“Who Did I make a Deal with?”: Quebec Court Authorizes Consumer Class Action for False Representations Against a Franchisor

In the recently decided case Cantin c. Ameublements Tanguay inc., 2016 QCCS 4546 (the “Cantin Case”), the Superior Court of Quebec granted authorization of a proposed class action by consumers against various respondents, including a franchisor Corbeil Électrique Inc. (“Corbeil”), for alleged misrepresentations in relation to the purchase of extended warranties. In doing so it confirmed a trend that Quebec Courts, at least at the authorization stage, are unwilling to unpack whether or not a contractual relationship exists between a franchisor and a customer of its franchisee.

Key Factual Background & Decision

Corbeil is the owner of a franchise system in respect of the sale of household appliances. According to the claim, false representations were made to the petitioner by: (1) Corbeil on their website; and (2) by an employee of the franchisee, Éric Dubreuil Inc. (the “Corbeil Franchisee”); about the need to purchase an extended warranty. Corbeil sought to have the claim against it dismissed at the authorization stage on the basis that there was no legal relationship between it and the petitioner. However, the Court rejected Corbeil’s argument and authorized the class action against it, concluding that it would be premature at the authorization stage to attempt to unravel the legal relationships connecting Corbeil, the Corbeil Franchisee and the petitioner. Notably, at the authorization stage, the allegations of a petitioner are taken to be true, and according to the Court, the following allegations as pleaded by the petitioner created confusion as to the identity of the petitioner’s co-contracting party:

  1. The invoice for the purchases received by the petitioner included Corbeil’s business name and logo;
  2. The Corbeil Franchisee was listed as one of Corbeil’s branches on Corbeil’s website;
  3. Corbeil did in fact offer extended warranties directly to consumers, and it was therefore impossible at the authorization stage to distinguish between Corbeil warranties and the one purchased by the petitioner from the Corbeil Franchisee; and
  4. The petitioner alleged that he chose to do business with Corbeil, which is why he chose to purchase his appliance from the Corbeil Franchisee.

A Trend in Franchise Cases

This outcome is not unprecedented. In an earlier  case, Fortier c. Meubles Léon ltée, 2014 QCCA 195 (the “Fortier Case”), a similar alleged confusion as to the identity of the consumer’s co-contracting party led the Court  to authorize a class action against Corbeil. Affirming the reasoning of the Superior Court, the Court of Appeal noted in the Fortier Case that Corbeil’s invoice stated that it “[our translation] was represented by the franchisee”, suggesting that the Corbeil franchisee was Corbeil’s agent as opposed to an independent party.

The franchise business model is by its very definition one where independently operated businesses, “franchisees”, contract with a franchisor for the use of the franchisor’s established system of operations, branding and trademarks. Transactions at the consumer level occur between the consumer and the franchisee, and do not tend to involve the franchisor. The doctrine of corporate separateness therefore dictates that absent certain narrow and specific circumstances, a franchisor should not be held directly responsible to consumers for issues that arise in their business interactions with franchisees. However, despite the corporate separateness of a franchisor and a franchisee, consumers may nonetheless assume that they are dealing directly with the franchisor given the association of the franchise business with the franchisor’s often well-known and established trademarks and brand. As class actions become an increasingly common way for consumers to enforce their rights, this assumption may have particularly detrimental consequences for franchisors.

The Consequences

The authorization decisions in the Fortier Case and more recently in the Cantin Case are preliminary decisions only, and as such they do not preclude franchisors from ultimately demonstrating that there are insufficient legal connections between them and the customers of their franchisees to establish liability. However, these decisions confirm that at least at the authorization stage of an action, where the allegations of a petitioner are accepted as true, it will be difficult for franchisors to extricate themselves from actions brought against them by ultimate consumers. This signals a likely increase in class actions with multiple defendants in a franchise context and of more franchisors having to mount costly defences for the successful determination of these cases on their merits.

In order to protect themselves from consumer class actions, franchisors must work to ensure that their role vis-à-vis consumers is as clear as possible. Maintaining such clarity should increase a franchisor’s chance of defeating a consumer class action at the authorization stage, and certainly, if necessary, later on its merits.