Author: Robert Jones, Law Works P.C.
Editor: Ben Hanuka, Law Works P.C.
In 1523428 Ontario Inc./JB&M Walker Ltd. v. TDL Group, an October 22, 2018, decision of the Ontario Superior Court, a class proceedings judge decided two motions to strike in separate class proceedings brought against the franchisor of the Tim Hortons franchise system and related parties, which involved similar background facts but distinct causes of action.
The motions judge struck all of the claims against the related parties and allowed the claims against the franchisor for breaches of the Wishart Act and the franchise agreement to proceed.
The plaintiffs, 1523428 Ontario Inc. (“152”) and JB&M Walker Ltd. (“JB&M”), were owners of Tim Hortons franchised restaurants. The defendant the TDL Group Corp. (“TDL”) was the franchisor of the Tim Hortons system. The other defendants (collectively, the “Non-TDL Defendants”) were:
a. Restaurant Brands International Inc. (“RBI”), the parent of TDL;
b. Tim Hortons Advertising and Promotion Fund (Canada) Inc. (“THAPF”), a related company that holds and manages the Tim Hortons advertising fund;
c. Daniel Schwartz, the CEO of RBI;
d. Sam Siddiqui, the president of RBI; and
e. Elias Dias Sese, Andrea John and Jon Domanko, directors of TDL and THAPF.
152’s class action proceeding was about the alleged improper use of advertising fund contributions under the franchise agreement (the “152 Action”). 152 pled breach of contract, breach of trust/fiduciary duty, oppression and conversion.
JB&M’s class action proceeding was about alleged interference with the franchisee’s right of association in the Great White North Franchise Association (the “Walker Action”). JB&M pled breach of the duty of fair dealing, breach of the right of association and oppression.
Motion to Strike in the 152 Action
a. No basis for breach of trust/fiduciary duty
The court found that 152’s pleading did “little more than announce that THAPF and the Plaintiff are in a trust relationship”. The payment of monies alone does not give rise to a relationship of trust. It held that the alleged improper use of advertising money could amount to a breach of the franchise agreement, but not a breach of trust.
The court also found that the claims against the Non-TDL Defendants lacked particulars. The Non-TDL Defendants appeared to have been added as parties to the proceeding for no other reason than holding corporate positions.
About breach of fiduciary duty, the court held that the pleadings were conclusory and lacked all particulars. It also relied on a clause in the franchise agreement which expressly disclaimed the existence of a fiduciary relationship. The court struck 152’s breach of trust and fiduciary claims against all of the defendants entirely.
b. No basis for oppression
The court found that the pleadings did not particularize the elements of oppression against the defendants – i.e. conduct that is oppressive, unfairly prejudicial, or unfairly disregarding of interests – and did not adequately distinguish between the defendants.
It also determined that the oppression claim against TDL under the Canada Business Corporations Act must be struck for lack of jurisdiction because TDL is not a CBCA corporation.
c. No basis for conversion
The court held that, in the absence of a trust relationship, 152 has no proprietary interest in the advertising funds collected under the franchise agreement. Without a proprietary interest, there can be no cause of action in conversion.
The court struck the conversion claims against the defendants. The only claim that it allowed to stand in the 152 Action was against TDL for breach of the franchise agreement.
Motion to Strike in the Walker Action
a. No particulars about breach of contract and breach of fair dealing
The court found that JB&M’s cause of action for breach of the franchise agreement against TDL was proper, which also included the alleged breaches of the duty of fair dealing and good faith under the Wishart Act and at common law. However, the pleadings lacked particulars about which contractual obligations TDL failed to fulfill. The court struck these claims with leave to amend and add particulars within 30 days.
It struck the breach of franchise agreement claims against the Non-TDL Defendants without leave to amend because the Non-TDL Defendants are not parties to the franchise agreement. The court struck the Wishart Act claims against the Non-TDL defendants on a similar basis, holding that the duty of fair dealing only applies to contractual parties.
The only particulars about the alleged breaches of the s.3 duty of fair dealing by the defendants overlapped with the alleged interference with the s.4 right of association. The court held that ss.3 and 4 of the Wishart Act are distinct causes of action, and “Intermingling the statutory references in the way that the Plaintiffs appear to have done in the Walker Action does not satisfy the need for material facts to be pleaded to satisfy the s. 3 claim”.
b. Breach of right to associate only kept against franchisor
The court held that JB&M’s pleadings disclosed a reasonable cause of action for breach of the s.4 right of association under the Wishart Act against TDL. However, it struck the s.4 claim against the Non-TDL Defendants.
The court held that the pleadings contained no material facts capable of showing the type of control required to make the Non-TDL Defendants “associates” of the franchisor under the Wishart Act. It found that “None of the Non-TDL Defendants have anything to do with the rights of the Plaintiff under s. 4 of the Wishart Act except for TDL”.
c. No basis for oppression
JB&M’s pleadings of oppression against the defendants had the same problems as in the 152 Action. The court struck the pleadings for lack of particulars against the defendants.
JB&M pled oppression under both the CBCA and the British Columbia Business Corporations Act against TDL. The court held that Ontario courts have no jurisdiction to impose the oppression remedy under the BCBCA.
The only claim which it allowed to stand was for breach of the s.4 right of association against TDL. JB&M’s claims against TDL for breaches of the franchise agreement and the s.3 duty of fair dealing were struck with leave to amend.
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