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Digest of the Week – Strength of the Cause of Action Not to be Determined on a Rule 21 Motion

Digest of the Week – Strength of the Cause of Action Not to be Determined on a Rule 21 Motion

The strength of a cause of action is not to be determined on a Rule 21 motion.



Addison Chevrolet Buick GMC Ltd. v. General Motors of Canada Ltd.
2016 CarswellOnt 6795
Ontario Court of Appeal


Civil practice and procedure --- Disposition without trial — Stay or dismissal of action — Jurisdiction and discretion to stay or dismiss

US auto manufacturer's predecessor declared bankruptcy — As part of court-supervised restructuring, manufacturer received assets of bankrupt predecessor company and bailouts from, among others, Canadian and Ontario governments — Canadian dealers brought action against manufacturer and Canadian subsidiary alleging manufacturer's preferential financial support to US dealers constituted breach of duty of good faith in performance of franchise agreements and breach of Arthur Wishart Act (Franchise Disclosure), 2000 (Act) — Manufacturer and subsidiary brought successful motion under R. 21 of Rules of Civil Procedure to strike claims — Motion judge dismissed entire claim against manufacturer without leave to amend, finding that dealers did not provide funds and were not parties to negotiations, that manufacturer was not party to franchise agreement and could not be held liable under s. 3(2) of Act, that corporate veil should not be pierced to make manufacturer party to agreement and liable as party for alleged breaches of franchise agreement by subsidiary — Dealers appealed — Appeal allowed with costs fixed at $20,000 — It was not plain and obvious action had no reasonable prospect of success, that parent company like manufacturer could never owe duty of good faith or fair dealing to dealers under Act or at common law, or that manufacturer was not franchisor's associate — Motions judge approached motion as if it were motion for summary judgment and required dealers to demonstrate that they would succeed rather than requiring manufacturer to demonstrate that dealers could not possibly succeed — Test was whether it was plain and obvious that claim could not succeed — Determination of duties owed under remedial legislation such as Act involved important questions of legal interpretation, were subject of limited jurisprudence, and required factual record — Interaction between franchise context and duties of good faith and fair dealing at common law raised novel and not implausible argument that should not have been struck on R. 21 motion — Issue on motion was not whether franchisor's associate was "deemed" to be party to every franchise agreement but whether, on facts pleaded, it was plain and obvious that manufacturer could never owe duty to dealers under s. 3(2) of Act — Interpretation of "party" and extent of duty in s. 3 of Act would likely have important precedential value and answer should be decided on full record, as did question of whether level of control alleged and special obligations owed in context of franchise relationship could open door for imposition of common law duty.
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