In a recent decision in a franchisee class proceeding,
Zwaniga v. Johnvince Food Distribution, Justice Perell of
the Ontario Superior Court of Justice clarified the definition of a
"franchisor's associate" under the Ontario
franchise legislation, the Arthur Wishart Act (Franchise
Disclosure), 2000 (the "Act").
Background
In this action, David and Jennifer Zwaniga, the representative
plaintiffs, commenced a proposed class action against Revolution
Food Technology Inc. ("Revolution"), a vending machine
distributor, and Johnvince Foods Distribution L.P
("Johnvince"), which is a vendor of candies and
confections and the distributor of Planters peanuts in
Canada.
Johnvince brought a motion for summary judgment dismissing the
claims against it on the ground that Johnvince was not a partner,
joint venturer or "franchisor's associate" of
Revolution. Perell J. ultimately agreed with
Johnvince's submissions, despite the existence of a close
commercial relationship between Johnvince and Revolution.
Johnvince was a supplier of various food products, including Planters peanuts, for Revolution's vending machine program. The vending machine program was a form of a distributorship program whereby Revolution sold vending machines to distributors. These distributors entered into an association with a buying group that would then purchase products from Revolution. In addition to acting as a supplier, Johnvince's licensed intellectual property to Revolution, including the Planters peanut trademark. Although Johnvince was paid for the product it supplied, it did not receive any revenue from the vending machine program. All costs and profits associated with the vending machine program were those of Revolution.
The plaintiffs, who were distributors under the vending machine
program, were dissatisfied with the program and commenced an action
against both Johnvince and Revolution for misrepresentation and
rescission of an alleged franchise agreement. The plaintiffs
alleged that Johnvince was more than a mere distributor and
licensor of intellectual property, but was in fact
Revolution's associate.
Decision
The Court held that Johnvince was neither a partner nor
"franchisor's associate" of Revolution and
granted summary judgment in favour of Johnvince.
The discrete question before the Court was whether Johnvince
"directly or indirectly controlled Revolution and was directly
involved in the grant of franchise by making representations to the
prospective franchisee for the purpose of granting the franchise,
marketing the franchise or otherwise offering to grant the
franchise".
In holding that Johnvince did not control Revolution Foods or the
vending machine program, the Court relied on the fact that the
management, administration, planning of day-to-day activities and
long term business planning was exercised by Revolution. The
Court clarified that "Johnvince's role as a supplier
and trademark licensor did not place it in a position of de
facto control over Revolution".
The crux of the decision is the Court's statement that
"control over a franchisor in s. 1(1) of the Act involves
something more than being important, being influential, or having
bargaining power. In the context of the Act, control connotes
being in charge of or governing or directing or leading the
franchisor".
Comment
The plaintiffs' attempt to elevate a distributor
and licensor relationship to that of a partnership or
"franchisor's associate" relationship was
properly rejected by the court. The Court's
clarification of the definition of a "franchisor's
associate" should dissuade franchisees from naming
distributors in proceedings without careful consideration of the
business relationship with the franchisor. If
"franchisor's associate" were defined more
liberally, there would be disincentive for distributors and
licensors to engage with franchised businesses. Accordingly,
the decision strikes the appropriate balance between the rights of
franchisees and distributors.
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