Where does Quebec case law stand on the possibility of holding a franchisor liable for a contract entered into between one of its franchisees and a customer?
At first glance, one might think that the answer to this question is clear, since the franchisor has no direct contractual link with the customers who do business with its franchisees: these customers having done business with the franchisee, and not with the franchisor, cannot therefore sue the franchisor directly!
But is this really the case?
The comments made by the Quebec Court of Appeal in its September 7 decision in Ameublement Tanguay inc. v. Cantin (which you can read by clicking here) show that this answer is far from certain.
In this case, the Superior Court had, in a judgment handed down on September 9, 2016 (which you can also read by clicking here) authorized a class action instituted against several furniture and electronics merchants due to their practices of selling extended warranties.
One of the companies involved, Corbeil Électroménagers inc. which is a franchisor, had argued against this request for authorization to institute a class action (since a class action must, in the first stage, be authorized by the court), that it could not be covered by this action since it had not itself sold any extended warranties to customers, these warranties having instead been sold by its franchisees.
The Quebec Superior Court having rejected this argument, Corbeil Électroménagers inc. appealed the Superior Court's judgment authorizing the class action against it.
In its September 7 ruling on this appeal, the Quebec Court of Appeal made the following pertinent and important comments regarding a franchisor's potential liability for a contract entered into by one of its franchisees:
"16] It is clear from the judge's reasons that there is sufficient evidence of a contractual legal relationship between the appellant and Mr. Routhier, even though, as the judge notes in paragraph [203], the latter purchased his extended warranty from Gestion Éric Dubreuil inc.
[17] It is true that the name Gestion Éric Dubreuil inc. appears at the top of the invoice certifying the sale of the device to Mr. Routhier. However, it is equally true that on the same invoice, as the judge points out, the appellant's logo is at the same height, and that "Gestion Éric Dubreuil inc." is not formally identified as the seller. Furthermore, although there is no indication on the invoice that Gestion Éric Dubreuil inc. represents the appellant, the judge notes, based on Exhibit R-7.1, that the store where Mr. Routhier purchased the device appears on the list of "Corbeil" establishments published on the appellant's website. In addition, the invoice, Exhibit R-7, states "Corbeil remains the owner of the merchandise until final payment" and "No return of merchandise without prior agreement with Corbeil".
[18] This evidence supports the judge's conclusion that there is sufficient evidence of a legal relationship between the appellant and Mr. Routhier for the purposes of authorizing the class action. Indeed, there is prima facie evidence that Gestion Éric Dubreuil inc. represents the appellant, the true seller, either through the contractual rules of mandate, or in application of the definition of "representative" set out in section 1 o) of the Consumer Protection Act.
[19] Moreover, as the judge suggests in paragraph [204] of his reasons, there is prima facie evidence of a legal relationship between them, even if the appellant was not qualified as a merchant in its relationship with Routhier. Indeed, this conclusion can be reached given the prima facie evidence of the appellant's status as an advertiser of the extended warranties sold by Gestion Éric Dubreuil inc. under sections 219, 220 and 227 of the Consumer Protection Act.
[20] But there's more.
[21] At paragraph [205], the judge refers to allegation 59.1 to support his conclusion that there is sufficient evidence of a legal relationship between the appellant and the respondent Routhier to support his decision to authorize the class action.
[22] It is true that, as a general rule, a franchisor such as the appellant - assuming one accepts the characterization of the relationship it proposes - has no direct contractual link with the consumer; usually, it is the franchisee - here Gestion Éric Dubreuil inc. - who enters into the contract with respect to which the franchisor must be considered a third party. However, a franchisor may be exposed to extra-contractual liability towards the consumer who has contracted directly with the franchisee.
[23] Indeed, the franchisor's liability to the consumer would be extra-contractual in nature if based on the theory of apparent mandate set out in article 2163 C.C.Q. As explained by author Frédéric Gilbert, a franchisor may be held liable for the acts of his franchisee if he "gave reasonable grounds to believe that the franchisee was really his mandatary" and if he "did not take adequate means to avoid such a misunderstanding when it was foreseeable".
[24] It must be noted that the respondent Routhier alleges, in paragraph 59.1 of the motion, sufficient factual elements to establish an arguable case given the possible existence of an apparent mandate between the appellant and its franchisee. Moreover, it is also prima facie evidence that Gestion Éric Dubreuil inc. would be the appellant's representative - again according to the standard applicable at the authorization stage - within the meaning of the second part of the definition of "representative" in section 1 o) of the Consumer Protection Act: "a person [.] regarding whom a merchant or a manufacturer has given reasonable cause to believe that such person is acting for him".
[25] In any case, it should be remembered that the judge could not definitively decide the factual question, which must rather be left to the trial judge. He rightly did so in paragraph [206] quoted above.
[26] The appellant is certainly correct in stating that, contrary to the factual context of the Fortier decision, where the franchisor's argument as to the absence of a legal relationship is rejected, the words "represented by" do not appear on the respondent Routhier's invoice in this case. However, as we have noted, there are several other clues in the file that support the judge's conclusion that, for the purposes of authorization, there is "a fragile but real legal relationship" between the appellant and the respondent Routhier. The judge notes, for example, that the appellant's corporate name and logo were present on the storefront, inside the store, as well as on the invoice and extended warranty purchased by the respondent Routhier. Added to this was the fact that the store chosen by Mr. Routhier appeared on the list of "Corbeil" establishments published on the appellant's website. The fact that its logo and the word "Corbeil" are reproduced on the invoice, as well as the mention that Corbeil retains ownership of the item sold, also support the impression that a mandate exists between the appellant and Gestion Éric Dubreuil inc.
The Quebec Court of Appeal therefore dismissed Corbeil Electroménagers inc.'s appeal and upheld the Quebec Superior Court's decision authorizing the institution of this class action against Corbeil Electroménagers inc. in respect of the extended warranty sold to a consumer by one of its franchisees.
Generally speaking, in order to protect itself against the risk of recourse (including class action) from one or more customers who have done business with its franchisees, a franchisor should (a) not be the manufacturer, importer, distributor or wholesaler of the good sold to the customer, (b) not prescribe to the franchisee the source of supply of the good or service sold to the customer, and (c) ensure that each customer is fully informed, at the latest at the time of purchase, of the fact that he is contracting only with an independent and autonomous franchisee, and not with the franchisor.
Given the difficulty many franchisors have in meeting all these criteria, and the uncertainties that often remain when faced with the risk of a customer taking legal action against the franchisor, it is important for all franchisors to ensure that their insurance coverage adequately protects them against any recourse (including any class action) that may be instituted by anyone who has done business with their franchisees.
