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Consumer & Retail Advisor

Now Available! First edition of Cross-Border: A Retailer’s Guide To Doing Business in Canada

Posted in Canadian Market Entry, Cross-Border Transactions, Franchising, Retailing

Growing your retail business, or looking to set up shop in Canada? Check out Cross-Border: A Retailer’s Guide to Doing Business in Canada available now. This comprehensive resource offers an overview of the legal aspects of establishing and operating a retail business in Canada. It draws from the top-tier expertise developed by McCarthy Tétrault’s market-leading Retail and Consumer Markets Group and their unparalleled experience in the Canadian Consumer Products, Food, Beverage & Agribusiness, Franchise & Distribution, Hospitality and Retail sectors.

Download a copy here.

Department of Finance Releases Consultation Paper on New Retail Payments Oversight Framework Providing for Functional Regulation of Payment Service Providers

Posted in Retailing
Lara NathansMartin Thiboutot

In a consultation paper entitled “A New Retail Payments Oversight Framework” released on July 7, 2017, the Department of Finance proposed a federal oversight framework that would apply to payment service providers such as Fintech entities in the payment space as well as more traditional payment entities such as merchant acquirers. On McCarthy Tétrault’s Cyberlex Blog, Ana Badour and Kirsten Thompson provide an overview of the consultation paper.

Key elements of the framework which may be of interest to readers of the Consumer & Retail Advisor blog include the registration requirement for payment service providers, end-user fund safeguarding measures, operational standards and an increased emphasis on privacy. It is noteworthy that certain types of transaction, such as transactions made with instruments that allow the holder to acquire goods or services only at the premises of the issuing merchant (e.g., store cards) or within a limited network of merchants that have a commercial agreement with an issuer (e.g., shopping mall cards) are however specifically excluded. 

 Comments on the Consultation Paper are due October 6, 2017.

 

Ontario Court of Appeal Dismisses Dealers’ Appeal Related to GM Restructuring

Posted in Class Action, Distribution, Franchising
Helen FotinosAdam Ship

On July 4, 2017, the Ontario Court of Appeal dismissed the appeal by the Representative Dealer in a franchise class action commenced against General Motors Canada Ltd. (“GM”) relating to the restructuring of its dealer network in 2009.  The Court focused on the narrow issue of whether the release and related wind down agreement which members of the dealer class signed was enforceable, thereby barring the class action.  Since the Court found that the release was indeed enforceable, the claim was barred and the Court had no need to consider the other issues raised by the dealers on appeal.

 The core issue on appeal was the applicability of s. 11 of the Arthur Wishart Act (the “Act“).  Under this provision, any release or waiver of a right under the Act is void.  The dealers argued that the release and related wind down agreement were void under s. 11 of the Act.

 The Court was required to consider the applicability of s. 11 to the settlement of disputes.  In the leading decision of Tutor Time (1518628 Ontario Inc. v. Tutor Time Learning Centres, LLC, 2006 CanLII 25276 (ON SC), 2006 CanLII 25276 (S.C.)), affirmed by Court of Appeal in the earlier decision of Midas (405341 Ontario Limited v. Midas Canada Inc., 2010 ONCA 478), the Court found that a franchisee’s settlement of a known and existing breach of the Act was enforceable despite s. 11 as long as the franchisee received independent legal advice.

 In Trillium the Court considered whether the release and related wind down agreement signed by the dealers constituted the settlement of a known and existing breach of the Act, since the dealers acknowledged having received independent legal advice.  The Court reviewed the factual record and found that there was no doubt in anyone’s mind that the release and wind down agreement was designed to release liability in relation to GM’s decision to non-renew the dealers’ agreements.  On this basis, the Court found that the release and related wind down agreement did indeed release a known and existing alleged breach of the Act (in addition to non-statutory claims).

 On this basis, s. 11 of the Act had no application, the release was enforceable and the claims were barred.

 Trillium confirms the public policy in favour of the enforcement of settlements in Ontario.  Courts will be reluctant to set aside a settlement and release, even in the franchise context, where there is evidence that the parties were informed as to their rights, knew the claims they were releasing, and had independent legal advice.

 

Few “likes” for Facebook Forum Selection Clause: Supreme Court Finds “Strong Cause” to Not Enforce Forum Selection Clause

Posted in Case Comment, Legislation, Litigation
Miranda LamJade Buchanan

Electronic terms of service govern billions of relationships worldwide, whether a user is joining a social media service, shopping online or accessing a blog. In each case, a binding contract is formed, the terms of which are usually set out in the website’s “terms of service” . But when a contract is made over the internet and there is later a dispute, whose law governs? What is the “forum” for the resolution of the dispute? What if the contract expressly designates a specific jurisdiction as the appropriate “forum”? In Douez v Facebook, Inc. (“Douez”), the Supreme Court of Canada refused to uphold the forum selection clause contained in Facebook, Inc.’s terms of service.

Background

The case involves Facebook, Inc. (“Facebook”) and the representative plaintiff in a proposed class action, Ms Deborah Douez. When Ms Douez joined and continued using Facebook, she agreed to terms of service which included committing to bring any claim against Facebook exclusively in Santa Clara, California.

Ms Douez’ dispute with Facebook started when she found her name and image being used in Facebook’s “Sponsored Stories” product. She initiated proceedings under BC’s Class Proceedings Act with a proposed class of the approximately 1.8 million British Columbians who appeared in Sponsored Stories. The claim was based on Section 3(2) of BC’s Privacy Act:

(2) It is a tort, actionable without proof of damage, for a person to use the name or portrait of another for the purpose of advertising or promoting the sale of, or other trading in, property or services, unless that other, or a person entitled to consent on his or her behalf, consents to the use for that purpose.

Facebook brought a preliminary motion to dismiss the claim, citing the forum selection clause, which read as follows:

You will resolve any claim, cause of action or dispute (claim) you have with us arising out of or relating to this Statement or Facebook exclusively in a state or federal court located in Santa Clara County. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for purpose of litigating all such claims.

Facebook obtained a favorable decision from the British Columbia Court of Appeal. Ms Douez appealed to the Supreme Court of Canada.

Summary of the Majority Decision

A narrow 4-3 majority of the Court found that Facebook could not rely on its forum selection clause.

The Court did unanimously affirm that forum selection clauses should continue to be considered under the test established in Z.I. Pompey Industrie v ECU-Line N.V., 2003 SCC 27 (“Pompey”). The Pompey test involves two steps. First, the party seeking to rely on a forum selection clause must prove that it is clear, valid and enforceable as a matter of contract law. Second, once the forum selection clause is accepted as valid, the party asking the Court to not enforce the clause needs to show a “strong cause” for doing so based on “all the circumstances.”

The Court’s consensus ended at Pompey. Three members of the Court, Justices Karakatsanis, Wagner and Gascon, decided that Facebook had satisfied the first step of Pompey and that the forum selection clause was valid. However, they found Ms Douez had shown a strong cause for not enforcing the clause.

The strong cause was based on two main factors. First, the power imbalance inherent in a unilaterally imposed contract (known as a contract of adhesion) between one individual consumer and one of the largest companies in the world. This power imbalance was increased by the fact that “unlike a standard retail transaction, there are few comparable alternatives to Facebook.”

Second, the Privacy Act was described as “quasi-constitutional”, because it was intended to protect the privacy rights of individuals. The decision explained the importance of adjudicating constitutional and quasi-constitutional rights in Canada:

Canadian courts have a greater interest in adjudicating cases impinging on constitutional and quasi-constitutional rights because these rights play an essential role in a free and democratic society and embody key Canadian values. There is an inherent public good in Canadian courts deciding these types of claims. Through adjudication, courts establish norms and interpret the rights enjoyed by all Canadians.

In addition to the power imbalance and the quasi-constitutional nature of privacy legislation, the three Justices cited two additional factors. First, it was in the interest of justice for the case to be adjudicated in BC, where there Privacy Act would be enforced and the Court would be well-positioned to understand the intention of the Legislature. The decision also cited the “comparative expense and inconvenience” of advancing the claim in BC, rather than California, which again favored a strong cause.

A strong cause was not even required for Justice Abella, who wrote a separate decision that ultimately “broke the tie” amongst the seven justices and allowed Ms. Douez’ appeal to succeed. She found that Facebook had not met the first Pompey step of showing the clause to be enforceable as a matter of contract law. Justice Abella concluded that the forum selection clause was void relying on public policy, inequality of bargaining power and unconscionability.

In a dissenting opinion, Chief Justice McLachlin and Justices Moldaver and Côté were prepared to enforce the forum selection clause, finding that Ms Douez had not shown a strong cause.

Impact for Businesses

  • Forum selection clauses are still enforceable, even if they are not a silver bullet against being brought into litigation in unexpected places. Had Ms Douez been advancing a claim that did not impinge on “constitutional and quasit-constitutional rights” like those engaged in the Privacy Act, the forum selection clause may have been upheld. Indeed, six out of seven Supreme Court Justices were prepared to enforce Facebook’s forum selection clause, save for the existence of a “strong cause” in this instance.
  • When engaging with personal information, consulting local privacy counsel is a must. Privacy legislation varies from province to province and failing to appreciate even slight differences can result in class action claims.

Impact on the Future of Internet Law

The only thing that can be said for certain is that the interaction of the internet and the law is likely to produce more decisions like Douez. In fact, the Supreme Court just released Google Inc. v Equustek Solutions Inc. et al., which addresses if and when a Canadian court can order a search engine to delist certain websites globally.

Further, Douez is unlikely to be the last word on the specific issue of forum selection clauses. The Pompey test may open future debates about “strong cause” in the context of consumer contracts. The opinions of the divided Court in Douez could be used to provide supporting arguments for both sides in a situation where the facts are just slightly different.

Lastly, this decision is just the end of the first chapter of the Douez saga. Facebook’s preliminary motion was rejected but the class action has yet to be certified, so there is more internet law to come.

Ontario Court of Appeal Confirms Strict Approach to Franchise Disclosure

Posted in Franchising
Adam ShipHelen Fotinos

A recent decision of the Ontario Court of Appeal confirms the strict nature of the disclosure requirements under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the “Act”).

In Mendoza v. Active Tire & Auto Inc., 2017 ONCA 471, the Court of Appeal made the following five key findings:

1. First, the Court reviewed the case law on the test for whether a disclosure document is fatally deficient under the Act, thus entitling the franchisee to rescind the franchise agreement within two years of the date that the franchise agreement is signed. The Court confirmed that where a disclosure document is “materially deficient,” it amounts to “no disclosure”, thus providing the franchisee with a two-year rescission window.

The “material deficiency” test – which has been applied by lower courts in Ontario – suggests that any omission to include a material fact in a disclosure document, or a deficiency on a material issue, amounts to no disclosure having been provided.

2. Second, the Court held that a disclosure document is fatally deficient where the financial statement provided with the disclosure is not from the most recent fiscal year.

On the facts of the case, the disclosure document was provided to the prospective franchisee in early 2015 and included the financial statement for the 2013 fiscal year. This was because the franchisor’s 2014 financial statement was not yet complete.  While the Regulation under the Act permits a franchisor to use the previous fiscal year’s financial statement where “180 days have not yet passed since the end of the most recently completed fiscal year and a financial statement has not been prepared and reported for that year”, the 180-day grace period had already passed when the disclosure was delivered.

The Court held that the franchisor could not deliver a valid disclosure document in such circumstances. Since the 180-day grace period under the Regulation had already passed, any disclosure document delivered by the franchisor would be fatally deficient until such time that the 2014 financial statement was finalized.

This is a caution to franchisors to ensure they provide up-to-date financial statements (unless they are within the grace period).

3. Third, the Court confirmed that statutory rescission under the Act is available to a franchisee whether or not it reviewed the disclosure document at the time it was delivered and whether or not the deficiency at issue is linked in any way to the franchisee’s ultimate financial performance.

According to the Court, a franchisor’s obligations under the Act “do not change depending on the actions or reactions of a particular franchisee. Nor are those obligations diminished when a franchisee does not study the contents of the disclosure document.”   The Court also confirmed that statutory rescission “is not dependent on … [the] conduct of the franchisee”.

4. Fourth, the Court held that a disclosure document is fatally deficient where the certificate of the franchisor included with the document is only signed by one officer or director. According to the Court, where a franchisor has more than one officer or director, the omission of a second signature is fatal to the document.

While this decision remains consistent with other Ontario case law on franchise disclosure, it is another caution to franchisors to develop robust disclosure practices. The Court of Appeal’s reversal of the lower court ruling may also signal a reluctance to accept evidence that the franchisee had sufficient information to make an informed decision, despite the deficiencies in the disclosure document, as being relevant in evaluating franchisor liability.

Retail Sector in the Crosshairs of the Changing Workplaces Review Final Report: 10 Ways Retailers Could Be Impacted

Posted in Employment and HR, Franchising, Retailing
Tim LawsonMatthew Demeo

Premised on the theory that vulnerable workers and precarious employment exists in Ontario and needs to be addressed, the Final Report of the Changing Workplaces Review contains 173 recommendations, many of which focus specifically on the retail sector.  Below we identify ten recommendations that are likely to have a significant impact on retailers.

As previously mentioned on this blog, the Government of Ontario has now released the Final Report of the Changing Workplaces Review, which recommends a number of changes to Ontario’s Employment Standards Act, 2000 (“ESA”) and Labour Relations Act, 1995 (“LRA”). The Final Report specifically identifies the retail sector as an area for reform because of its high concentration of low-wage earners in part-time, temporary and/or contract employment.  Accordingly, many of the recommendations are specifically designed to address the apparent problem of vulnerable workers in precarious employment.

Here are ten ways the recommendations may impact the retail sector:

  1. More Certainty in Scheduling. The Final Report asserts that uncertainty of work schedules is a key contributing factor in making work precarious. As a result, it recommends that sector specific regulations be adopted to provide workers with more certainty in scheduling, prioritizing the retail and fast food sectors for change.
  2. Consolidation of Bargaining Units at Multiple Locations of Same Employer: The Final Report recommends the Ontario Labour Relations Board be given the general power to consolidate bargaining units employed by the same employer. The Final Report specifically notes that the intention of this recommendation is to target sectors with historically low union rates such as retail and food services, that generally have small bargaining units (if any), with the same employer, in multiple locations. It notes that this recommendation will provide employees and unions with increased bargaining power. This could have a profound impact on the proliferation and strength of unions in the retail sector.
  3. Equalization of Pay Between Part-Time and Full-Time Workers. Viewed by the Final Report as the epitome of “vulnerable and precarious employment”, it recommends that no part-time employee be paid at a rate lower than a comparable full-time employee of the same employer, unless the employer can establish a demonstrable reason for the difference.
  4. A More Proactive Model of Enforcement of Employment Standards: While many in the retail sector will be familiar with the Ministry of Labour’s (“MOL”) periodic “compliance blitzes”, the Final Report recommends a shift in the MOL’s mandate away from a complaints-driven model to one where spot-checks, audits and inspections at employer premises become the norm. It also recommends the MOL take on more of a prosecutorial role by engaging in more targeted and more public campaigns against high profile employers and those “top of industry”, who are , viewed to influence the compliance of those employers below them. The Final Report specifically lists major retailers, leading brands and those who manage supply chains as the intended target of such compliance measures.
  5. Change to the Managerial Overtime Exemption: Perhaps a more positive recommendation for the retail sector, if not all employers, the Final Report recommends the test for managers be changed to a “salaries plus duties” test where, in order to be exempt from overtime, a manager would have to perform defined duties and earn at least 150% of the minimum wage per week. The Final Report indicates that the current managerial test is not well defined and focuses on the wrong factors, such that positions that are obviously managerial in character could be excluded from the overtime exemption because of occasional situations where non-managerial duties are performed when stores or restaurants are busy.
  6.  Changes to Wage Calculation: The Final Report recommends a number of changes that will affect the calculation of wages, including:
    • Elimination of the Student Minimum Wage;
    • Significant limitations on the use of overtime averaging agreements; and
    • A change to the “three-hour rule” to ensure workers receive at least three hours at their regular rate of pay when required to report to work (as opposed to the higher of 3 hours at minimum wage, or the employee’s regular wage for time worked).
  7. Expansion of “Related Employers”: The Final Report recommends removing the pre-condition that affiliated businesses need not have the “intent or effect” of defeating the purpose of the ESA to be considered “related” for the purpose of the ESA. This may mean that many business models that were not considered related for the purposes of the ESA, such as parent-subsidiary relationships, may be captured by this expanded definition and therefore be open to more scrutiny.
  8. The Extension of Health and Dental Benefits to all Workers. While the Final Report does not recommend an equalization of benefits between part-time and full-time workers, it does recommend that the Government study how a minimum level of such benefits can be extended to all workers, regardless of employment status.
  9. A Complete Revision to Public Holiday Scheduling and Pay: While not providing specifics, the Final Report recommends that the standards regarding Public Holidays be revised so that they are simpler and easier to understand. The Final Report notes that the scheduling, pay and substitution elements of Public Holidays are not only unduly complicated, but that the requirement for premium pay is an added burden for retailers who need to be open on public holidays.
  10. Revisions to Personal Emergency Leave: The Final Report recommends that Personal Emergency Leve be extended to all employers in Ontario, including those with less than 50 employees. It also recommends the creation of a separate, 3 day, bereavement leave entitlement and an expansion of the entitlement to leave for family medical reasons.

It is important to repeat that these are only recommendations. It remains to be seen how the Government of Ontario will react and respond to the Final Report in the coming weeks.   However, given the magnitude of the Changing Workplaces Review, there is an inevitability to significant changes being proposed to Ontario’s ESA and LRA, if not a total overhaul.  We will provide our update as soon as we find out.

In the interim, the Labour and Employment Group at McCarthy Tétrault LLP has reviewed the Final Report and released a paper titled The Changing Workplaces Review & the Potential Effects on Employers.  If you would like a copy of this paper, or have any questions about the Changing Workplaces Review and how it will impact your business, do not hesitate to contact Trevor Lawson and Matthew Demeo, or any lawyer in our Ontario Labour and Employment Law Group.

Changing Workplaces Review – Final Report: Potential Impact on Franchises

Posted in Employment and HR, Franchising
Adam ShipHelen FotinosPatrick PengellyTim Lawson

The Final Report has just been released for the Changing Workplaces Review, containing recommendations for legislative changes to Ontario’s Employment Standards Act, 2000 and Labour Relations Act, 1995.  A number of changes are either specific to franchises or may have an impact depending on the sector of the franchise and the way the franchise operates. Here we have summarized recommendations that are most relevant franchisors.

Recommendations concerning the Ontario Labour Relations Act, 1995 (“LRA”):

  1. Broader Based Bargaining: The Final Report recommends that the Ontario Labour Relations Board be given certain powers to implement a model of centralized bargaining, where the terms of a collective agreement between a franchisee and a union could be extended to apply (with or without modifications) to a newly certified bargaining unit of another franchisee of the same franchisor.  The Board would also have the power to require that the franchisee employers bargain centrally through one employer bargaining agency, much like in the Ontario construction industry. In other words, franchisees of the same franchisor would be treated in an analogous way as a single employer with multiple locations. There is no doubt that this will facilitate unionization for franchisees operating under the same banner. Currently, union bargaining rights attach to individual franchisees and typically cover one location.
  2. Related and Joint Employers: It is recommended that employees of temporary help agencies who are assigned to perform work for clients of the agency (e.g. a franchisee) be deemed as employees of the client/franchisee for the purposes of the LRA. This would mean a trade union could rely on the support of the temporary help employees to certify the client.
  3. Successor Rights:  Another LRA recommendation is that union successor rights be applied to the building services industries (security, food services, cleaning), and that a regulation-making authority should be added to the LRA to allow for the possible expansion of coverage into other services or sectors in the future. If this recommendation is adopted, then a non-union franchisee that takes over a new contract and replaces a unionized contractor in a prescribed industry or sector could be bound to the union as the successor employer.

Recommendations concerning the Employment Standards Act, 2000 (“ESA”):

  1. Who is an Employee and Who is an Employer: The Final Report recommends removing the pre-condition that an arrangement needed have the effect (intended or not) of avoiding the ESA before two businesses could be associated or related. In effect, removing this pre-condition will make it much easier for franchisors and franchisees to be deemed “related or associated” for the purposes of the ESA because most franchises arrangements are not structured around avoiding employee rights.  The net effect of this recommendation may well be that a franchisee’s ESA obligations towards its employees could easily transfer from the franchisee to the franchisor, almost as if the franchisor was a “joint employer” with the franchisee.
  2. Scheduling:
    • A sector-specific approach to the regulation of scheduling has been recommended, including a review of the existing exemptions on hours of work, overtime, and related matters.  And, as a priority, establishing a committee to consider a sector-specific regulation in the retail and fast food sectors – both sectors in which many franchises operate.
    • The Report also recommends that the ESA should be amended to provide an employee with the right, after one year of service, to request changes to his or her schedule (hours of work, flexibility, location, etc.), and the employer should be obligated to respond to such request at least once a year.  This recommendation, if implemented, could affect a franchisee’s flexibility and discretion in scheduling shift work, for example.
  3. Recommendations Regarding Payment of Wages: The following recommendations made in the report are also relevant to franchises.
    • Part Time, Casual, Temporary and Seasonal Employees: The ESA should be amended to provide that no employee by paid at rate lower than a comparable full-time employee of the same employer.
    • Call-In Pay: The ESA should be amended to provide employees with at least three hours pay when required to report to work.
    • Temporary Help Agencies: After six months of employment, temporary assignment workers should be paid equally to a comparable employee of the client performing similar work.

The Ontario government indicates that it has reviewed the recommendations and will be announcing its formal response within the next week.  We will provide you with an update on the Ontario government’s formal response upon its release. In the interim, if you have an questions, or would like a copy of our more detailed analysis of the Final Report’s key recommendations, please contact Tim Lawson (416-601-8172) or Pat Pengelly (416-601-8292) of our Ontario Labour and Employment Practice Group, both members of our National Franchise Group.

BC Court Enforces Franchise Termination and Release Agreement

Posted in Franchising, Litigation
Adam ShipHelen FotinosFraser Dickson

Overview

In the recent decision Dairy Queen Canada, Inc. v. M.Y. Sundae Inc., 2017 BCSC 358, the Supreme Court of British Columbia upheld a Mutual Cancellation and Release agreement in the context of a franchisor-franchisee relationship. The decision confirms that, absent evidence of duress or unconscionability, a franchisor is permitted to take advantage of a superior bargaining position, and obtain an enforceable release when a franchisee is in default.  The decision only considered common law principles as opposed to franchise legislation.  The Court also awarded damages for the tort of passing off against a franchisee who refused to cease operations after termination.

Background

The Franchisor entered into a standard franchising agreement with the defendant franchisees. Following several months of unpaid franchise fees, a long history of failed cleanliness inspections, and other breaches of the franchisor’s standards and specifications, the franchisor decided to terminate the franchising relationship.

Instead of terminating immediately, however, the franchisor offered the franchisee the opportunity to enter into a Mutual Cancellation and Release agreement.  Under the agreement, the franchisee was provided with several months in which to sell its franchise to a new buyer.  In exchange the franchisee agreed to continue adhering to the system standards, and released all claims past and future against the franchisor.

However, the franchisee did not find a new buyer in the allotted time and the franchisor proceeded with termination. Notwithstanding this termination, the franchisee continued to operate the branded store for several months before de-branding.

The franchisor commenced litigation, seeking, among other things, damages for the tort of passing off. The franchisee counterclaimed on the basis that, among other things, the franchisor’s termination of the franchise agreement constituted a breach of the duty of good faith and fair dealing, and that the Mutual Cancellation and Release agreement was signed under duress.

Duress, Unconscionability, and Enforcing Franchise Cancellation and Release Agreements

The Court held that the franchisee had validly released the franchisor from all prior claims against it, including the pleaded allegations in the counterclaim. So long as the Mutual Cancellation and Release Agreement was held to be valid, then all of the franchisee’s counterclaims were released.  The Court held that there was no evidence that the franchisee signed the agreement under protest or sought additional time to seek legal advice.  There was no evidence of duress or coercion.

Moreover, drawing on the Supreme Court’s test in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 the Court noted that release and exclusion clauses will be enforced despite inequality of bargaining power, so long as there is no evidence of duress or unconscionability.

The agreement was not unconscionable at the time it was negotiated – not only was the franchisee’ evidence inconsistent, but that evidence did not establish duress or unconscionability. The Mutual Cancellation and Release Agreement actually provided the franchisee with an opportunity to sell its franchise, which put it in a better position than the underlying franchise agreement.  In this sense the provisions were not substantively unfair.

The Tort of Passing Off – Be Careful About Ultimatums

The Court also granted the franchisor’s claim for passing off.

The tort of passing off occurs when (1) the trade name of one entity is distinctive, recognized, and enjoys reputation and goodwill in its relevant field; (2) when a second entity misrepresents itself so as to lead the public into confusion about whether the second entity is connected to the first entity; and (3) the first entity suffers damages regarding lost business opportunity due to the second entity’s misrepresentation.

In the Court’s view, factors 1 and 2 were a foregone conclusion. The franchisor had a recognizable brand and the franchisee had continued to operate using the distinctive features of the brand. Anyone entering the premises would have perceived the store to be part of the franchise system.

However, what is noteworthy is that the Court did not agree with the time period for which the franchisor claimed damages. It was undisputed that the franchisor terminated the franchise agreement a franchise on January 8, 2014 and that the franchisee continued to operate as such until April 8, 2014. However,  because the franchisor sent a letter to the franchisee in early March, advising that the store must be “completely de-identified on or before March 10, 2014”, the court found that the franchisor could not seek damages for the earlier period.

In the Court’s opinion, this was a representation to the franchisee that March 10 was the last possible date for them to cease identifying themselves as a franchise.

Key Takeaways – 7th Annual Consumer Products and Retail Summit

Posted in Events, Legislation, Retailing, Trade
Lara NathansCharlene SchaferMartin Thiboutot

McCarthy Tetrault’s 7th Annual Consumer Products and Retail Summit was held on February 23, 2017. Here are our key takeaways from the Summit:

Visions of the Changing Retail Industry

Erol Uzumeri, Searchlight Capital Partners

  •  The major trends impacting the consumer sector include: experience economy, digital disintermediation, silver economy, convenience, personalization and authenticity;
  • Successful retailers need to leverage their customer data to address consumers’ changing preferences;
  • Retailers need to carefully consider the investments required to create clear and differentiated positioning and cannot afford to remain stationary with the factors impacting the consumer sector on a daily basis.

Transactional Trends and Issues in the US Retail Market: Implications for Canada

Samuel A. Newman, Gibson, Dunn & Crutcher

  • Considering the challenging trends, retailers in distress can consider a non-bankruptcy asset sale, receivership or assignment for the benefit of creditors; sale of assets can also be conducted through a bankruptcy filing;
  • Sale through a bankruptcy filing reduces certain transaction risks;
  • Retailers should consider value preservation issues such as intellectual property including consumer data, real property and tax attributes.

Opportunities for Retailers and Consumer Products Companies under the new Canada EU Trade Agreement (CETA)

 John Boscariol and Robert Glasgow, McCarthy Tétrault

  • CETA is expected to come into force in Canada and Europe in the next few months – companies should be doing a review of their operations (both sourcing and sales) to be in the best position to take advantage of CETA benefits;
  • For those importing or exporting products between Canada and Europe, check the rules of origin applicable to your products to determine whether you qualify for tariff-free access;
  • CETA does more than any other trade agreement in addressing divergent regulations that apply after importation – the new conformity assessment regime is designed to ensure that products can be tested and certified in one location for purposes of regulatory requirements in both jurisdictions;
  • CETA stands in stark contrast to the faltering US-EU Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations and the growing worldwide backlash against the liberalization of trade and investment rules – if Canada is able to successfully maintain most of its access to US markets under NAFTA and continues to seek expanded trade and investment arrangements in Asia and elsewhere, it will be in a unique and enviable position for attracting investment in the retail and consumer products sector.

Data, Disruption and Regulation in the Retail and Consumer Facing Industries

Jennifer T. Lee, Deloitte

Kirsten Thompson, McCarthy Tétrault

  • Data analytics and artificial intelligence applications are being sought after by retail and consumer facing industries as they seek to drive customer engagement and customer intimacy – and ultimately, profit;
  • If these technologies are used, they should be reviewed for privacy issues; both direct and indirect privacy issues are common with these technologies, particularly those developed in other jurisdictions but used in Canada.

Latest Developments in Competition Law

Donald Houston and Dominic Thérien, McCarthy Tétrault

  • The Competition Bureau continues to focus on online and mobile advertising, and the application of Competition Act (CA) provisions specifically prohibiting false or misleading representations in electronic messages that came into force as part of Canada’s Anti-Spam Legislation (CASL);
  • On July 1, 2017, a new private right of action under CASL will be available for contravention of the CA provisions addressing misleading representations in electronic messages. Penalties include the payment of the amount of the loss or damage suffered and a maximum of $200 for each contravention up to a maximum of $1 million per day of contravention;
  • The Competition Bureau continues to take enforcement action with respect to representations related to price, including false or misleading representations as to the “ordinary selling price” of a product.

“Fireside Chat” With Health Canada – Q&A With Consumer Product Safety

Nora Wang, Health Canada

Christopher Hubbard and Katherine Booth, McCarthy Tétrault

  • Health Canada is currently inspecting companies for compliance with mandatory reporting obligations under the CCPSA. This inspection project includes a review of the processes companies have in place to assess product “events” and ensure “incidents” are reported;
  • Companies are expected to assess product events (e.g., consumer reports) within a reasonable time from learning of the event to determine whether the event constitutes an “incident”. Companies should make this determination using the information available to the company at the time, and taking it at face value;
  • If a company determines that an event does not constitute an “incident”, it is recommended that the company document the rationale for that determination and maintain a record.

BC Court of Appeal: “Immediate” Termination Rights in Dealer Agreements Must be Exercised Promptly

Posted in Case Comment, Distribution, Franchising, Litigation
Adam Ship

In the recent decision of Cellular Baby Cell Phones Accessories Specialist Ltd. v. Fido Solutions Inc., 2017 BCCA 50 the BC Court of Appeal held that the long delay in the exercise of a supplier’s contractual right to terminate a dealership agreement rendered the termination improper.  The court also held that a dealer’s obligation to mitigate its damages upon termination was met, even though the dealer declined to sell the dealership to a third party.

In this case, the supplier terminated the dealership agreement on the basis that the dealer had failed to meet quarterly sales quotas on three occasions in one calendar year.  That calendar year was 2010.  The dealership agreement provided the franchisor with the right to terminate “immediately” in this circumstance.  However, the notice of termination was not delivered until in September, 2011, eight months after the contractual right became effective.

The Court of Appeal held that contractual rights to terminate “immediately” must be exercised within a reasonable period of time. The eight-month delay in exercising the right was fatal to the supplier’s right to terminate.

Had the supplier formally noted the dealer in default at the relevant times, and taken greater steps to preserve its contractual rights, the outcome may have been different.

The case also involved the dealer’s obligation mitigate.  The supplier argued that the dealer failed to mitigate by not accepting an offer to purchase from a third party dealer.  The Court of Appeal disagreed.  According to the court, because the supplier required the dealer to sign a general release as a condition of approving the sale, the dealer acted reasonably in refusing to sell.  Instead, the dealer elected to mitigate its damages by continuing its business as a sub-dealer of another dealer.  While this strategy proved unsuccessful to reduce the dealer’s damages, it was nevertheless a reasonable mitigation choice and met the dealer’s obligation.

Had the supplier not required the dealer to sign a general release as a condition of selling, the result may have been different.