May 23rd, 2012
In 6323588 Canada Ltd. v. 709528 Ontario Ltd., 2012 ONSC 2985, Justice Strathy characterised the certification motion as unusual in that the defendants made a strategic and focused attack on the suitability of the proposed representative plaintiff with little debate about any other certification requirements. This is a proposed franchisee/franchisor class action that seeks:
- an accounting and payment of amounts paid to an advertising fund that were in excess of what was reasonably required;
- a refund on contributions made to the cost of processing orders that was above what was reasonably attributable to the franchisee's costs of the related costs;
- a share in all rebates, bonuses, discounts and other allowances the franchisor received from suppliers on account of supplies sold to franchisees; and
- punitive damages for bad faith and breach of fiduciary duty.
The defendant raised concerns about the proposed representative plaintiff's motivations for commencing the class proceeding. The proposed representative plaintiff was in default under its franchise agreement. In response to a demand for payment from the defendant, an accounting of the advertising fund was raised for the first time. The franchisee eventually received a second notice of default and demand for payment and abandoned its premises. The defendant brought a counterclaim against the proposed representative plaintiff.
Justice Strathy found that the concerns about the suitability of the representative plaintiff had merit. Not only did Justice Strathy agree that the action seemed to have been commenced to deflect the defendant's claims, he found that there were more troubling aspects that called into question the representative plaintiff's good faith and fair dealing, business ethics, competence, and the honesty and credibility of its principals. These latter aspects made the proposed representative plaintiff profoundly unsuitable to represent the class. In addition, in light of the counterclaim, the proposed representative plaintiff could be in a conflict of interest with the class.
Despite the unsuitability of the proposed representative plaintiff, Justice Strathy did not refuse leave to substitute another representative plaintiff. There was a factual basis for the common issues in the action and the action was well advanced. To avoid unfairness to the proposed class, Justice Strathy held that another representative must be given the opportunity to come forward. The motion was adjourned with leave to permit a motion to substitute a new representative plaintiff to be brought within 90 days. Interestingly, Justice Strathy indicated that any new proposed representative plaintiff “should be prepared to personally attend the continuation of the motion so that the court can assure itself that he or she has the necessary independence and knowledge of the responsibilities – and potential liabilities – of taking on the role of representative of the class.”
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