he joined Loblaw as Vice-President Finance, Market Division. Between 2009 and 2013, his responsibilities included the setting and the review of Shoppers Charges under the Associates Agreements.

[172] Mirella Ricci is a legal assistant with the law firm of Osler, Hoskin & Harcourt LLP, the lawyers for Shoppers in this class proceeding. She proffered an affidavit attaching transcripts, exhibits, and answers to undertakings from the examinations for discovery of Mr. Spina and Mr. Vanderburg.

[173] Kevin Whibbs is the Senior VP, Supply Chain at Loblaw and Shoppers. He assumed that role in 2001 at Shoppers and in 2016 at Loblaw. His responsibilities included managing Shoppers’ supply chain including, among other things, shipping and receiving procedures at Shoppers’ distribution centres.

G. Misuse of Evidence

[174] As already mentioned, several times, and to be repeated many more times, the immediate case is a dispute about contract interpretation and performance. It also is a dispute about the interpretation and the application of the legislation that imposed the Ontario government’s Professional Allowance Regime.

[175] With respect to contract interpretation, it is necessary to understand the factual circumstances of the negotiation and drafting of the Associates Agreements at the time it was introduced to be signed by the Associates.

[176] With respect to contract interpretation and also with respect to the calculation of damages for breach of contract, it is necessary to understand commercial practices in the franchise sector of the economy and also generally accepted accounting principles for profit aspiring enterprises.

[177] With respect to statutory interpretation, it is necessary to understand the factual circumstances that prompted legislative action.

[178] Given what it is necessary to understand, the parties in the immediate case quite properly called witnesses, including expert witness, who knew about and testified about the factual circumstances surrounding the contracting, business and accounting practices, or the legislating of Professional Allowances. However, there are limits to the use of this factual circumstances evidence, and in the immediate case both parties made arguments that went outside the boundaries of what is permissible, particularly in the area of expert evidence.

[179] In the immediate case, frequently the experts from either side did not stay in their evidentiary lanes. The major misuse of evidence that both parties perpetrated was relying on testimony about the witnesses’ personal opinion about the intention of the contracting parties or about the intention of the legislator. Some experts went so far as to interpret the testimony of other witnesses and made findings of fact of their own about the practices of the Associates or of Shoppers. Some experts interpreted the meaning and the application of the Associates Agreements.

[180] Findings of fact are the providence of the court. The interpretation of contracts and the interpretation of statues are the providence of the court. The interpretation of contracts and the interpretation of statutes is an objective determination to be made by the court based on the principles of contractual interpretation and statutory interpretation, and it is not a determination based on the subjective views, opinions, or admissions of the litigants or their experts about the meaning of the words of the contract or of the statute.

[181] In Fairview Donut Inc v. The TDL Group Corp.,[^15] perhaps the leading class action decision in the area of franchise litigation, discussed further below, Justice Strathy, as he then was, gave an expert witness’s testimony very little weight because the expert’s opinion was:

prolix in the extreme, largely because he does not confine himself to expressions of opinion based on assumed facts or facts clearly established by other evidence. Instead, he undertakes his own fact-finding mission, relying on facts that have not been proven. His affidavit also includes improper legal analysis and contract interpretation and improper advocacy.

[182] In the immediate case, I have a similar response to some of the evidence and expert’s reports. There were many examples where one or the other or both of the parties proffered inadmissible evidence or misused the evidence.

[183] For example, it was a misuse of evidence by the Plaintiffs to rely on evidence about a witness’s personal opinion about whether a Professional Allowance was a new concept under the Professional Allowance Regime that was outside Article 11.04 of the 2002 Associates Agreement and Article 11.10 of the 2010 Associates Agreement.

[184] While Mr. Fraser, Dr. Grootendorst, and Mr. Schoonveld contributed admissible and valuable evidence about the Professional Alliances Regime, they went outside their evidentiary lanes by opining about how to interpret the intent of the Legislators or the meaning of the legislation or the interpretation of the Associates Agreements.

[185] For example, it was a misuse of evidence by the Plaintiffs to rely on Mr. Fraser’s evidence that Professional Allowances were intended to reimburse or compensate pharmacies and pharmacists for direct patient care services. Mr. Fraser’s evidence as to the intention of the legislation is inadmissible for that purpose, although his evidence may be useful for other purposes, which, however, would not include interpreting the private law contracting of the parties.

[186] For example, and correspondingly for the same reasons to those just mentioned, Shoppers was wrong in relying on the evidence it extracted from Dr. Grootendorst’s cross-examination about whether Professional Allowances was a new concept under the Professional Allowances Regime that differed from rebates as they were understood as a matter of private law contracting.

[187] For example, it was a misuse of evidence by Shoppers to rely on acknowledgements or admissions by the witness secured during cross-examination that undermined their personal opinion about the meaning of the legislation and of the Associates Agreement. To be more specific, Dr. Grootendorst’s evidence was helpful with respect to the problems, and the mischief, that the provincial government was attempting to address when it enacted its Professional Allowance Regime. However, his evidence was useless, in the sense that it could not be used, to interpret the intent of the Legislators, and it was even more useless in interpreting whether Professional Allowances were within the coverage of Article 11.04 of the 2002 Associates Agreement or Article 11.10 of the 2010 Associates Agreement.

[188] For example, it was a misuse of evidence by the Plaintiffs to rely on Dr. Narayanan’s opinion evidence that “it is counterintuitive from an accounting and business perspective to have the franchisor have a second source of profits embedded in other fees that are not shared with the franchisee.” To my mind, if there is anything counterintuitive, it is to think that a contracting party would not seek as many sources of profit as it could embed into a contract. After all, that is what bargaining is all about, as each party competes for the better bargain. In any event, Dr. Narayanan conceded in cross-examination that he was not opining that Shoppers was precluded from adding additional profit elements to its bargain with the Associates. In any event, Dr. Narayanan’s opinion while useful for some purposes is useless for the purpose of interpretating what the parties intended and agreed to under the Associates Agreements.

[189] Finally for example, it was a misuse of Dr. Narayanan’s evidence by the Plaintiffs to rely on his findings of fact about Shoppers Charges. It was Dr. Narayan’s opinion that there was no evidence that Shoppers actually used a holistic approach, which approach would have balanced the overall surpluses and deficits of Shoppers Charges so that overall, the services were provided without an element of profit. Dr. Narayanan went outside his evidentiary lanes in fact finding about whether it was true or not that Shoppers actually used a holistic approach. This was help that the court did not need.

H. The Certification Motion and Evidentiary Issue Estoppels

[190] On the summary judgment motions, on several issues, Shoppers made counterarguments that asserted that the Plaintiffs were estopped from making their argument on the issue because of “issue estoppels” arising from the certification motion.

[191] As noted above, the certification motion in this action proceeded in two phases. Phase I determined Shopper’s Rule 21 motion and the cause of action criterion for certification (s. 5 (1)(a) of the Class Proceedings Act, 1992). Phase II determined the remaining four certification criteria (s. 5 (1)(b)(c)(d)(e) of the Class Proceedings Act, 1992).

[192] On the Rule 21 Motion, during Phase I of the certification motion, I struck out claims in respect of: (a) alleged interference with Associates’ right to associate; (b) alleged breaches of fiduciary duty; (c) alleged breaches of Shoppers’s duty of disclosure to Associates; and (d) alleged breaches with respect to rebates paid by generic manufacturers to Shoppers in respect of drugs dispensed in provinces other than Ontario or in Ontario before the introduction of the Professional Allowances Regime. In Phase II, I did not certify the Plaintiffs’ claim for aggregate damages as a common issue.

[193] The certification motion is an interlocutory motion, and the law is complex about the extent to which an interlocutory motion will create issues estoppel that would be preclude re-litigation.

[194] If a decision made on an interlocutory motion definitely decides a matter on the merits and no appeal is taken, then the decision is binding for that proceeding and in subsequent proceedings between the same parties or their privies.[^16] There are, however, difficulties in applying the law of res judicata to interlocutory motions and decisions because given the interlocutory nature of the motion, it may be difficult to determine what was being decided and whether the decision was meant to preclude further litigation should the circumstances change.

[195] For example, an order dismissing a motion for summary judgment determines only that there is a genuine issue requiring a trial and the issue or issues will not have been finally resolved for that action or others,[^17] unless: (a) the judge on the summary judgment motion expressly indicates that he or she is making a binding determination of law or fact; and (b) the determination is expressed in the court’s formal order.[^18]

[196] There is the further complication that where the order made on the interlocutory motion is “interlocutory” in a procedural sense, i.e., not a final order in a procedural sense, any apparent findings of fact made in the reasons do not support a res judicata or issue estoppel. [^19]

[197] Apart from the cause of action criterion, a certification motion is essentially a procedural motion and not a hearing on the substantive merits, and, therefore, in the immediate case, which is undoubtedly a hearing on the merits of the Plaintiffs’ claims and Shoppers’s defences, I shall not preclude the parties from rearguing any issues.

[198] Although I may refer to the certification motion, I shall decide all the factual issues on their merits based on the evidence proffered for the summary judgment motions.

I. Factual Background: Size of the Class

[199] The number of Shoppers Drug Mart and Pharmaprix stores across Canada ranged from 870 in 2003 to 1,315 in 2013, with approximately 50% of the stores located in Ontario.

[200] As of September 2, 2011, excluding the Pharmaprix stores in Québec, there were 1,099 Shoppers Stores across Canada. There were four Ontario regions, and regions in British Columbia, the Prairies, and the Atlantic regions. There were 629 Ontario stores.

[201] As of March 27, 2014, there were 1,309 Shoppers Drug Mart and Pharmaprix stores across Canada. There were 734 Ontario stores.

[202] During the 12 years and 7 months of the Class Period, 559 Associates departed the Shoppers System. There were 421 resignations, 69 retirements, 37 terminations; 9 joined central office; 4 long-term disabilities, 8 store closures; 8 other; 2 deaths, and 1 leave of absence.

[203] This churning of incoming, transferring, and outgoing Associates shall be a factor to consider in the analysis later about whether an aggregate damages award is feasible in the immediate case.

J. Factual Background: The Representative Plaintiffs

1. Giovanni (John) Spina and John Spina Drugs Ltd.

[204] In 1988, Mr. Spina graduated from the University of Manitoba with a Bachelor of Science degree in pharmacy, and he became a member of the Ontario College of Pharmacists.

[205] In 1989, Mr. Spina took up employment as a pharmacy manager at a Shoppers’s store in the Bowmanville Mall.

[206] In 1992, he and his wife incorporated John Spina Drugs Ltd. Mr. Spina became the Associate franchisee for Shoppers’s store #690 in Whitby, Ontario.

[207] Ten years later in 2002, Mr. Spina and Spina Drugs switched to store #1224 in Ajax, Ontario. He worked and continues to work at this store full time as an Associate and as a dispensing pharmacist. Store #1224 is one of the original large store format prototypes that Shoppers launched in Canada.

[208] Mr. Spina is a signatory of several 2002 Associates Agreements and several 2010 Associates Agreements.

[209] When Mr. Spina first joined Shoppers as an Associate, the Associates had far more independence and autonomy than is the case under the 2002 Associates Agreement and the 2010 Associates Agreement, which are described in considerable detail below.

[210] In the years before the 2002 and 2010 Associate Agreements, an Associate operated his or her store and was responsible for its management, administration, purchasing, and accounting etc. There was an informal, idiosyncratic practice in which on annual basis, the Associate and Shopper’s split the profits of the store with approximately 20% to the Associate and 80% to Shoppers.

[211] In 1994, Shoppers introduced system-wide compulsory practices that reduced the autonomy of the Associates. Shoppers opened distribution centres and the stores were required to purchase merchandise exclusively from Shoppers from its distribution centres. The management and operation of the stores, including training programs, became subject to stringent and comprehensive policies and procedures that were to be followed in all the Shoppers’s stores across the country. Shoppers’s district managers meet frequently with the Associates and compliance with Shoppers’s numerous operating standards was audited. Shoppers introduced uniform policies and procedures for the distribution centres that made it extremely difficult for Associates to identify and remedy shipping errors or damaged goods in the delivery of merchandise.

[212] As the autonomy of the Associates diminished, Shoppers took over the daily bookkeeping and accounting responsibilities of the Associate for his or her store. These responsibilities were assigned to Shoppers’s Retail Accounting Department (“RAD”), and the Associate was charged a fee for this service.

[213] In 2006, radical changes were made to the informal idiosyncratic profit sharing model that had existed between the Associates and Shoppers. In 2006, Shoppers introduced the New Financial Model. Under the New Financial Model, a budget was set for each year based on prior years’ performance and economic factors. Performance targets were established in the budget. A draft Common Year Plan (annual store plan) for the next year was prepared by Shoppers’s RAD. After discussions between the Associate and a Shoppers’s representative the Common Year Plan for the store was settled. Targets were set that would affect the metrics of a guaranteed income for the Associate, the Associates Earnings and Shoppers’s “Service Fee,” which was the means that Shoppers extracted its split of the store’s profits.

[214] During the course of the business year, a store’s revenues were deposited into a bank account that was managed by the RAD, which used the funds to pay suppliers. The RAD sent the Associate monthly Profit & Loss reports. At the end of the year, the RAD would have sent thirteen such statements. The RAD provided the Associate with the information he or she needed to file corporate tax returns. The RAD prepared reports pursuant to which the amount of the Associates Earnings and the amount of Shoppers’s “Service Fee” would be determined. As will be explained in more detail below, the computation of Associates Earnings and the Service Fee was the means by which profits (but not losses) were shared between the Associate and Shoppers.

[215] Under the New Financial Model, Shoppers charges Associates fees for services and programs periodically. As noted above, Shoppers’s divides the year into thirteen 28-day periods. Under the Associates Agreements, the Associate has no choice but to participate in the programs and pay for the services that were being charged periodically with a reconciliation of fees and profits made at the end of the year.

[216] Beginning in June 2010, Mr. Spina’s relationship with Shoppers began to deteriorate. He attended a meeting of PEERS, a franchisee association that acted as a liaison between the Associates and Shoppers. At the PEERS meeting, Mr. Spina raised a concern about a proposed increase in the minimum number of hours an Associate was required to work in the pharmacy. Shoppers’s response was to direct Mr. Spina to meet with two Shoppers’s vice-presidents. The VP’s reprimanded him for raising his concerns publicly and they threatened him with repercussions, alluding to terminating his franchise.

[217] After this souring experience, Mr. Spina spoke to other Associates. He learned that they had similar experiences when they had voiced concerns with Shoppers’s role as franchisor. Mr. Spina learned that he and other Associates’ earnings had stagnated while Shoppers’s profits were increasing. He believed that Shoppers was not being transparent about the fees it was charging for the mandatory services it was providing because it did not disclose the details of the costs of the services it provided. He began to suspect that Shoppers was profiting from the fees it was charging instead of providing services at an at-cost basis, which was his understanding when he became an Associate. He deposes that because Shoppers was not forthcoming in addressing his and the others concerns about their earnings, he commenced this class action.

[218] After the litigation was commenced, Mr. Spina learned the details of how Shoppers charged for the Optimum Fee and for the Shoppers Charges. He learned the details of Shoppers’s alleged failure to remit Professional Allowances.

[219] With respect to the Professional Allowances claim of the PA Class Members, Mr. Spina deposed he recalls that in 2006, there was considerable discussion in the pharmacy industry about the Ontario government’s plans to ban rebates on the purchase of generic drugs. However, he did not appreciate how Shoppers was addressing this matter. He knew that by 2008, Shoppers was demanding that the Associates account and provide information about the direct patient care services that were being provided by the pharmacists in the Shoppers’s stores. Mr. Spina says that he understood that the reports required by Shoppers had to do with Professional Allowances, but he was told little more. In his affidavit for the summary judgment motion, he deposed:

92. I do not recall any discussion or communication from [Shoppers], whether through memoranda or through PEERS, as to the details or mechanics of what [Shoppers] did with this. Ontario Associates were being pressured to complete the reports and given the environment where threats of reprisal and repercussions were common (including nonrenewal of Associate Agreements), Associates were afraid to push back on [Shoppers’s] demands and were afraid to ask questions.

2. Romeo Vanderburg and Romeo Vandenburg Drug Company Ltd.

[220] In 1988, Mr. Vanderburg graduated from the school of pharmacy at the University of Nagpur in India. In 1991, he moved to Canada and took employment at a Shoppers’s store at Cedarbrae Mall in Toronto.

[221] In 1992, Mr. Vanderburg became a member of the Ontario College of Pharmacists, and he worked as a pharmacist in a Shoppers’s store in the Midtown Mall, in Oshawa, and then in 1993, he returned to the Cedarbrae Mall store as a pharmacy manager.

[222] In 1994, Mr. Vanderburg and his wife incorporated Romeo Vanderburg Drug Company, and he became an Associate for Shoppers’s store #962, which was located in Whitby, Ontario.

[223] In 1999, Mr. Vanderburg took over a second Shoppers’s store in Ajax, Ontario. He operated two stores until 2000, when Shoppers asked him to take over a third store located in Whitby, Ontario.

[224] In 2003, he changed from operating the three stores to operating Shoppers’s store #862, which is located in the east end of Toronto.

[225] Mr. Vanderburg is a signatory of several 2002 Associates Agreements and several 2010 Associates Agreements.

[226] In his affidavit for the summary judgment motion, Mr. Vanderburg voiced his grievances with Shoppers’s distribution centre policies and procedures. He felt that Shoppers was using MOGs as a way to deal with “left over” merchandise, and he felt that Shoppers was forcing the Associates to incur the financial losses with respect to these excess goods.

[227] In his affidavit for the summary judgment motion, Mr. Vanderburg deposed that as a result of information disclosed through the litigation, he learned that Shoppers generated profits at the expense of Associates during the Class Period by charging inflated amounts in respect of: (a) the Loss Prevention Fee; (b) the Academy Fee; (c) the Retail Accounting Fee; and (d) the Equipment Rental Fee.

[228] Mr. Vanderburg said that before he started the lawsuit, Shoppers disclosed the overall rate of its Shoppers Charges but that it did not disclose how those fees were set. He says that Shoppers did not disclose how rates were set. He said that when he became an Associate, he believed that Shoppers was setting rates for its services so that the fees would not generate a profit at the expense of the Associates.

[229] Mr. Vanderburg agreed with Mr. Spina’s evidence about Shoppers’s objectionable policies and procedures with respect to the delivery of goods and the obstacles to dealing with damaged goods and with mistakes in the delivery of merchandise. He described incidences of misadventures and problems associated with the delivery of MOGs.

[230] About the Professional Allowances, Mr. Vanderburg deposed as follows:

38. While I had a general understanding that these reports had to do with Professional Allowances recently introduced by the Ontario Government, [Shoppers] disclosed no information to Associates about what SDM was doing with Associates’ reports. [Shoppers] provided very little information about Professional Allowances to Associates. It was a stressful time to be an Associate and, […] at this time, there was a culture of intimidation by [Shoppers]. Associates were vulnerable, given the termination provisions in the Associate Agreements. Like many Associates, I was concerned about reprisals from [Shoppers] if I asked questions about the patient care reports.

39. Since I started this lawsuit, I have learned much more about Professional Allowances that I did not know during the 2006-2013 period. Until this litigation, [Shoppers] did not disclose to me (or, as far as I know, the other Ontario Associates): (a) the content of reports submitted on behalf of Associates to the Ministry of Health and Long-Term Care between 2007 and 2010; (b) the total amount of professional allowances collected throughout the 2006- 2013 period in respect of drugs dispensed by Ontario Associates; (c) [Shoppers] relied on the information Ontario Associates provided in response to [Shoppers’s] mandatory surveys in order for [Shoppers] to receive Professional Allowances, which it did not share with Associates; (d) the total value of direct patient care services which were provided or incurred at Associate stores throughout the 2006-2013 period, eligible for Professional Allowances payments; or (e) any information about the manner in which it charged or invoiced Professional Allowances to generic drug manufacturers along with vendor income.

K. Factual Background: The Business of Shoppers and the Associates

1. Overview: The Franchise Business of Shoppers

[231] To decide the competing summary judgment motion, the devil or the angel truly lies in the details of Shoppers’s franchise enterprise. The details will follow, but in this part of my Reasons for Decision, I will provide an overview of the franchise business of Shoppers, the franchisor. In the next section, I will provide an overview of the franchise business from the perspective of the franchisees, the Associates. The granular details will be the subject matter of other sections of these Reasons for Decision.

[232] The Defendant Shoppers Drug Mart Inc. is a wholly owned subsidiary of Shoppers Drug Mart Corporation, which is a public corporation trading on the Toronto Stock Exchange. 911979 Alberta Inc. is an affiliated corporation that owns the trademarks of the franchised retail pharmacy stores operated by Shoppers under the name Pharmaprix in Québec and Shoppers Drug Mart across the rest of Canada.

[233] Shoppers’ business was owned at one time by Imasco, and on March 28, 2014, the business was acquired by Loblaw Companies Limited, where it operates Shoppers as a wholly owned subsidiary of Loblaws.

[234] Shoppers’s and its Associates’ story begins in 1941, when Murray Koffler succeeded his father, and he operated two Koffler’s drug stores in Toronto, Ontario.

[235] In 1992, Mr. Koffler founded Shoppers Drug Mart when he opened a drug store at the Shoppers World Plaza in Toronto. Shoppers grew to become one of the oldest franchise systems in Canada.

[236] As a franchise system, Shoppers role was to design and standardize and oversee a merchandizing system for a chain of retail stores that sell pharmaceuticals and general merchandize to consumers in accordance with a very strictly supervised business model. The franchisees are pharmacists who have passed Shoppers’s training program. The pharmacists own the corporations through which the retail business is operated. The pharmacists along with their personal private corporation are the franchisees. The franchisees are known as Associates.

[237] Shoppers designed and oversaw the franchise system, and it had a role to play in the business of the stores of the system and it took the lion’s share of the net profits of the store’s business.

[238] Shoppers took its share of the profits by what the Associates Agreement label a “Service Fee.” Shoppers – not the Associates - absorbed any losses. Shoppers guaranteed a minimum earning for the Associates even if the store was unprofitable. Shoppers incurred expenses of its own for its role in the operation of the store’s businesses and some of these expenses were recovered by fees it charged to the Associates in accordance with the Associates Agreements (“Shoppers Charges”).

[239] A major role for Shoppers was to purchase merchandise for the stores. Shoppers acted as a wholesaler to the Shoppers stores. Shoppers warehoused and then distributed the pharmaceuticals and merchandise from distribution centres it owned in Calgary, Alberta, Mississauga, Ontario, Cornwall, Ontario, and Moncton, New Brunswick, and from leased facilities in Richmond, British Columbia, Toronto, Ontario, and Moncton, New Brunswick.

[240] Shoppers exercised its massive purchasing power and resold the merchandize to the stores without mark up, but the Associates Agreements entitled Shoppers to keep any rebates or discounts etc. paid by the vendors of the merchandize.

[241] The rebates or discounts were a major profit centre for Shoppers that it did not share with the Associates. There is nothing in the Associate Agreements that imposes an obligation to share, account for, or to disclose to the Associates the source, nature, or amount of rebates, discounts, etc. that Shoppers received. The Associates Agreement provides that Shoppers may keep for itself the rebates and allowances it obtains as the wholesaler of merchandize.

[242] The Associates are not employees or partners of Shoppers. They are independent contractors who have business of their own with employees to accept deliveries, stock the shelves, dispense the drugs, sell the merchandize, clean the stores, etc. The stores are outfitted in accordance with Shoppers’s standards and Shoppers provides the store premises, which are leased or subleased to the Associate’s business. Shoppers provides the equipment for the stores and leases it to the business. As independent businesspersons, the Associates are rigorously managed by Shoppers. Shoppers controls the supply chain of merchandise and the Associate’s business must buy its merchandize from Shoppers. Thus, Shoppers acts as a wholesaler, and it also sets the retail price of the goods to be sold by the Associate’s business.

[243] The business undoubtedly benefits by Shoppers purchasing power to obtain the goods at prices that make the retail price of goods attractive to purchasers. Shoppers provides the advertising for the chain and the Associate’s business must pay for a portion of the advertising costs. Shoppers operates a marketing program known as the Optimum Program. The Associates are obliged to pay a portion of the costs to the Optimum Program, but Shoppers heavily subsidizes the Optimum Program.

[244] The Associates must partake of a long list of services, “Shoppers Charges,” which are provided by Shoppers and for which services Shoppers charges a fee.

[245] Another mandatory charge that the Associate must pay is the “Service Fee.” Through the Service Fee, Shoppers shares in the net revenues, the profits, of the business. The Service Fee is measured against the net revenues of the store and the Associates Earnings and thus the profits of the store, if any, are shared between the Associates and Shoppers.

[246] Shoppers takes the lion’s share of the net revenues through the Service Fee. Although Shoppers takes the lions’ share of the profits, if any, the Associates are spared from being responsible for any losses. And the Associates are guaranteed a specified income even if their business is unprofitable or underperforming expectations.

2. Overview: The Franchise Business of the Associates

[247] Under the Associate Agreements, Shoppers grants a license to an Associate to operate one or more franchised stores. The stores are full-service retail drug stores that also sell a large selection of general merchandise, including greeting cards, lottery tickets, cosmetics, confections, beverages, groceries, etc.

[248] Under the Associate Agreements and under Shoppers’s franchise system, Associates are required: (a) to operate under a common form of Associate Agreement and Operations Manual; (b) to sell common goods; (c) to purchase goods only from a distribution centre owned and operated by Shoppers or from specific preferred suppliers; (d) to share common advertising expense; (e) to participate in the Optimum Program, a customer loyalty program; (f) to use Shoppers’ accounting and bookkeeping services: and (g) to acquire common equipment, including computer equipment as directed by Shoppers. Associates are subject to rigorous uniform standards and controls that apply across the national chain of Shoppers’s stores.

[249] Shoppers provides services to the Associates. Shoppers charges for the services and they are paid by the Associate as an expense to the operation of the store. The fees are known as “Shoppers Charges.” These charges or expenses are charged against the gross revenues of the business in the calculation of profits or losses.

[250] Shoppers acquires or leases the store’s premises, and then Shoppers licenses the use of the premises to the Associate. The occupancy charge is charged to the store’s cost of doing business. Under the Associate Agreement, the payment of all rent and other occupancy costs under the lease is a cost of the business, and Shoppers charges a fee (the “Occupancy Charge”) to each Associate for the amount of rent, common area maintenance and realty tax payable under the applicable lease for the store. Shoppers purchases and installs the equipment for the store and then rents the equipment to the Associate. Shoppers charges an Equipment Rental Fee.

[251] Under the Associate Agreement, the store is required to pay the Store Charges to Shoppers on account of the services and programs that Shoppers provides to the stores. The Store Charges include: (a) the Loss Prevention Fee, for loss prevention services; (b) the Academy Fee, for training courses; (c) the Retail Accounting Fee, for bookkeeping and accounting services; (d) the Equipment Rental Fee; (e) the Insurance Fee, for an insurance program obtained by Shoppers; (f) IT Support Fee, for computer system technical support; (g) Dataline Communications Fee, for a technology communication system; and (h) PIN Pad Fee, for the PIN pads used to process debit and credit card transactions.

[252] Shoppers charges the Associates for the Optimum Program, which is a loyalty program to encourage consumer spending at the Shoppers’s stores. It shall be important to note that the Optimum Fee is expressly referred to in the 2010 Associates Agreement but not in the 2002 Associates Agreement.

[253] The Associate agrees to devote his or her full time and attention to the operation and management of the Store and to conduct the store’s business in accordance with all specifications, standards, policies, and operating procedures prescribed by Shoppers. The store must participate in the advertising programs prescribed from time to time by Shoppers. The Associate agrees to pay an Advertising Contribution.

[254] As noted above, the Shoppers Store must deal only in products specified by Shoppers, and the store must purchase all products directly from Shoppers or from suppliers specified by Shoppers. The products are supplied from Shoppers distribution centers, which are located across the country.

[255] Throughout the Class Period, Associates were required to purchase generic drugs solely from Shoppers, subject to limited exceptions. Shoppers acted as a mass purchasing wholesaler; it purchased the generic drugs from generic manufacturers. Associates paid Shoppers the same invoice price that was paid by Shoppers to the generic manufacturers. As explained above, there was no wholesalers’ markup, but Shoppers retained rebates, discounts, allowances, etc. paid by the generic drug manufacturer.

[256] During the course of a business year, which was divided into thirteen four-week periods (52 weeks), the Associate would receive Profit & Loss Statements about the performance of his or her store from Shoppers’s Retail Accounting Department (RAD).

[257] These reports are relevant to a variety of issues including the running of limitation periods, the availability of aggregate damages, and calculation of individual damages. As an example, Mr. Vanderburg’s Profit & Loss Statement for Period 13 Ended January 1, 2005 is attached as Schedule “C” to these Reasons for Decision.

[258] During the course of a business year there was also a forward planning process that involved the preparation and settling of Common Year Plans (annual store plans) for the future year. This process, which is described below, also involved the preparation of a variety of reports from RAD that were reviewed with the Associate. At the end of the business year, there was a process to settle the “Associate Earnings,” which was the Associates’ share of the store’s profits, if any. A variety of financial documents and spreadsheets were prepared by RAD to settle Associate Earnings and the Service Fee, which as noted above was how Shoppers extracted the lion’s share of the store’s profits, if any.

[259] During the Class Period, the Associates belonged to a franchisee association called the PEERs Committee.

[260] PEERs was organized regionally, with each region having its own constitution, its own elected executive committee, and its own bank account. PEERs representatives were elected by the Associates to represent the Associates' interests.

3. The Formation of the Relationship between Shoppers and the Associates.

[261] Shoppers’s relationship with the Associates is subject to Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000,[^20] and the similar provincial statutes of Alberta, Manitoba, New Brunswick and Prince Edward Island.[^21] In these provinces, before entering into a franchise agreement and before entering into any renewal agreement, Shoppers provides franchise disclosure documents to the Associate. As franchisor, Shoppers owes Associates statutory and common law duties of good faith and fair dealing.

[262] For a variety of issues, most particularly the issues associated with Shoppers’s limitation period defence and the Plaintiffs’ breach of good faith claims, the disclosure made by Shoppers to the Associates pursuant to the franchise disclosure statutes is pertinent to the resolution of the summary judgment motions.

[263] In the immediate case, the Class Period begins on January 1, 2002 and it ends on July 9, 2013 (twelve years, seven months). On the commencement of the Class Period, there would have been some Associates who were franchisees of Shoppers pursuant to disclosure statements provided at the time of their contracting with Shoppers, which may have occurred before January 1, 2002 and before they signed the 2002 Associates Agreement, for which they would have received another disclosure statement.

[264] For present purposes, the following disclosures from the Disclosure Statements before January 1, 2002 are pertinent. The example is from a 2001 Disclosure Statement, which was Exhibit “9” to Mr. Spina’s affidavit dated July 23, 2021. This is an example of a Disclosure Statement for Associates that signed with Shoppers before the 2002 Associates Agreement. Associates, like Mr. Spina, might go on to renew their franchise and then they would receive an associated Disclosure Statement.

SHOPPERS DRUG MART INC.

DISCLOSURE DOCUMENT

Pursuant to the Arthur Wishart Act (Franchise Disclosure), 2000

Franchise Fee and Other Fees

(a) Franchise Fee (Service Fee)

The franchise fee, also referred to as the "service fee", is determined by the Franchisor from time to time. The service fee cannot exceed the net profit from the franchised business before provision for the service fee and income taxes, and after provision for remuneration to the operator of the franchised business.

(b) Other Fees

In addition to the service fee the franchisee currently pays the following other fees:

(1) the franchisee contributes an amount not in excess of 2% of its gross non-tobacco sales (currently at 1.35% of gross non-tobacco sales) to a advertising fund which is disbursed ·by the Franchisor on account of advertising and marketing expenses on behalf of all the franchisees;

.(2) the franchisee pays to the Franchisor a charge of .025% of gross non-tobacco sales for training that covers the costs of courses for franchisees, prospective franchisees and for the franchisees' employees;

(3) the Franchisor supplies bookkeeping and accounting services to the franchisee and levies a charge for such services, which is related to the sales volume of the franchised business. The charge ranges from $8,000 per annum for franchised businesses with gross sales of $2,800,000 or less to $21,500 per annum for franchised businesses with gross sales of $7,900,000 or more;

(5) the Franchisor provides loss prevention services for a charge of .16% of gross nontobacco sales;

Fixtures and Equipment

Fixtures and equipment (including leasehold improvements) required by the franchisee are leased from the Franchisor, and the franchisee is required to pay rental to the Franchisor for the lease of such fixtures and equipment. The rental is generally based upon the useful life of the fixtures and equipment and is calculated as follows:

• a 3 year asset has a lease rate of 39.29% of the cost of the asset per annum;

• a 5 year asset has a lease rate of 26.09% of the cost of the asset per annum; and

• a 10 year asset has a lease rate of 16.54% of the cost of the asset per annum.

Following expiry of the 3, 5 or 10 year lease term as described above, the lease continues upon payment of an annual rental payment equal to one month's rent calculated as aforesaid until the fixture or equipment is replaced.

6. (1) 5. - TRAINING

Before a prospective franchisee will be considered for a franchise he or she should have successfully completed the Franchisor's Associate Development Program. […]

Once a franchisee is appointed, there are a number of programs that a franchisee is required to take through the Franchisor's internal training and development program known as Koffler Academy. A fee is charged for providing training to prospective franchisees, franchisees and the franchisees' employees. This fee is used to offset the cost of the training programs such as: tuition for the Seneca College of Applied Arts and Technology courses, hotel rooms, meals, material costs, reimbursement for wages for attending training (in the case of a store employee). The fee is .025% of gross non-tobacco sales (as set out as item 2 of the Other Fees section above).

6. (1) 8. - REBATES OR OTHER BENEFITS TO THE FRANCHISOR

The Franchisor receives rebates and other benefits as a result of the purchase of goods and services by the franchisees from third parties. In its sole discretion, the Franchisor may share some rebates with its franchisees.

[265] The 2002 Associates Agreement was introduced on December 28, 2002. Beginning on January 1, 2003 and continuing until the introduction of the 2010 Associates Agreement, new Associates and Associates extending their franchises would receive disclosure statements about the 2002 Associates Agreement.

[266] For present purposes, the following disclosures for the 2010 Associates Agreement are pertinent. The example is from a 2007 Disclosure Statement, which was Exhibit “11” to Mr. Spina’s affidavit dated July 23, 2021.

SHOPPERS DRUG MART INC.

DISCLOSURE DOCUMENT

Pursuant to the Arthur Wishart Act (Franchise Disclosure), 2000

Franchise Fee and Other Fees

(a) Franchise Fee (Service Fee)

The franchise fee, also referred to as the "service fee", is determined by the Franchisor from time to time. The service fee cannot exceed the net profit from the franchised business before provision for the service fee and income taxes, and after provision for remuneration to the operator of the franchised business.

(b) Other Fees

In addition to the service fee the franchisee currently pays the following other fees:

(1) the franchisee contributes an amount not in excess of 2% of its gross non-tobacco nonemployee sales (currently at 1.35% of gross non-tobacco non-employee sales) to an advertising fund which is disbursed by the Franchisor on account of advertising and marketing expenses on behalf of all the franchisees;

(2) the franchisee pays to the Franchisor a charge of .028% of gross non-tobacco nonemployee sales for training that covers the costs of courses for franchisees, prospective franchisees and for the franchisees' employees;

(3) the Franchisor supplies bookkeeping and accounting services to the franchisee and levies a charge for such services, which is related to the sales volume of the franchised business. The charge ranges from $6,080 per annum for franchised businesses with gross sales of $4,100,000 or less to $18,905 per annum for franchised businesses with gross sales of $11,400,000 or more;

(5) the Franchisor provides loss prevention services for a charge of .07% of gross non-Shoppers tobacco non-employee sales;

Fixtures and Equipment

Fixtures and equipment (including leasehold improvements) required by the franchisee are leased from the Franchisor, and the franchisee is required to pay rental to the Franchisor for the lease of such fixtures and equipment. The rental is generally based upon the useful life of the fixtures and equipment and is calculated as follows:

• a 2 year asset has a lease rate of 55.91 % of the cost of the asset per annum;

• a 3 year asset has a lease rate of 39.27% of the cost of the asset per annum;

• a 5 year asset has a lease rate of 26.08% of the cost of the asset per annum;

• a 7 year asset hs a lease rate of 20.54% of the cost of the asset per annum;

• a 10 year asset has a lease rate of 16.53% of the cost of the asset per annum; and

• a 15 year asset has a lease rate of 13.64% of the cost of the asset per annum.

6. (1) 5. - TRAINING

Before a prospective franchisee will be considered for a franchise he or she should have successfully completed the Franchisor's Associate Development Program ("LEAD"). […] Once a franchise is awarded, there are a number of programs that a franchisee is required to support to ensure its employees get the recommended internal training and development programs for example, programs, such as the Pharmacy Technician Web Based Training program, the Cashier "Quick Start'' training program etc. A fee is charged for providing training to prospective franchisees, franchisees and the franchisees' employees. This fee is used to offset the cost of the training programs suet, as: course development, delivery of training, material costs, web based technology support, reimbursement for wages for attending the LEAD training program (in the case of a franct1isee's employee). The fee is .028% of gross non-tobacco non-employee sales (as set out as item 2 of the Other Fees section above).

6. (1) 8. - REBATES OR OTHER BENEFITS TO THE FRANCHISOR

The Franchisor receives rebates and other benefits as a result of the purchase of goods and services by the franchisees from third parties. In its sole discretion, the Franchisor may share some rebates with its franchisees.

[267] Beginning in 2010 and continuing to the end of the Class Period, new Associates and Associates extending their franchises would receive disclosure statements about the 2010 Associates Agreement.

[268] For present purposes, the following disclosures from the Disclosure Statements for the 2010 Associates Agreement are pertinent. The example is from a 2011 Disclosure Statement, that was Exhibit “12” to Mr. Spina’s affidavit dated July 23, 2021.

SHOPPERS DRUG MART INC.

DISCLOSURE DOCUMENT

Pursuant to the Arthur Wishart Act (Franchise Disclosure), 2000

Franchise Fee and Other Fees

(a) Franchise Fee (Service Fee)

The franchise fee, also referred to as the "service fee", is determined by the Franchisor from time to time. The service fee cannot exceed the net profit from the franchised business before provision for the service fee and income taxes, and after provision for remuneration to the operator of the franchised business.

(b) Other Fees

In addition to the service fee the franchisee currently pays the following other fees:

(2) the franchisee pays to the Franchisor a charge of .028% of gross non-employee sales for training that covers the costs of courses for franchisees, prospective franchisees and for the franchisees' employees;

(3) the Franchisor supplies bookkeeping and accounting services to the franchisee and levies a charge for such services, which is related to the sales volume of the franchised business. The charge ranges from $6,080 per annum for franchised businesses with gross sales of $4,251,000 or less to $18,905 per annum for franchised businesses with gross sales of $11,662,000 or more;

(5) the Franchisor provides loss prevention services for a charge of .07% of gross non-employee sales;

Fixtures and Equipment

Fixtures and equipment (including leasehold improvements) required by the franchisee are leased from the Franchisor, and the franchisee is required to pay rental to the Franchisor for the lease of such fixtures and equipment. The rental is generally based upon the useful life of the fixtures and equipment and is calculated as follows:

• a 2 year asset has a lease rate of 55.91 % of the cost of the asset per annum;

• a 3 year asset has a lease rate of 39.27% of the cost of the asset per annum;

• a 5 year asset has a lease rate of 26.08% of the cost of the asset per annum;

• a 7 year asset has a lease rate of 20.54% of the cost of the asset per annum;

• a 10 year asset has a lease rate of 16.53% of the cost of the asset per annum; and

• a 15 year asset has a lease rate of 13.64 % of the cost of the asset per annum.

6.5 Training

The franchisee selection process is rigorous and opportunities are available only to licensed pharmacists who share the Franchisor's strong focus on providing the best in health care services to the franchisee's customers. Potential franchisees participate in the Company's Leadership Excellence and Development (LEAD) Foundations training program. […] Once a franchise is awarded, there are a number of learning programs that a franchisee is required to support to ensure its employees get the recommended development. […] A fee is charged for providing training to prospective franchisees, franchisees and the franchisees' employees. This fee is used to offset the cost of the training programs such as: course development, delivery of training, material costs, technology support, reimbursement for wages for attending the LEAD learning program (in the case of a franchisee's employee). The fee is .028% of gross non-employee sales (as set out as item 2 of the Other Fees section above).

6.8 Rebates or Other Benefits to the Franchisor

The Franchisor receives rebates and other benefits as a result of the purchase of goods and services by the franchisees from third parties. In its sole discretion, the Franchisor may share some rebates with its franchisees.

[269] It should be noted that pursuant to Article 17.12 of both the 2002 Associates Agreement and the 2010 Associates Agreement, the Associate and the Pharmacist each acknowledged that (a) they had an opportunity to be advised by professional advisors regarding all pertinent aspects of the Associate Agreement and the relationship created by the Agreement; (b) they had conducted an independent investigation of the business venture; (c) they recognized there were business risks; (d) they understood that success was largely dependent on their ability as independent businesspersons; and (e) they had been given enough time to read the Agreement and understand its provisions.

[270] In the Orientation Manual for the franchise relationship, Shoppers recommends that Associates review the Associate Agreement with their legal advisors to ensure that the Associate understands the Agreement and all of its provisions.

4. The Associates Agreements

[271] The franchisees, who are called “Associates” sign a franchise agreement, known as the "Associate Agreement." Under the franchise scheme, the pharmacists operate the Shoppers Store, through a corporation. Both the Associate and his or her corporation sign the Associate Agreement. Each Class Member was an Associate of Shoppers during the Class Period. Associates are businessowners and professionals licensed to practice pharmacy in the province in which their respective stores are located.

[272] The Associate Agreement is a standard form document. The dispute between the parties concerns the 2002 Associate Agreement and the 2010 Associate Agreement. The 2002 Associate Agreement remained in use until January 1, 2010, after which the 2010 Agreement was used for new Associates and for Associates whose 2002 Associate Agreement including its renewals had expired. The two Agreements are generally similar, but there are some differences that for a variety of reasons are relevant to the multifarious arguments of the opposing parties.

[273] Set out in Schedule “A” to these Reasons for Decision is a summary of the contract terms. The summary comes from the 2010 Associates Agreement. There is a similar summary in the 2002 Associates Agreement.

[274] Along with the above overview of the franchise business, the summary set out in Schedule “A” from the 2010 Agreement is useful as a means towards detailing the nature of the complicated relationship between the Associates and Shoppers. (While not necessary, a reader of these Reasons for Decision may be assisted by reading the summary before moving on.)

[275] Schedule “B” to these Reasons for Decision is a chart containing the provisions of the 2002 Associates Agreement and of the 2010 Associates Agreement that are most pertinent to the summary judgment motions before the court.

[276] It should be noted that Shoppers provided advanced notice to the Associates when revising the form of Associate Agreement. Before the 2010 Associate Agreement was implemented, Shoppers representatives reviewed a draft with PEERS, the consultative body of Associates from across the country.

[277] The review process was consultive, but the Associates Agreements are contracts of adhesion. The Associates essentially had to make a-take-it-or-leave-it decision about signing the Associates Agreement, and there was no individual negation of contract terms.

5. Associates Earnings

[278] Notwithstanding that Shoppers budgeted mandatory hours of work for Associates in addition to their responsibilities as franchisee-owner of their stores, Associates did not earn a salary for their labours as pharmacists, managers, and staff in their own stores. Associates were not paid wages for any of this work; rather, they shared in the profits, if any, of the store, with a guarantee of minimum earnings.

[279] Under the 2002 Associates Agreements and under the 2010 Associates Agreements, Associates were entitled to a portion of their store’s net profits, known as “Associate Earnings.” Under the 2002 Associates Agreements and under the 2010 Associates Agreements, Shoppers was entitled to a portion of the store’s net profits known as the “Service Fee.”

[280] Understanding the methodology of the calculation of Associate Earnings and of the Service Fee is critical to determining the quantification of the Class Members’ breach of contract claims and to determining whether there can be an aggregate assessment of the damages suffered by the Class Members.

[281] Associates and Shoppers shared in the profitability of the Stores in accordance with a complex model that established a relationship amongst a store’s anticipated annual financial performance (profits or losses), a store’s actual annual financial performance, Shoppers Charges for its services, Associate Earnings, and the Service Fee.

[282] A simple, straightforward model would be just to determine what was a store’s net profits and divide that profit. The profit sharing model under the Associates Agreement was anything but simple. It involved a complex financial algorithm where a change in one component or input factor would have cascading effects on the outputs.

[283] At the start of each year, a planned profit was targeted for each store in a Common Year Plan (annual store plan). Each Associate’s plan, which was presented as a spread sheet, had line items for the Shoppers Charges, including, among other things, equipment rent, accounting expense, security expense, and Optimum expense. The plan was discussed with the Associate’s District Manager before it was finalized.

[284] At the end of the year, Shoppers performed a reconciliation to determine how actual profit varied from the Common Year Plan. The amount by which a store exceeded planned profit was known as “overage,” and the amount by which a store fell below planned profit was “underage”.

[285] If the store exceeded its planned revenue target, the Associate received a percentage proportion of the overage. If the store fell short of its target, the Associate’s earnings were reduced by percentage proportion of the underage. Associate earnings were accounted for in a Settlement Memoranda sent to Associates at the end of the fiscal year by Shoppers’s Retail Accounting Department (“RAD”).

[286] By way of one illustration, in 2011, Mr. Vandenburg had planned store profits of $422,479 and planned Associate Earnings of $146,437. At year end, after payment of all store expenses, the store’s actual profits were $260,717, resulting in an underage of $145,772. Mr. Vandenburg was responsible for 20% of the underage, or $29,154, which was subtracted from his planned Associate earnings, yielding earnings of $117,282. Since his Associate Guarantee was $120,000, the Service Fee was reduced by $2,718 to bring Mr. Vandenburg’s earnings to $120,000. Thus, the $422,479 profit was shared 28:72 ($120,000:$302,479), with the lion’s share going to Shoppers.

[287] As noted above, before 2006, Associate Earnings was a simpler calculation of profit sharing. Before 2006, the amount received by an Associate from a store’s profits was negotiated on an individual basis between an Associates and a regional or district manager. From 2006 onwards, Associate Earnings were determined using this complex model referred to as the “New Financial Model.”

[288] When the New Financial Model was introduced, Shoppers represented to the Associates that it was doing so because the Associates had requested greater transparency, equity, and fairness and wished greater entrepreneurial opportunity and motivation.

[289] Under the New Financial Model Shoppers’ share of the profits was paid to Shoppers as the Service Fee under Article 11.01 of the Associate Agreements. The Associate Earnings were the portion of the Store’s profits retained by the Associate after paying the Service Fee.

[290] To address the circumstances that a store might not have a profit or might not have a sufficient profit to provide meaningful earnings for the Associate Shoppers absorbed the store’s losses, which losses were not carried forward, and Shoppers guaranteed the Associate a minimum earning, known as the “Associate Guarantee”.

[291] If a store was profitable, the Associate could earn more than the Associate Guarantee, but there was a complicated formula for determining how those profits would be shared and the formula involved all of the budgeting of anticipated profits or losses, an incentive scheme calculation, the covering of the Associate Guarantee, and the calculation of the Service Fee.

[292] Under the New Financial Model, Shoppers calculated the amount each Associate was projected to receive that year as Associate Earnings (“Planned Associate Earnings”) through a defined formula (the “Associate Earnings Formula”). The Associate Earnings Formula used the planned profitability of the Store (as set out in the Common Year Plan) to then calculate Planned Associate Earnings. Planned Associate Earnings consisted of two parts: (a) $100,000 in base earnings; plus (b) a percentage of the Store’s planned profit based on “bands” of profitability, on a declining scale. This calculation was also subject to the Associate Guarantee, such that if it resulted in a figure less than the Associate Guarantee, the Planned Associate Earnings would be an amount equal to the Associate Guarantee.

[293] In implementation of the New Financial Model, in the late summer of each year, Shopper’s Retail Accounting Department (“RAD”) would prepare the Common Year Plan (annual store plan) based on trends for the prior year, with region-specific assumptions and national assumptions about store wages, sales and margins, pharmacy wages, pharmacy sales and margins and all expenses. The plan included line items for the Store Charges specific to the Associate’s Store for the upcoming year. Shoppers provided the plans as spreadsheets, so that Associates could see the underlying formula and discuss the Shoppers Charges with their District Managers before the plan was finalized.

[294] In accordance with the New Financial Model, the Common Year Plan would plan a profit for the store with a corresponding planned Associate Earning for that profit. The model had a scheme for the planned store profit and the planned Associate Earnings. The chart below is the scheme for 2011.

Planned Store Profit	Planned Associate Earning
$0	$100,000
$100,000	$100,00
$500,000	$157,600
$1,000,000	$221,100
$1,500,000	$274,600
$2,000,000	$328,100
$2,500,000	$373,100

[295] The Common Year Plan would be reviewed internally at Shoppers, and then in the autumn of the year, the plan would be sent to the Associate and his or her District Managers for discussion and revision. The Common Year Plan would be sent back to the accounting department for finalization.

[296] While the Common Year Plan was being settled for the upcoming year, the outcome of the plan for the immediate year would be resolved in accordance with the New Financial Model and the actual performance for the immediate year. At year end, the Associate would be provided with a Profit & Loss Statement and a statement setting out the calculation of the Associate Earnings and the Service Fee with all its interrelated cascading calculations.

[297] Every Associate’s annual Profit & Loss statement had line items for Shopper Charges. At the end of the year, every Associate could see the actual amounts of each charge, compare those amounts to the planned amounts and discuss the variance with his or her District Manager.

[298] To determine the portion of store profits actually received by the Associate (“Actual Associate Earnings”) following year end, each Associate’s Planned Associate Earnings were adjusted, based on the actual profitability of the Store for that year.

[299] Under the New Financial Model, any variance between the Store’s actual profit and the planned profit was split based on pre-determined overage and underage percentages that were also set out in the model. Where a Store had higher or lower profitability than projected in the Store’s Common Year Plan, that variance from planned profitability (“Variance from Plan”) was split based on pre-determined percentages, with the Associate sharing in any over- or under-achievement in the Store by either 20% or 30%, depending on the overall level of profitability of the Store. This adjustment was applied to the Associate’s Planned Earnings to calculate their Actual Associate Earnings for that year. Regardless of this calculation, Associates still could not earn less than the Associate Guarantee.

[300] It should be appreciated that for a profitable store, the outcome of the New Financial Model was that the profits of the store would be divided so that the Associate received Associate Earnings and Shoppers received a Service Fee. For a profitable store, the outcome of the New Financial Model was that Shoppers would receive the lion’s share of the profits of the store. For underperforming stores and for unprofitable stores, Shoppers would eat the losses and honour the Associates Guarantee.

[301] The Associate Guarantee increased over time. Between 1999 and 2011, the Associate Guarantee for Single Store Associates increased from $68,000 in 1999 to $120,000 in 2011. Between 2006 and 2011, the Associate Guarantee for 24-Hour Store Associates increased from $150,000 in 2006 to $170,000 in 2011. Between 2006 and 2011, the Associate Guarantee for Multi-Store Associates increased from $125,000 in 2006 to $155,000 in 2011.

[302] To foreshadow the discussion and the analysis below about the quantification of damages and the availability of an aggregate assessment, it should be appreciated that there is no straightforward or simple way to calculate what the financial position of an Associate would have been had the contract been performed and not breached.

[303] Visualize, for example, if some portion of the Professional Allowances were to be input into the New Financial Model’s algorithm (and the portion to be allocated to the Associate on a store-by-store basis has complications of its own), it might increase the particular stores revenues, which would affect the Shoppers Charges, some of which are measured against gross revenues, which in turn would affect the stores net profits or losses, which in turn would affect the calculation of the Variance from Plans and or the Associates Guarantee, which in turn would affect the calculation of the Associate Earnings and the Service Fee.

[304] Thus, for this example, in a store that was operating at a loss, the infusion of Professional Allowances into the algorithm could have the effect of just reducing the store’s losses with the result that the Associate’s financial position of relying on the Associate Guarantee would be unchanged. In a store that was operating at a profit, the infusion of Professional Allowances could have a range of effects with the only certainty being that the greater proportion of the Professional Allowances would be taken by Shoppers as a Service Fee.

L. Factual Background: Optimum Fee Claims

[305] After testing it in 1999 in several Ontario test markets, in 2000, Shoppers introduced the “Optimum Program” nationwide. It replaced other loyalty programs that were phased out. The Optimum Program replaced the “Cosmetics Club,” the “Crusader Program,” and the “Seniors Club”, which operated in the late 1990s.

[306] The Optimum Program is a loyalty program that was designed to promote customer traffic to the stores. Under the Optimum Program, Optimum Points were issued to customers based on purchases in-store. Points could then be redeemed by customers for discounts on product purchases. Customers earned 10 Optimum Points for every one pre-tax dollar they spent in at store. Points earned in this manner were “Base Points”. The value of the Optimum Points changed from time to time, but the value of a Base Point was around $0.001. By way of illustration, in 2003, Shoppers increased the charge for a Base Point to $0.00122 from the then current charge of $0.00104 that had been used in 2001 and 2002.

[307] Customers could also earn additional Points through certain promotions such as “20x” events or promotions related to specific products. Points earned in this manner were “Bonus Points.” Customers could also earn points from product vendors who subsidized the sale of their product. Points earned in this manner were “Partner Points”.

[308] When Points were redeemed at a store, they were treated as a form of tender, like cash. When Points were redeemed, Shoppers would credit the store on its balance sheet for the value of the purchase. The value of the Points as tender changed over time. For example, in 2008, $10 required 7,000 Points; in 2010, $10 required 8,000 Points.

[309] Associates were informed about the Optimum Program in the Associates Orientation Manual. For example, the 2006 Orientation Manual stated:

Shoppers Optimum Program

The Shoppers Optimum Program builds customer loyalty and increases sales at a time when we face growing competition. We use the program to distinguish our products and services and to give customers even more reasons to choose Shoppers over other stores. The main benefit of Shoppers Optimum for customers is accumulated points, which can be redeemed for discounts. Special promotions such as Bonus Points give customers extra points on items, some of which are not usually discounted (e.g., prestige cosmetics). […] The Shoppers Optimum Program is a regular opportunity to increase every customer's basket of purchases. The average cardholder uses their card every ten days, and cardholder baskets are 50% larger than non-cardholders. One in two adult Canadian females has a Shoppers Optimum card. Having access to sales information concerning our customers gives us a unique competitive advantage that can be felt all over the store, from the pharmacy to the front store. Because we capture and track data about our customers' purchase behaviour, we can tailor special customer-specific offers to meet our customers' needs. For example, we can channel specials on particular items such as prestige cosmetics or baby items to market segments such as seniors or moms. A healthy Shoppers Optimum Program has a bottom-line impact, particularly in the cosmetics area (80% of members are female). Your store should work to increase enrollment and encourage card usage. A Shoppers Optimum Program that is not fully supported in your store is a missed opportunity for your store and for Shoppers.

[310] Pursuant to Article 11.05 (iv) of the 2002 Associates Agreement and Article 11.05 (iv) of the 2010 Associates Agreement, Shoppers charged the Associates the “Optimum Fee” for the Base Points. The fee consisted of a set cost per Base Point issued in-store, exclusive of Points issued in connection with certain promotional events. The Optimum Fee was the total number of Base Points issued at the Associate’s store’s point of sale multiplied by the Associate Cost per point.

[311] Thus, the Optimum Fee charged to each Associate depended on the volume of Base Points issued at each Associate-operated store. Associates were not charged for Bonus Points or Partners Points. Shoppers absorbed the cost of Points issued via promotional events and also funded the cost of Optimum cards, marketing expenses, and employee salaries in respect of the Optimum Program.

[312] The costs of the Optimum Program exceeded the amount collected in the Optimum Fee, and Shoppers subsidized the Optimum Program over the almost thirteen years of the Class Period.

[313] During the period of the 2002 Agreement, Shoppers charged Associates $355.2 million for the Optimum Program. Relying on Mr. Rosen’s damages model, discussed below, the Plaintiffs claim $54 million in aggregate relief for breach of the 2002 Associate Agreement with respect to the Optimum Fee.

[314] The Optimum Program was a very successful promotional vehicle for both Shoppers and the Associates. It increased customer traffic to the stores, and it encouraged costumers to purchase more products, i.e., each customer’s basket of purchases was more than it would have been in the absence of the Optimum Program. The result was substantially increased gross revenues for the store.

M. Factual Background: Shoppers Charges Claims

1. Shopper’s Approach to Determining the Fee for Shoppers Charges

[315] Under the Associates Agreements, Shoppers was entitled to charge fees for the Shoppers Charges, which were for the enumerated services Shoppers provided to the Associates. Under the Associates Agreements, Shoppers was entitled to charge for the Shoppers Charges in “such amount or amounts as [Shoppers] shall, in the good faith exercise of its judgment, determine.”

[316] It is the Plaintiffs’ contention that Shoppers good faith exercise entailed that the fee for each of Shoppers Charges should be at the cost for the particular service. It is the Plaintiffs’ contention that Shoppers breached the Associates Agreements and its common law and statutory duties of good faith by charging fees for the Shoppers Charges that included a profit element.

[317] Shoppers disputed this contention, and its evidence was that it set Store Charge fees so that - as a whole – the fees should be at the cost of the services. Mr. Mariano’s and Mr. Randhawa’s evidence was that in actualization, Shoppers did not recover the total costs of all the services it provided, for which it charged the fees of the Shoppers Charges.

[318] In particular, it was their evidence that the Optimum Fee and the Associates’ contribution to advertising were insufficient to reimburse Shoppers for the costs of these services and the shortfall exceeded any surplus in the collection of other Store Charges. In other words, Shoppers did not generate a profit by charging Store Charges, and – overall – Shoppers often lost money from providing services to the Associates.

[319] Shoppers did go through an elaborate exercise of setting each of the Shoppers Charges and from time to time it would do an overall assessment and adjust the Store Charges. Each charge was analyzed discretely, and from an accounting perspective, the charges for the Shoppers Charges were attributed to different profit and loss centres.

[320] Mr. Randhawa of Shoppers testified that, in addition to information regarding any surplus or deficit in respect of each fee as compared to the cost of providing the Services, Shoppers took into account business considerations, such as Associates’ interests and the stability of the Shoppers’s franchise system. He testified that looking at the Shoppers Charges as a whole allowed Shoppers to provide certainty and predictability to the Associates as to the rates and amounts paid each year. Mr. Davidson, who gave opinion evidence for Shoppers stated that in his opinion, this approach was reasonable from a business and financial perspective.

[321] Mr. Davidson, a witness called by Shoppers, calculated the surplus or deficit of each fee against the cost of providing the services and found that the costs incurred by Shoppers over the Class Period exceeded the total of the amounts charged by Shoppers to the Associates for the Store Charges. Over the almost thirteen years of the Class Period, he opined that Shoppers expended $454.4 million more on the services than it collected in Store Charges. In particular, Shoppers lost: (a) $10.9 million in respect of the IT Support Fee; (b) $52.8 million in respect of the Advertising Contribution; and (c) $469.1 million in respect of the Optimum Fee, over the almost thirteen years of the Class Period (an average of $35 million each year). The costs of providing advertising and the costs of the Optimum Program were consistently substantially higher than the amounts charged for these services.

[322] I find as a fact that Shoppers’s approach aimed at recovering Shoppers Charges across the whole franchise system that were commensurate with the amount expended by Shoppers in providing Services to Associate across the whole system. Shoppers sometimes was not successful in achieving this aim. In realization, the Store Charge Fees achieved surpluses on some charges, but overall, the deficits on other charges overtopped the surpluses. For example, in Shoppers’s Fee Summary for 2012: (a) Loss Prevention had a $2.2 million surplus; (b) Training & Development had a $716,000 surplus; (c) Insurance had a $3.0 million surplus; and (d) Advertising had a $24 million deficit.

[323] I pause here and hasten to add, as I shall discuss further in the legal analysis later in these Reasons for Decision, that the fact that Shoppers’s approach aimed at making the Shoppers Charges at cost is no answer to the Plaintiffs’ claim that Shoppers breached its contractual obligations and its duties of good faith by charging the Loss Prevention Fee, the Academy Fee, the Retail Accounting Fee, and the Equipment Rental Fee at amounts that exceeded the costs of those services. As the discussion below will reveal, as a factual matter, with the exception of the Equipment Rental Fee, Shoppers did charge these fees at above the costs of providing the service. However, as I shall explain later, as a matter of contract interpretation and contract performance, Shoppers was entitled to charge as it did during the duration of the Class Period.

[324] Returning to the factual background for the Shoppers Charges Claims, Shoppers’s Finance Group performed the analyses and the reviews and senior management made the ultimate decision about whether any particular Shoppers Charge should be varied.

[325] Mr. Randhawa’s evidence, which I believe, was that Shoppers tried to avoid unnecessary increases or decreases in fees for the sake of stability, by adjusting rates. There were increases and decreases. For example in 2002, the Academy Fee was increased from .025% of Gross Sales to .028% and in 2004, the Loss Prevention Fee was reduced from 0.11% of Gross Sales to 0.09%.

[326] Up until 2006, Shoppers sent memos to all Associates on an annual basis identifying any changes to the Store Charges and, where changes were made, the memo explained what and why the change was made. After 2006, the changes were explained as part of the process, described above, of reviewing the Common Year Plan (annual store plan) with the Associate.

[327] Each year, an Associate received that year’s Profit & Loss Statement. The statement had line items for the Store Charges.

[328] As a matter of fact finding, I find as a fact that the uncontested evidence is that Associates would have had to pay more for the services in the open market. Thus, in any event, Shoppers did not charge commercially unreasonable rates for its services.

[329] In the next several sections of my Reasons for Decision, I have comments about the factual background to each of the contested Shoppers Charges.

2. The Loss Prevention Fee

[330] The Loss Prevention Fee was charged pursuant to Article 11.05 of the 2002 Associate Agreement and Article 11.07 of the 2010 Associate Agreement.

[331] Shoppers provided loss prevention services to Associate stores through a group of loss prevention coordinators who assisted Associates to minimize losses due to theft and errors.

[332] The costs of the loss prevention service for Shoppers included payroll costs for two departments, office costs, auto and travel expense, consulting fees for outside services, and an occupancy expense proportionate to the use of Shoppers’s premises and infrastructure.

[333] The Loss Prevention Fee charged to each Associate was calculated during the class period as a percentage of Gross Non-Employee Sales by the Associate: 0.11% of sales in 2002, 0.09% from December 2002 until 2003, and 0.07% from 2004 to 2013.

[334] As discussed below, Mr. Rosen, the Plaintiffs’ damages expert calculated that Shoppers overcharged Associates for the Loss Prevention Fee by $23.5 million over the almost thirteen years of the Class Period.

[335] I shall return to this matter later in these Reasons for Decision, but as foreshadowed by the synopses above, ultimately nothing turns on whether there was a $23.5 million overcharge or surplus over the almost thirteen years of the Class Period because with respect to the Loss Prevention Fee, Shoppers did not breach the Associates Agreement or act in bad faith in setting the amount of the Loss Prevention Fee.

3. The Academy Fee

[336] The Academy Fee was charged pursuant to Article 11.05 of the 2002 Associate Agreement and Article 11.07 of the 2010 Associate Agreement.

[337] Associates paid Shoppers an Academy Fee for the training programs provided to Associates and their employees.

[338] Each Associate paid to Shoppers a charge calculated as a percentage of Gross Non-Employee Sales for training purposes. The Academy Fee was set at 0.025% of Gross Sales until the end of 2002, and at 0.028% for the remainder of the class period.

[339] The costs of the training programs and courses provided by Shoppers included the costs of payroll, travel and auto, office expenses, occupancy and consulting, and outside services (i.e., any services from an external consultant).

[340] As discussed below, Mr. Rosen, the Plaintiffs’ damages expert calculated that Shoppers overcharged Associates for the Academy Fee by $4.3 million over the almost thirteen years of the Class Period.

[341] I shall return to this matter later in these Reasons for Decision, but as foreshadowed by the synopses above, ultimately nothing turns on whether there was a $4.3 million overcharge or surplus over the almost thirteen years of the Class Period because with respect to the Academy Fee, Shoppers did not breach the Associates Agreement or act in bad faith in setting the amount of the Retail Accounting Fee.

4. The Retail Accounting Fee

[342] The Retail Accounting Fee was charged pursuant to Article 6.03 of the 2002 and 2010 Associate Agreements.

[343] Shoppers charged Associates a Retail Accounting Fee to cover the cost of its Retail Accounting Department’s (RAD’s) services.

[344] The RAD, which employed a staff of eighty persons, provided accounting support, finalized monthly and year-end accounting reports, prepared tax returns, and Common Year Plans (annual store plans), and paid suppliers on behalf of Associates. The costs of the RAD included the salaries and systems for eighty employees, rental expense, and an overhead charge based on a proportion of Shoppers’s infrastructure expense.

[345] Shoppers set the Retail Accounting Fee based on each store’s Gross Sales in tiers.

[346] As discussed below, Mr. Rosen, the Plaintiffs’ damages expert, calculated that Shoppers overcharged Associates for the Retail Accounting Fee by $37.7 million over the almost thirteen years of the Class Period. Mr. Davidson, one of Shoppers’s damages experts, calculated that Shoppers’s surplus for the Accounting Fee was $26.3 million over the Class Period.

[347] I shall return to this matter later in these Reasons for Decision, but as foreshadowed by the synopses above, ultimately nothing turns on whether there was a $37.7 million or a $26.3 million overcharge or surplus over the almost thirteen years of the Class Period because with respect to the Retail Accounting Fee, Shoppers did not breach the Associates Agreement or act in bad faith in setting the amount of the Retail Accounting Fee.

5. The Equipment Rental Fee

[348] Shoppers purchased and installed fixtures, leasehold improvements, and equipment (collectively, “equipment”) in each Associate’s store. Shoppers owned the equipment and rented it to the Associates. Associates were required to lease all equipment from Shoppers and pay an Equipment Rental Fee. The fee was based on the costs connected to purchasing the equipment and on the useful life of the equipment.

[349] Under the Associate Agreements, the equipment was to be leased to Associates on terms and conditions to be mutually agreed upon, Shoppers imposed lease terms, and based on its view of the useful life of the equipment, Shoppers assigned the equipment into one of six categories, ranging from 2-year to 15-year assets with varying lease rates. The categories and rates were set out in the statutory disclosure documents.

[350] Equipment was leased for a fixed number of years based on the useful life of the asset determined by accounting standards under GAAP (“Generally Accepted Accounting Principles”). Where equipment was still useable beyond its designated useful life, Associates continued using the equipment, but they no longer had to pay rent on it.

[351] Shoppers included in the Equipment Rental Fee: (a) the cost of the equipment; (b) the cost of third-party labour in delivering and installing the equipment; (c) an IT project management fee relating to the costs of deploying and implementing information technology systems; (d) a Store Planning Charge, which capitalized its expenses connected to the management of store renovations, expansions, and relocations; and (e) a 11% rate of return per annum on the Equipment Rental Fee. The 11% rate of return was on a per annum basis on a declining balance, amortized over the useful life of the equipment. The 11% rate of return included an “enterprise cost” of 8%, plus a 3% risk premium for the risk Shoppers took on in place of the Associate purchasing the equipment.

[352] The 11% rate did not appear in the Associate Agreements. It is not in the franchise disclosure documents, nor is it in the equipment rent reports. Shoppers’s position was that the 11% rate of return was comprised of an 8% “enterprise cost” representing Shoppers’s cost of capital, plus a 3% “risk premium”. Shoppers’s expert Mr. Davidson opined that the 11% rate of return on the cost of equipment, which was based on Shoppers’s weighted average cost of capital (“WACC”), along with the other factors that comprised the Equipment Rental Fee produced a fee that was reasonable to the Associates. In effect, Mr. Davidson’s opinion was that the Equipment Rental Fee was appropriately at cost.

[353] As discussed below, Mr. Rosen, the Plaintiffs’ damages expert, calculated that Shoppers overcharged Associates for the Equipment Rental Fee by either $80.1 million or $48.4 million over the almost thirteen years of the Class Period. Mr. Rosen and Dr. Narayanan opined that the 11% charged by Shoppers was unreasonable because it exceeded the cost of debt and had a profit element. In their opinion, the cost of capital charged by Shoppers included both the cost of debt capital and the cost of equity capital, but the cost of equity capital is a profit from an accounting perspective.

[354] I shall return to this matter later in these Reasons for Decision, but as foreshadowed by the synopses above, ultimately nothing turns on whether there was a $80.1 million or a $48.4 million overcharge or surplus over the almost thirteen years of the Class Period because with respect to the Equipment Rental Fee, Shoppers did not breach the Associates Agreement or act in bad faith in setting the amount of the Rental Equipment Fee.

N. Factual Background: Distribution Centre Claims

1. Distribution Centre Practices

[355] Shoppers required Associates to purchase products from Shoppers’s centralized distribution centres. Shoppers established uniform policies and practices governing the ordering and receiving of products from its distribution centres. Shoppers developed policies and practices about the return of products and about dealing with problems about the delivery of merchandise.

[356] Shoppers consulted with the Associates in developing its policies and practices and considered their complaints and their suggestions for improvement, but as noted above, the Associates Agreements are contracts of adhesion and Shoppers may have listened, but it did not necessarily agree with the Associates’ suggestions for improvements to the Distribution Centre Practices.

[357] In 2008, Shoppers introduced the Logistics Committee to address feedback from Associates, but Shoppers made its own decisions and set policies and practices as its own prerogative and privilege under the Associates Agreement. It was the boss so to speak of the distribution centre practices, which it regarded as a critical ingredient of its franchise system.

[358] For example, in the early 2000s, Shoppers extended the time limit for submitting inventory adjustment claims, discussed below, from 24 hours to 48 hours, but one gathers from Mr. Spina’s and Mr. Vanderburg’s evidence that this extension was inadequate, and that Associates were not provided enough time to unpack the plastic wrapped sleds of merchandise, check for mistakes in the deliveries, shelve the merchandise, and lodge claims with Shoppers.

[359] Associates ordered products from the distribution centres through the Merchandise Management System (“MMS”). The MMS automatically generated suggested orders for each store, accounting for factors such as minimum inventory requirements, and product sales history. Associates modified the automated orders by applying their own judgment to account for factors such as the size of their store and the local market. Associates ordered products from the Distribution Centres on a scheduled ordering cycle. Orders were placed through the MMS.

[360] Once an order was placed, the Distribution Centre assembled the ordered products and shipped them to the store in an assigned delivery window. Shoppers would then issue an invoice to the Associate for the order.

[361] Shoppers’s policy regarding inventory adjustment claims was described in a booklet entitled “Distribution Centre Claims and Receiving Policies and Procedures” The claims policy available to Associates on the In-Store Web and was summarized in a document entitled “DC Claims Summary”.

[362] Sometimes the distribution centre shipped the incorrect product (known as a “mispick”). Sometimes the distribution centre delivered fewer items than what was invoiced. Sometimes, the distribution centre delivered damaged goods or goods that were otherwise unusable. When errors were discovered, the Associate was required to submit an inventory adjustment claim to address the error. Shoppers required that the inventory adjustment claim must be submitted within 48 hours. Shoppers automatically denied claims valued below specified monetary thresholds (e.g., $50 minimum claim for damaged goods).

[363] The reason for the 48-hour period was that Shoppers would investigate the adjustment claim by sending an analyst working at the distribution centres to the location of the goods at the centre and he or she would reconcile the distribution centre inventory to determine if a shipping error had been made. If the supply in the centre did not accord with what was expected, the claim would be accepted. If the supply reconciled, the claim was rejected.

[364] As Mr. Spina’s and Mr. Vanderburg’s testimony suggests, meeting the 48-hour period was sometimes not feasible. Shoppers’s evidence was that on a case-by-case basis, an area or district manager could grant extensions for the submission of claims.

[365] Mr. Whibbs, the Shoppers’s executive responsible for the distribution centres, acknowledged that there were ongoing problems with the distribution centre’s performance. He summarized the issues with inventory processes and his personal conclusion was that Shoppers had “stood behind an audit process that is fraudulent;” he stated:

[Shoppers has] spent significantly on automation with the promise of near perfect orders. I have stood in front of Associates and our CEO and promoted that fact and challenged their concerns with quality. We have denied claims[.] We have stood behind an audit process that is fraudulent[.] We have blindly and arrogantly believed in ourselves, rather than giving any credibility to what the [Associates were] telling us.

[366] Based on the evidence proffered by both sides on the summary judgment motions, I cannot and do not find any systemic or class-wide breach of the duty of good faith with respect to the adoption or the administration of Shoppers’s policies and practices with respect to its distribution centres.

[367] What I do find is that on an idiosyncratic case-by-case basis, there may have been breaches of good faith in administering the policies and practices of the distribution centres. Mr. Whibbs’ acknowledgement is evidence of case-by-case breaches, but his acknowledgement and the evidence of Mr. Spina and Mr. Vanderburg does not prove a systemic breach of contract or of Shoppers’ duties of fair dealing or good faith in the performance of the Associates Agreements.

[368] The distribution centre’s policies and procedures are central to Shoppers’ franchise model, where Shoppers acted as a wholesaler that controlled the supply chain of merchandise to its stores. It is evident that Shoppers undertook very sophisticated and extensive marketing research and its contribution to the success of the franchise went far beyond just having considerable mass buying leverage and extended to the marketing practices of the distribution centre. The distribution centre policies and procedures were part of Shoppers franchise system, and it appears that its marketing plans were profitable for both it and the Associates.

[369] That all said, the evidence on this motion reveals that subject to what I have to say below about limitation periods, there may be claims by individual Associates that they experienced a breach of Shoppers’s duties of good faith in the performance of the Associate Agreements with respect to the distribution centre practices and procedures. These claims are entirely idiosyncratic and did not occur class wide.

2. MOGs

[370] Much the same thing can be said about the role of MOGs (Mass Order Generations) in Shoppers’s franchise system.

[371] In addition to orders placed and possibly varied under the Merchandise Management System, Shoppers imposed Mass Order Generations (MOGs”). “MOGs” were a mass delivery of product to large groupings of stores. MOGs were used to support the mass marketing of products, for the weekly advertising flyer, and to facilitate the merchandizing of seasonal products and special occasion products; visualize goods for Halloween, Christmas, Valentine’s Day, Easter, Mothers’ Day etc.

[372] There were different types of MOGs; visualize: (a) “Flyer MOGs” to supply product advertised in weekly flyers; (b) “Seasonal Program MOGs” to supply seasonal and holiday products; (c) “Cosmetic Launch MOGs” for new products, which would be marketed with retail discounts to encourage take up; (d) “Planogram Item MOGs” to launch other new products; (e) “Service Level MOGs,” to buffer store inventory for high demand periods; and (f) “Auto-Replenishment MOGs,” by which certain products were automatically sent to stores based on an automatic replenishment model.

[373] The determination of the MOGs was a very sophisticated scheme that was overseen by Shopper’s Merchandise Group, its Category Group, and its Business Analytics Group. The determination of MOGs was system-wide and also on a store-by-store basis, or group of stores bases depending on the MOG.

[374] Which stores received MOGs was dependent on the marketing analytics and such factors as store size, and physical constraints, market forces, and store performance. Quantities of items for seasonal and flyer MOGs were determined by Shoppers’s Business Analytics group, which performed analysis to determine the quantity of each individual product (referred to as a “stock-keeping unit”, or “SKU”) that should be included as a MOG for each store. This included forecasting demand by looking at the sales history of the SKUs, adjusted for factors such as promotions and seasonality, and projecting inventory based on factors such as current inventory on-hand, average weekly selling volume, average weekly replenishment, and advertisements or interim MOGs. Stores were assigned classifications based on volume to determine optimal purchases. There were ten different classifications for stores that were used to determine the purchase targets and the volume targets. Stores were classified based on the past volumes for particular programs at each store.

[375] Notwithstanding the beliefs of the Plaintiffs, the evidence did not show that MOGs were used to offload unwanted or stale products onto the Associates.

[376] Mr. Dean’s evidence reveals that Shoppers undertook analyses that showed that MOGs increased store sales and store margins on the sales of products. This was also true for the replenishment MOGS where the Associate’s own order was topped up with additional inventory for the stores. Mr. Dean’s evidence reveals that Shoppers undertook cost-benefit analyses of the MOGS system and that the MOGS were beneficial to both Shoppers and to the Associates.

[377] Once again, there is no evidence of a systemic breach of contract or a systemic breach of Shoppers’s duties of good faith in its imposition of MOGs. Once again, on a case-by case basis there may have been the occasional breach of a good faith with respect to the delivery of MOGs to an Associate, who would have preferred not to receive the merchandise. The evidence on this motion reveals that subject to what I have to say below about limitation periods, there may be claims by individual Associates that they experienced a breach of Shoppers’s duties of good faith in the performance of the Associates Agreements with respect to the MOGS.

O. Factual Background: Professional Allowance Claims

[378] In this section of my Reasons for Decision, I shall describe the factual background for the Ontario PA Class Members” claims with respect to “Professional Allowances.” They claim $1.084 billion based on unjust enrichment or alternatively $256 million for damages for breach of contract.

[379] The PA Class Members assert that Shoppers could not lawfully keep more in Professional Allowances than Shoppers itself provided at the central office, which was calculated to be $77.2 million, and it was the PA Class Members who were the only persons entitled to accept the Professional Allowances that related to the direct patient care that they provided. The PA Class Members assert that detached from their direct patient care, Shoppers was retaining a rebate in Ontario, which it was prohibited by law from doing.

[380] The description of the factual background to the Professional Allowances claim, will, naturally enough, also involve describing the factual background to Shoppers’ two-branched defence to the PA Class Members’ claim. Shoppers’ defences are that: first, Shoppers was entitled to keep the Professional Allowances pursuant to the terms of the 2002 Associates Agreement and the 2010 Associates Agreement; and second, the PA Class Members’ claims are statute barred.

[381] At the centre of the debate between the Associates and Shoppers is Shoppers’ assertion that it is entitled to keep the Professional Allowances pursuant to the terms of the Associates Agreements.

[382] In its defence, it is Shoppers’ position that pursuant to the 2002 Associates Agreement it was entitled to keep the Professional Allowances pursuant to Article 11.04, which states:

The Associate and Pharmacist acknowledge and agree that the Company shall be entitled to the benefit of any and all discounts, volume rebates, advertising allowances or other similar advantages that the Company or its Affiliates may obtain from any person, firm or corporation by reason of its supplying merchandise or services to the Associate or to Associates of the Company or its Affiliates.

[383] In its defence, it is Shoppers’ position that pursuant to the 2010 Associates Agreement it was entitled to keep the Professional Allowances pursuant to Article 11.10, which states:

The Associate and the Pharmacist acknowledge and agree that the Company shall be entitled to the benefit of any and all discounts, rebates, advertising or other allowances, concessions, or other similar advantages obtainable from any person by reason of the supply of merchandise or services to the Company, the Associate or to Associates of the Company or its Affiliates.

[384] The PA Class Members’ claims for Professional Allowances and Shoppers’ defences concern Shoppers’ activities during the five-and-a-half years between October 1, 2006 and March 31, 2013.

[385] On October 1, 2006, the Ontario government introduced the Professional Allowances Regime. Under this Regime, generic drug manufacturers were prohibited from paying “rebates”, but the generic drug manufacturer was permitted to pay “Professional Allowances.” The Professional Allowance Regime ended on March 31, 2013. After that date, both rebates and Professional Allowances were forbidden in Ontario.

[386] More precisely:

a. Between October 1, 2006 and June 30, 2010, Professional Allowances were permitted for the purchase of generic drugs both for: (a) the public payor drug system, i.e., the Ontario Drug Benefit Plan (the “ODB Plan”); and also, (b) the private payor drug system, i.e., the “non-ODB Drug System”.

b. On July 1, 2010 Professional Allowances were no longer permitted for the ODB Plan, and it was no longer necessary for the recipient of Professional Allowances to report to the Ministry of Health and Long-Term Care (“MOHLTC” or the “Ministry”) about the Professional Allowances.

c. After July 1, 2010, Professional Allowances continued for the non-ODB Drug System subject to a percentage that capped the amount of the Professional Allowances and there was no reporting requirement.

d. On April 1, 2013, Professional Allowances were no longer permitted for the non-ODB Drug System. The Professional Allowance Regime was done.

[387] Describing the factual background of the PA Class Members’ claim for Professional Allowances and Shoppers’s defences involves seven topics.

1. The first topic is describing the operation of the supply chain for generic drugs by which Shoppers purchased the generic drugs and supplied them to the Associates’ stores before the Ontario government created its Professional Allowances Regime.

2. The second topic is describing the circumstances that led the Ontario government in 2006 to introduce a Professional Allowance Regime that prohibited general drug manufacturers from paying “rebates” but that permitted drug manufacturers to pay “Professional Allowances” that were connected to the formulary price for the generic drug. (The background history to the Professional Allowance Regime is described and explained by Justice Abella in her decision for the Supreme Court of Canada in Katz Group Canada Inc. v. Ontario (Health and Long-Term Care.[^22])

3. The third topic is a detailed analysis of the Professional Allowances Regime.

4. The fourth topic is a description of how Shoppers negotiated with generic drug manufacturers and how it received Professional Allowances under the Professional Allowance Regime that applied in Ontario.

5. The fifth topic is a description of the expense and performance of direct patient care services by Shoppers and by the Associates.

6. The sixth topic is Shoppers’ reporting of Professional Allowances to the Ontario Government.

7. The seventh topic is the tabulation of the amounts of Professional Allowances that might be claimed by the Associates for unjust enrichment or for breach of contract.

1. The Supply Chain: Purchase and Distribution of Generic Drugs before the Professional Allowances Regime

[388] There are four participants in the supply chain for generic drugs in Ontario.

[389] First, there are the fabricators. Fabricators make the generic drugs, which are equivalent to brand name drugs that are no longer protected by patent. Fabricators are regulated by the Federal Government. Fabricators are licensed under the federal Food and Drug Regulations.[^23]

[390] Second, there are generic drug manufacturers. They too are federally regulated. Manufacturers are licensed under the federal Food and Drug Regulations to sell generic drugs under their own name. Manufacturers must have their generic drug approved by Health Canada and have their drug designated as interchangeable and listed in what is known as the “Formulary.” A manufacturer can also be a fabricator or can buy the generic drug from a fabricator. The price at which manufacturers sell the drugs is regulated in Ontario.

[391] Third, there are wholesalers. They too are regulated under the federal Food and Drug Regulations. They may buy drugs from manufacturers to distribute them to pharmacies. The price at which wholesalers buy and sell drugs is regulated in Ontario.

[392] Fourth, there are pharmacies. The pharmacies buy drugs from wholesalers or manufacturers and dispense them to their customers. The price at which pharmacies buy drugs and dispense them to customers is regulated in Ontario.

[393] In 1985, Ontario introduced the Ontario Drug Benefit Act[^24] (“ODBA”) and the Drug Interchangeability and Dispensing Fee Act,[^25] (“DIDFA”) to regulate the sale and the pricing of generic drugs in both the public sector market and also in the private sector market.

[394] The Ontario Drug Benefit Act governs the Ontario Drug Benefit Plan (the “ODB Plan”). Through the ODB Plan, the Ontario government is the largest purchaser of drugs in Ontario. Under the ODB Plan, eligible persons (primarily seniors and persons on social assistance) receive from pharmacies certain drugs that are listed in the Formulary at no charge. The provincial government reimburses i.e., pays the pharmacies for the drugs that are dispensed under the ODB Plan at the Formulary price. The Formulary specifies the price for the generic drug that the government will pay to reimburse the pharmacy.

[395] The Executive Officer of the of the Ministry of Health and Long-Term Care is responsible for listing drugs in the Formulary and for setting their price by agreement with the manufacturer. When a pharmacy dispenses a listed drug to an eligible person, the Ontario Drug Benefit Act requires Ontario to reimburse the pharmacy for an amount based on the Formulary price of the drug plus a prescribed mark-up and prescribed dispensing fee.

[396] The Drug Interchangeability and Dispensing Fee Act directs that patients in Ontario receive generic drugs from pharmacies rather than equivalent but more expensive brand-name drugs. The Act empowers the Executive Officer of the Ministry to designate a generic drug as “interchangeable” with a brand-name drug. Pharmacists must dispense the cheaper interchangeable generic to customers unless the prescribing physician specifies “no substitution” or the customer or the customer’s private health plan insurer agrees to pay the extra cost of the brand-name. The Act also limits the dispensing fees that pharmacies can charge private payor customers.

[397] Shoppers’ main place in the supply chain was as a wholesaler, although through its subsidiary Sanis Health Inc., it also was a manufacturer of some own-label generic drugs. For present purposes, Shoppers’ role as a wholesaler is what is pertinent. Before the introduction of the Professional Allowances Regime, as a wholesaler, Shoppers submitted a Purchase Order to the generic drug manufacture.

[398] Before the introduction of the Professional Allowances regime, the generic drug manufacturer would ship the drugs to Shoppers’ distribution centres and it would invoice Shoppers for payment based on the unit price of the generic drugs, referred to as “standard cost” or “manufacturer list price”.

[399] Shoppers maintained a pay-on-receipt system in which payment was made to the generic drug manufacturer based on the product shipped to the Distribution Centres. Some but not all shipments of generic drugs were accompanied by an invoice; any invoices received were sent to a third-party accounts payable company, which audited the invoices and ensured that the prices matched. If there were any discrepancies, Shoppers claimed back against the drug manufacturer/vendor.

[400] After delivery to the distribution centres and based on orders from Associates through Shoppers’ inventory systems, Shoppers resold the generic drugs to Associates. The price paid was the same price that was paid by Shoppers to the generic manufacturer. Shoppers did not charge Associates a distribution mark-up on generic drugs.

[401] Before the Professional Allowances Regime, pursuant to the Associates Agreements, Shoppers was entitled to keep any rebates or discounts offered by the generic drug manufacturer for the drugs that Shoppers passed on to its Associates at standard cost or manufacturer list price.

2. Banning Rebates and the Professional Allowance Regime

[402] As apparent from the above description of the supply chain, before the introduction of the Professional Allowances Regimes, pharmacies including Shoppers’ stores, would buy drugs from manufacturers at the Formulary price, and dispense them to customers at the Formulary price, plus regulated mark-ups and dispensing fees.

[403] Before the introduction of the Professional Alliances Regime, the government of Ontario had hoped that compelling the use of generic drugs, which were listed in the Formulary at effectively 63% of the price of the brand-name drug, would reduce the costs of the generic drugs. However, this hope proved illusory. To be competitive, manufacturers would give pharmacies a substantial rebate so that they would buy their products. In Katz Group Canada Inc. v. Ontario (Health and Long-Term Care,[^26] an administrative law case about the legality of one of the regulations, Justice Abella, who wrote the judgment of the Supreme Court of Canada, noted that rebates were up to $600-800 million annually and accounted for 40% of the price manufacturers charged for drugs.

[404] The use of rebates to maintain high drug prices for patients and their insurers was not unique to Ontario. Mr. Schoonveld stated that the rebating creating substantial differentials between formal list and actual net pricing was pervasive globally. Pharmaceutical economist and professor Dr. Grootendorst noted that this practice of “spread pricing,” was a problem that the Ontario government had been grappling with for decades.

[405] The Ontario government directed its policy developers to respond to the problem of the inflationary effect of rebates on drug prices. Brent Fraser was an employee of MOHLTC. He was a member of the three-person Drug System Secretariat that researched, drafted, and made recommendations to the government to address the problem of rebates inflating the expense of generic drugs.

[406] Mr. Fraser testified that when during the policy development stage, Ontario proposed to prohibit drug manufacturers from paying rebates, the pharmaceutical industry lobbied against the policy move. Shoppers was one of the major chains that lobbied against the no rebates policy. The Ontario Pharmacists Association (“OPA”) lobbied to narrow the definition of “rebate” and expand the definition of “professional allowance.” (Deb Saltmarche, of Shoppers’ Professional Affairs team, was the VP, Policy of the OPA.) The pharmacies submitted that, without rebates important direct patient care services provided by pharmacies to the public would become unsustainable and patient care would suffer.

[407] However, the definitions of rebate and professional allowance were not changed from how they appeared in the draft legislation, and the Ontario Legislature adopted the recommendations of the Drug System Secretariat. On October 1, 2006, the Ontario government banned pharmacies in Ontario from receiving rebates from drug manufacturers and introduced the Professional Allowance Regime.

[408] In what would ultimately turn out to be a failed attempt to stop the inflationary effect of rebates on generic drug prices, in 2006, the Ontario Drug Benefit Act, the Drug Interchangeability and Dispensing Fee Act, and their regulations prohibited rebates. The amendments were introduced as the Transparent Drug System for Patients Act.[^27] The legislature terminated one major source of revenue for pharmacies - payments from drug manufacturers - and replaced it with a source of funding for providing direct patient care services.

[409] Mr. Fraser testified that Professional Allowances “were not a replacement for rebates nor were they intended to constitute a price reduction on the cost of generic drugs for pharmacy companies.” Rather, he testified that Professional Allowances were a new concept introduced to reimburse or compensate pharmacies and pharmacists for specific front-line direct patient care services as specified in the regulations. He said that banning rebates and regulating reimbursement of various specifically defined activities and services, as was done in Ontario, was a common government policy response to concerns of about inflated drug prices due to rebates. On this point, Mr. Schoonveld stated: “[I]t appears to me that the Ontario provincial government was acting in a similar manner to other global governments in trying to address concerns of over-payment for prescription drugs by prohibiting the use of rebates and separately introducing payment for professional services through Professional Allowances.”

[410] Alas, the policy aspirations of the Ontario government again were not successful. The expected savings in the costs of drugs did not occur and manufacturers continued to charge high prices for generic drugs. Eventually, the permission to pay and to accept Professional Allowances was identified as yet another inflationary loophole. At paragraphs 15 and 61 of the Supreme Court’s judgment in Katz Group Canada Inc. v. Ontario (Health and Long-Term Care, Justice Abella reported the result:

15. In addition, instead of the rebates, manufacturers were now paying pharmacies $800 million annually in professional allowances. As a result, the professional allowance exception was identified as yet another inflationary loophole. Audits of 206 pharmacies showed that all of them were in violation of the rules pertaining to professional allowances, and 70% of the funds provided by manufacturers on this basis went towards higher salaries and store profits, instead of being used for patient care. The then Minister of Health, the Hon. Deborah Matthews, concluded that the continuing payments by drug manufacturers to pharmacies were the major reason Ontario still had inflated generic drug prices relative to comparable countries. […]

[411] I pause here to foreshadow that Shoppers was fully compliant with the Professional Allowance Regime and did not violate the rules pertaining to Professional Allowances. For their part, the Associates performed direct patient care services that would have qualified for the receipt of Professional Allowances.

[412] In 2010, the Ontario government responded to its failing policy initiative with more amendments to the Ontario Drug Benefit Act, the Drug Interchangeability and Dispensing Fee Act, and to their regulations. On July 1, 2010 Professional Allowances were no longer permitted for the ODB Plan, and it was no longer necessary for the recipient of Professional Allowances to report to the Ministry about the Professional Allowances.

[413] However, after July 1, 2010 until March 31, 2013, Professional Allowances continued for the non-ODB Drug System, subject to a percentage that capped the amount of the Professional Allowances and there was no reporting requirement for the non-ODB Drug System.

[414] On April 1, 2013, Professional Allowances were no longer permitted for the non-ODB Drug System. The Professional Allowance Regime was done.

3. The Professional Allowances Regime: Statutory and Regulatory Background

[415] In this section of my Reasons for Decision, I shall describe in much more detail the statutory and regulatory background to the Professional Allowances Regime.

[416] On October 1, 2006, the Ontario government introduced the Professional Allowances Regime. The government enacted the Transparent Drug System for Patients Act, 2006,[^28] which amended the Ontario Drug Benefit Act (“ODBA”)[^29] and the Drug Interchangeability and Dispensing Fee Act (“DIDFA”) [^30]

[417] The amended legislation among other things, prohibited drug manufacturers from paying, and wholesalers, franchisees, pharmacy operators, and pharmacists from receiving, “rebates”, as that term was defined under the legislation, on generic drugs. For present purposes, the relevant provisions of the scheme are set out in Schedule “D” to these Reasons for Decision.

[418] The Professional Allowance Scheme can be summarized as follows.

1. A manufacturer is prohibited from providing a “rebate” to operators of pharmacies or to their employees.

2. An operator of a pharmacy and its employees may not accept a rebate.

3. “rebate”, subject to the regulations, includes, without being limited to, currency, a discount, refund, trip, free goods or any other prescribed benefit, but does not include, (a) a discount for prompt payment offered in the ordinary course of business, or (b) a Professional Allowance.

4. “Professional Allowance”, in the definition of “rebate”, means a benefit, in the form of currency, services or educational materials that are provided for the purposes of direct patient care for:

5. Continuing education programs that […].

6. Continuing education programs for […].

7. Clinic days provided by pharmacists to […].

8. Education days provided by pharmacists that […].

9. Compliance packaging that assists their patients with complicated medication regimes.

10. Disease management and prevention initiatives such as: […]

11. Private counselling areas within their pharmacy.

12. Hospital in-patient or long-term care home resident clinical pharmacy services, such as: […].

13. A Professional Allowance must be used only for any or all of the activities set out in paragraphs 1 to 8 of the definition of “Professional Allowance.”

14. The Code of Conduct, which was part of the Professional Allowance Regime, stipulated a non-exhaustive list of 15 prohibited uses of Professional Allowances.

15. Professional Allowances are to be calculated based on: (a) reasonable costs to provide direct patient care; (b) reasonable frequency of providing direct patient care; and (c) a reasonable number of patients per pharmacy.

16. The Ontario government [executive officer Ontario Drug Benefit Act] shall establish a Code of Conduct respecting Professional Allowances in consultation with the pharmacy and drug manufacturing industries and shall update the Code of Conduct from time to time in consultation with those industries.

17. A benefit is not a Professional Allowance if the Code of Conduct is not complied with.

18. Where the value of all of the benefits provided exceeds, with respect to all of a manufacturer’s listed drug products or listed substances, the value of X in a defined formula, then the benefits that are in excess of X are a rebate and not a professional allowance.

19. All persons involved in the drug distribution system must operate transparently and be knowledgeable of, and fully understand, the flow of funds in the drug products supply chain, including recording and reporting all such payments and being subject to audit by the Ministry or a third party.

20. There is a statutory obligation on recipients of Professional Allowances to make “stakeholders” knowledgeable of the flow of funds in the drug products supply chain.

21. Operators of pharmacies will report to the Executive Officer the amount of Professional Allowance received from each manufacturer in as much detail as is required by the Executive Officer and at times required by the executive officer.

22. Pharmacies must not make procurement and purchasing decisions based solely on the provision of Professional Allowances.

23. For drugs dispensed under the ODB Plan, drug manufacturers could pay Professional Allowances up to a maximum of 20% of the Formulary price for the generic drug.

24. For drugs purchased outside to the ODB Plan, from October 1, 2006 until July 1, 2010, a drug manufacturer could pay Professional Allowances without a cap. After July 1, 2010, a 50% cap was introduced.

25. The maximum amount that drug manufacturers could pay as Professional Allowances for drugs outside of the ODP Plan was adjusted over the years as follows: (a) 50 % of the formulary price for the generic drug during the period July 1, 2010 – March 31, 2011; (b) 35% of the formulary price for the generic drug during the period April 1, 2011 – March 31, 2012; and (c) 25% of the formulary price for the generic drug during the period April 1, 2012.

[419] In 1671183 Ontario Inc. o/a Pharma Stop v. Ontario (Ministry of Health and Long-Term Care),[^31] the Executive Officer imposed a financial penalty on a wholesaler for receiving Professional Allowance payments that did not comply with the Professional Alliances Regime. Since the wholesaler did not use the payments for direct patient care, they were ordered forfeited.

4. Shoppers’s Purchases from Generic Drug Manufacturers during the Professional Allowances Regime

[420] Between October 1, 2006 and April 30, 2013, Shoppers received Professional Allowances from generic drug manufacturers for drugs dispensed for the private payor non-ODB Drug System.

[421] For the shorter period between October 1, 2006 and July 1, 2010, Shoppers received Professional Allowances for drugs dispensed for the ODB Plan. All Professional Allowances were payments to Shoppers by generic drug manufacturers.

[422] Virginia Cirocco and Esther Law were the Shoppers representatives that negotiated and were responsible for generic drug purchases from 2002 until 2010. After 2010, Mr. Léger of Shoppers led the negotiations and Mr. Potter of Shoppers began his work in this area in 2011.

[423] Before and after the introduction of the Professional Allowance Regime in Ontario, there was very little formality - in the sense of documentation – in Shoppers’ negotiations of purchasers from generic drug manufacturers. The Shoppers’ representatives spoke with the representatives of the generic manufacturer, and they reached an agreement about how many drugs would be purchased, at what price, and how much the generic drug manufacturer would remit to Shoppers.

[424] Shoppers negotiated for national purchases. The negotiations determined what Shoppers Associates should pay for the drugs, and the negotiations determined how much of the price of the drugs would be remitted to Shoppers by the generic drug manufacturer.

[425] For its part, in terms of its negotiations with the generic drug manufacturers, Shoppers did not distinguish between rebates and Professional Allowances. Instead, Shoppers and the generic drug manufacturers negotiated and agreed to a rate that blended rebates and Professional Allowances. This approach was sometimes referred to as “national blended rates”, which were negotiated until 2010. This approach was sometimes referred to as “national dead net pricing’ of drugs, and that term was used for the negotiations from 2010 to 2013.

[426] A dead net price was a negotiated price for a particular drug that was less than the list price and thus implicitly included a blended rebate and Professional Allowance rate. Mr. Potter stated that both national blended rates and dead net price rates were negotiated on a national basis and were agreed upon orally. In other words, the breakdown between Professional Allowances for Ontario and rebates for the rest of Canada did not form part of any agreement between Shoppers and generic manufacturers, except to the extent that the generic drug manufacturer understood that the amounts invoiced by Shoppers must comply with provincial legislation.

[427] For the period after the introduction of the Professional Allowances Regime, Shoppers’ evidence was that its discussions with the generic drug manufacture did not specifically allude to Professional Allowances. Shoppers’s evidence was that they treated Professional Allowances as rebates. This evidence is not credible, but not much turns on it, because the existence of the Professional Allowance Regime was notorious, and it was at least implicit that the money to be remitted by the generic drug manufacturer would have to comply with Ontario’s Professional Allowance Regime. Moreover, in practice, after the amount that would be remitted from the generic manufacturer was settled, Shoppers would invoice the manufacturer for the Professional Allowances payable in Ontario and for rebates payable outside of Ontario.

[428] After Professional Allowances were introduced, the Shoppers’s representatives had the details of any generic drug purchase entered into the Shoppers’s accounting system’s spreadsheets and Shoppers would calculate the Professional Allowances. The Professional Allowances were billed (invoiced) to the generic drug manufacturer. Based on the information input into the system and the statutory caps on Professional Allowances, Shoppers calculated the Professional Allowances.

[429] After October 1, 2006, Shoppers disclosed to generic drug manufacturers, on the invoices that Shoppers sent to them for Professional Allowances, the amount of Professional Allowances received in Ontario attributable to the ODB Plan and the amount attributable to private payors, i.e., non-ODB Plan payors. so that the manufacturers could report those amounts to the Ministry in accordance with the manufacturers’ legislative obligations.

[430] Shoppers invoiced the generic drug manufacturers and, when applicable, reported Professional Allowances to the Ontario government on the basis of Shoppers’s unilateral regional allocations. When Professional Allowances had to be reported to the provincial Ministry, Shoppers determined its own Professional Allowances figures and later sent generic drug manufacturers supplementary invoices to correspond to Shoppers’ own calculations.

[431] The invoices to the generic drug manufacturer were paid by way of deduction or credit on generic purchase invoices, by cheque, or by way of electronic funds transfer.

[432] Shoppers did not remit the Professional Allowances to Associates.

[433] On these summary judgment motions, the only written expressions of how the generic manufacturer regarded the matter of rebates and Professional Allowances are the cheques for Professional Allowance payments issued in 2007 by Sandoz Canada Inc., a generic drug manufacturer. Sandoz’s cheques bore the following notation that confirms that the notorious Professional Allowance Regime was in the mind of Shoppers and the generic drug manufacturer during the negotiations about the price of the drug and about how much the generic manufacturer would remit to Shoppers:

By cashing the attached cheque, Customer understands and agrees (i) that this is a payment for Professional Allowances ("PA") made pursuant to the information received from the Customer which accurately reflects its total sales of Sandoz products listed on the Ontario Drug Benefit formulary in the relevant time period, and (ii) that the said PA will be or has been used for direct patient care as set out in Ontario Regulation 201/96 under the Ontario Drug Benefit Act ("ODBA") and Regulation 935 under the Drug Interchangeability and Dispensing Fee Act ("DIDFA") and (iii) to hold Sandoz harmless against any particular liability or penalty resulting from any breach of the representations and warranties set out herein, and in particular agrees to indemnify and hold Sandoz harmless in respect to any order of the executive officer under section 12.1(4) of DIDFA or section 11.5(a) of the ODBA.

[434] The evidence establishes, and I find as a fact that Shoppers and the generic drug manufacturers, practically speaking, did not much change and rather modestly modified the business practice that was followed before the introduction of the Professional Allowances Regime. From a negotiating perspective, Shoppers and the generic manufacturers did not distinguish between rebates and Professional Allowances insofar as setting the price for the drugs or in setting the amount of money that the generic manufacturer would remit to Shoppers.

[435] The generic drug manufacturer did not fuss itself about the breakdown of the Professional Allowances amongst drugs purchased for the ODB-Plan, drugs purchased for Ontario outside of the ODB Plan, the non-ODB drugs purchased for Ontario, and drugs purchased for Shoppers’stores outside of Ontario. The manufacturer simply understood that the mounts invoiced by Shoppers would comply with the Professional Allowance Regime as permissible payments.

[436] Shoppers understood that the generic manufacturers were concerned that payments of Professional Allowances were compliant with provincial legislation, including confirming that Shoppers as an enterprise performed more in direct patient care services than it received in Professional Allowances. The generic drug manufacturers did not second-guess the allocations made by Shoppers.

[437] According to Mr. Rosen’s investigation and analysis, Shoppers reported or invoiced the following amounts of Professional Allowances:

Year	Amount
2006	$50.1 million
2007	$130.8 million
2008	$173.3 million
2009	$190.7 million
2010	$209.3 million
2011	$109.5 million
2012	$73.8 million
2013	$17.1 million

[438] Having made no distinction between rebates and Professional Allowances in its oral agreements with generic drug manufacturers, Shoppers unilaterally decided how much it would categorize, account, and invoice the drug companies for as Professional Allowances in Ontario and rebates in the rest of Canada. In other words, Shoppers unilaterally chose how it categorized and accounted for the funds it received from the generic drug manufacturers: as rebates or Professional Allowances. The generic drug manufacturer was not involved in how Shoppers’ allocated the funds to be remitted to Shoppers.

[439] Shoppers allocated the money it received under national agreements disproportionately, so as to understate the payments Shoppers received from generic drug manufacturers in respect of drugs dispensed in Ontario for Professional Allowances. Ontario Professional Allowances were understated and rebates in the rest of Canada were overstated by a corresponding amount. Shoppers applied the maximum allowable rates for ODB PAs and unilaterally fixed a rate for non-ODB PAs until the period when non-ODB PA caps were introduced.

[440] As already noted above, generic drug manufacturers who paid the funds to Shoppers nationally were not involved in setting those non-ODB PA rates and did not agree to the resulting rest of Canada rebate rates which, detailed below, were often in excess of 100% of the price of the drugs. The high rebate rates in the rest of Canada are illustrated in the following table from Mr. Rosen’s report:

Summary of ROC Vendor Income Rates for All Vendors from [Shoppers’s] ODB Invoice Spreadsheets “Summary” Tabs, 2007 to 2013

Year	1	2	3	4	5	6	7	8	9	10	11	12	13	average
2007	114%	103%	107%	105%	104%	102%	103%	94%	94%	100%	95%	108%	103%	102%
2008	109%	112%	128%	110%	114%	109%	109%	104%	113%	108%	107%	104%	107%	110%
2009	114%	112%	110%	111%	114%	117%	106%	96%	104%	114%	112%	106%	122%	111%
2010	109%	101%	109%	103%	106%	112%	94%	122%	122%	125%	110%	113%	116%	111%
2011	106%	117%	102%	88%	95%	99%	94%	105%	93%	99%	91%	95%	85%	98%
2012	177%	100%	91%	78%	-26%	-18%	-27%	-11%	-15%	-19%	-17%	-20%	-18%	21%
2013	-24%	-27%	-28%	-11%	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	-8%

[441] The national combined rate for rebates and professional allowances during the Class Period was: 2002: 29.2%; 2003: 50.6%; 2004: 55.1%; 2005: 59.1%; 2006: 63.6%; 2007: 64.6%; 2008: 64.9%; 2009: 66.9%; 2010: 61.8%; 2011: 51.5%; 2012: 47.5%; 2013: 40.5%.

[442] Shoppers’ separate allocation of Professional Allowances and rebates meant that, outside of Ontario, the drug companies notionally appeared to be giving Shoppers the drugs for free outside of Ontario. Dr. Grootendorst disagreed with Shoppers’s unilateral allocation method. Dr. Grootendorst opined that “the appropriate way” to account for the payments regionally is to apply the negotiated national rate to the value of drugs purchased by Ontario Associates for dispensing in Ontario. It was Mr. Rosen’s opinion that Shoppers was allocating income in respect of Ontario and Québec to the rest of Canada, thereby calculating unreasonably high rebate rates from a commercial and financial perspective for the rest of Canada.

[443] Ultimately not much turns on Mr. Rosen’s evidence about how Shopper’s allocated in its nation-wide purchases of generic drugs, the Professional Allowances, for Ontario, where rebates were prohibited, or the rebates for the rest of Canada. Mr. Rosen’s evidence had bad optics for Shoppers, which seemed to be cooking the books, but the bad optics were on analysis not pertinent to the litigation and Shoppers was fully compliant with its responsibilities under the Professional Allowance Regime as were the generic drug manufacturers with which Shoppers negotiated national drug purchases.

[444] What is pertinent in the immediate case is that: (a) Shoppers entered into contracts with generic drug manufacturers that had a national scope; (b) under these national contracts, Shoppers was entitled to receive rebates outside of Ontario and Professional Allowances but not rebates in Ontario; (c) Shoppers lawfully invoiced the generic drug manufacturers for $955 million for Professional Allowances in Ontario and allocated the balance of the remits from the generic drug manufacturer to rebates outside of Ontario; (d) as discussed below, Shoppers itself provided direct patient care services with a Professional Allowance value of $77.2 million; (e) as discussed below, the Associates provided direct patient care services with a Professional Allowance value of $1.44 billion; and (f) Shoppers did not share the $955 million it received in payments from the generic drug manufacturers with the Associates.

[445] This litigation is not about the optical illusion that the generic drug manufacturers were selling their goods for free outside of Ontario. This litigation is about Shoppers’s lawfully receiving Professional Allowances of $955 million and not sharing them with the Associates that performed the bulk of direct patient care services.

5. The Expense and Performance of Direct Patient Care Services

[446] Pursuant to the Associates Agreements, Associates were responsible for dispensing drugs and providing direct care to patients. Shoppers’s internal records reveal that, year-over-year, for each reporting period: (a) store-level direct patient care services accounted for approximately 95% of the total direct patient care expenses while (b) corporate-level direct patient care services accounted for 5% of the total.

[447] There was a heated debate between the parties about who actually paid for the expenses of providing direct patient care services at the Shoppers’ stores.

[448] As foreshadowed by the Introduction and the synopsis parts of these Reason for Decision, ultimately not much turns on who picked up the tab for the expenses of qualifying for Professional Allowances, but the evidence is relevant to: understanding the relationship between the parties; to understanding the PA Class Members’ unjust enrichment claim; and to understanding the damages assessment and the Plaintiffs’ request for aggregate damages.

[449] The discussion of this topic may begin by noting that pharmacists have always provided direct patient care services. Before the introduction of Ontario’s Professional Allowance regime, dispensing fees aside, these services were provided without charge to the patient. During the Professional Allowances Regime, these services continued to be provided without charge to the patient. After the termination of the Professional Allowances Regime, direct patient care services are still provided without charge.[^32]

[450] At the Shoppers’s stores, before, during, and after the Professional Allowances Regime, the expenses for providing these free direct patient care services were part of the overhead of the store for labour and connected expenses. There was no expense line item with respect to this work in the stores’ financial records.

[451] At the Shoppers’ stores, under their normal business practices, the direct patient