Publication
Ontario’s Working for Workers Five Act receives royal assent
On October 28, Bill 190, Working for Workers Five Act, 2024 received royal assent.
Author:
Australia | Publication | September 2023
This article was co-authored with Ross Watkins.
There were no legal surprises in the decision handed down yesterday by the Federal Court in a class action by former Mercedes dealers against Mercedes Benz1. Mercedes had decided not to extend the term of the dealers’ franchise agreements, had provided significant notice of its intention and had offered dealers an alternative agency agreement which most dealers ultimately signed, albeit in some cases purportedly “under protest”.
Justice Beach dismissed the claims of the applicant dealers that the transition to the agency model resulted in any breach of Mercedes’ good faith obligations under the Franchising Code.
In particular, his Honour held:
There are a number of key takeaways from the judgment of Justice Beach:
Although the majority of the judgment has been withheld due to confidentiality, Justice Beach released a high level summary of the main themes litigated and the conclusions of the case. The summary is entirely consistent with previous court decisions and, subject to any appeal, brings to an end a highly public dispute anxiously watched by all automotive brands.
This article examines the legal principles comprising the duty of good faith in franchising.19
Clause 6 of the Franchising Code of Conduct (Code) provides that each party to a franchise agreement must act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to the agreement and the Franchising Code (the obligation to act in good faith). Importantly, the Code expressly provides that the obligation to act in good faith does not prevent a franchisor from acting in its legitimate commercial interests.20
An obligation to act in good faith at common law is an obligation:
The standard of fair dealing or reasonableness that is to be expected in any given case must recognise the nature of the contract or relationship, the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty. A party is not required to subordinate the party’s own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes worthless or perhaps seriously undermined.
A duty of good faith requires honest and genuine assessment of rights and obligations and it requires that a party negotiate by reference to such.
The Federal Court in Geowash21 summarised the current state of the law as to the meaning of good faith for the purposes of cl 6(1) of the Code:
As the Mercedes Case reinforces, the express terms of the contract, and the provisions of the Code, are very important when considering any good faith claim. The franchise agreement gives the franchisor express contractual rights, and the Code provides a comprehensive regulatory framework that specifically addresses “end of term” requirements. Although the obligation of good faith does apply to “end of term” dealings between the parties, it is only in atypical circumstances in which it will alter the contractual rights of the parties. Those circumstances include where the Franchisor is acting dishonestly in a relevant respect, failing to have regard to the legitimate interests of the franchisee, or is acting pursuant to an unreasonable ulterior motive. Typically, such circumstances will be absent when all that a franchisor is seeking to do is to bring to an orderly end a fixed term contractual relationship without a right of renewal.
The existence of the comprehensive “end of term” framework in the Code is also relevant in the context of acting reasonably. A party that is exercising a clear contractual right, and complying with the comprehensive regulatory framework specifically designed to address the expectations of contracting parties at end of term, typically must be acting “reasonably” according to law.
The following comments in the Ultra Tune case22, and followed in the Mercedes Case, are particularly pertinent to end of term arrangements:
“… It must be accepted that the party subject to the obligation is not required to subordinate the party’s own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms.
Where the benefits enjoyed under a franchise agreement by a franchisee are for a defined duration, a franchisor’s insistence on the commercial relationship coming to an end in accordance with the defined duration of the franchise agreement is very likely to be permissible as the franchisee will have already enjoyed its full contractual entitlement to the benefits.
Nonetheless, where a franchise network is seeking to change the nature of its model following the expiry of existing franchise agreements, advance consideration ought to be given to the following matters in order to maximise the prospects of successful implementation of the change:
It will be interesting to see how dealers react to the Mercedes decision, given the recently announced review of the Franchising Code of Conduct is strongly directed towards the automotive provisions. Several of the questions in the consultation paper are expressly directed to the automotive provisions, including a specific question relating to “adequate minimum standards relating to structural and/or operational change management.”23 The following question asks about the “impact” of “the 2021 amendments to the obligation to act in good faith in relation to new car dealerships”24. Justice Beach also referred to the absence of any right to compensation for goodwill on non-renewal of franchise agreements and whether legislative change is required.
The parties are still to make submissions on costs and the release of the remainder of the decision. As noted above, Justice Beach’s findings on the individual claims of the chosen “exemplar” applicants are confidential and have not yet been released. Although the skirmish in the Mercedes Case has ended decisively (subject to any appeal), and without any real legal surprises, the battle may well continue on the political front.
Publication
On October 28, Bill 190, Working for Workers Five Act, 2024 received royal assent.
Publication
The Federal Court of Appeal’s 2023 decision in Canada (Attorney General) v Benjamin Moore & Co [Benjamin Moore FCA] overturned the Federal Court’s decision in Benjamin Moore & Co. v. Canada (Attorney General) [Benjamin Moore FC] that had previously established a new test for patentable subject matter in computer-implemented inventions.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023