In a judgment handed down on May 15 in Camions Daimler Canada ltée v. Camions Sterling de Lévis inc.(which you can read by click here), the Quebec Court of Appeal made a number of important clarifications to the obligation of franchisors to provide information.
Without going into detail about the facts of the case, here are the main points.
Until 2008, Daimler Trucks Canada Ltd. operated a network of dealers who sold heavy trucks under the Sterling brand name. Camions Sterling de Lévis inc. was one of these dealers.
In 2008, the parent company of Daimler Trucks Canada Ltd. decided to cease production of trucks under the Sterling brand name, and consequently terminated truck sales concessions under this brand name. It did, however, offer certain dealers, including Camions Sterling de Lévis inc. new dealership agreements limited to parts and service(excluding sales) of Sterling trucks, with an attractive transition bonus.
This new dealership contract(signed by Camions Sterling de Lévis inc. in October 2009) included an indeterminate term, and clearly stipulated that Daimler Trucks Canada Ltd. could terminate it at any time on 30 days' notice.
In 2010, Mr. Pierre Corriveau, who owned another Sterling truck dealership and had played an active role in the management of the Camions Sterling de Lévis inc. dealership since 1997, decided to acquire, through his company, the shares of Camions Sterling de Lévis inc.
For the purposes of this transaction, Mr. Corriveau, who was already very familiar with the situation at Camions Sterling de Lévis, signed a new dealership agreement on November 12, 2010, on behalf of this dealership, identical to the one signed in October 2009, which also included the clause stipulating that Daimler Trucks Canada Ltd. could terminate it at any time on 30 days' notice.
Just over a year later, on December 19, 2011, Daimler Trucks Canada Ltd. sent eight of these Canadian dealers, including Camions Sterling de Lévis inc. a notice of termination for April 12, 2012, which was subsequently extended to July1, 2012.
Following this termination, Camions Sterling de Lévis inc., Mr. Pierre Corriveau and the latter's company which had acquired the shares of Camions Sterling de Lévis inc. instituted an action for damages against Camions Daimler Canada ltée on the grounds that, in their opinion, Camions Daimler Canada ltée had breached its duty of disclosure by not revealing to Mr. Corriveau, at the time the latter was acquiring the shares of Camions Sterling de Lévis inc, a material fact, namely the existence of a program making it probable that it would, in the short or medium term, avail itself of the 30-day notice termination clause to terminate the dealership agreement.
In a ruling handed down on October 21, 2015(which you can read by click here), the Superior Court ruled in favor of the plaintiffs and ordered Daimler Trucks Canada Ltd. to pay Mr. Corriveau and his company, which had acquired the shares of Camions Sterling de Lévis inc. damages in the order of $207,000.
Camions Daimler Canada ltée appealed this decision to the Quebec Court of Appeal on May 15.
An important aspect of the Superior Court's judgment in this case was that it ordered Daimler Trucks Canada Ltd. to pay damages, not to its dealer, but to the company that acquired the dealer's shares and to its principal officer.
This raised the following important question : Does a franchisor's duty to inform apply only to its franchisee, or does it also extend to persons other than the franchisee (notably the franchisee's shareholder and principal officer)??
Here is the Court of Appeal's answer to this important question:
"19] Daimler argues that the duty to inform is a component of contractual good faith, the purpose of which is to enable the parties to enter into a contract with information that will enable them to make a valid contractual decision. It argues that the trial judge relied on extra-contractual liability and Bank of Montreal v. Bail Ltée to wrongly conclude that Daimler incurred liability by failing to inform St-Nicolas that it was likely to terminate the contract with Lévis in the short term.
[20] Daimler's proposal is ill-founded. The Civil Code of Québec enshrines the principle of good faith, both in the exercise of civil rights (art. 6 C.C.Q. and art. 1457 C.C.Q.) and in the conduct of the parties to a contract, from its formation to its extinction (art. 1375 C.C.Q.).
[21] The duty to inform is not reserved to the parties to a contract, as the Supreme Court decided in Bail, supra:
First of all, the foregoing remarks apply primarily to the contractual duty to inform, but a duty to inform can also arise independently of any contractual relationship. This issue is beyond the scope of this litigation, however, because even in the absence of a direct contractual relationship between Laprise and Hydro-Québec, any tortious fault that the Bank might accuse Hydro-Québec of will be based largely on Hydro-Québec's contractual obligations to Bail/Sotrim, as we shall see."
The Court of Appeal therefore concluded that persons other than a franchisee, such as the franchisee's principal shareholder or principal officer, could sue a franchisor for damages if the franchisor breached its duty to inform them, even if these persons were not themselves parties to the franchise agreement.
Secondly, relying on a basic volume of Quebec civil law, the Quebec Court of Appeal also specified the conditions and scope of the duty to inform to which every franchisor is bound, in the following terms:
"[ 24 ] In their treatise on Les obligations, authors Baudouin, Jobin and Vézina explain that the conditions and scope of the obligation to inform have been defined by case law as follows:
1- The information must be decisive in the sense that it would have played a definite role in a party's decision;
2- The information must be known or presumed to be known by the debtor of the information obligation;
3- The creditor of the information must neither know the information nor be able to obtain it, or he must have such a relationship of trust with the debtor of the obligation that he expects the latter to reveal the information to him;
4- The obligation to inform does not extend to information to which the creditor of this obligation could have had access with "reasonable prudence and diligence: this is the obligation to inform oneself. "
In this case, the courts concluded that, although Mr. Corriveau was well aware of the content of the 30-day notice termination clause, Daimler Trucks of Canada Ltd. had nevertheless breached its duty to inform by not disclosing to him, at the time he acquired the shares of the Camions Sterling de Lévis inc. dealership, certain facts then known to the senior management of Daimler Trucks of Canada Ltd. that made the short- or medium-term termination of the Camions Sterling de Lévis inc. dealership agreement foreseeable.
The Court of Appeal therefore dismissed Daimler Trucks of Canada Ltd.'s appeal(except for a correction to the amount of damages awarded by the Superior Court).
Jean H. Gagnon, Ad.E.
Lawyer | Mediator | Arbitrator
You can contact Jean H. Gagnon(by e-mail at jhgagnon@jeanhgagnon.com or by phone at 514.931.2602) with any questions or comments.
