By:  Frank Zaid, Principal, FRANlegal Support Services

In Canada, franchise disputes which are not settled at early stages may proceed to mediation which is a voluntary process agreed to by the parties and their respective counsel (if lawyers have been retained by that time). Mediation may take place at any time during the dispute and frequently is used after a dispute has been submitted to arbitration or an action has been commenced in one of the provincial courts having jurisdiction over the dispute.  If mediation does not result in a settlement, the action will proceed under arbitration or a civil action in the courts. In either case there will be many procedures to be followed, many documents to be submitted and examinations and cross-examinations of the respective parties and their witnesses.

Franchise disputes are often complex involving difficult legal issues. Many franchise disputes involve claims of rescission, default and termination, non-compliance, or misrepresentation. Franchise agreements or related documents will often contain provisions which initially govern the nature of the dispute and the course of conduct of the parties will determine the facts relating to the legal issues.

All seven provinces in Canada which have enacted franchise legislation, using Section 3 of Ontario’s Arthur Wishart Act as an example, have specific requirements relating to the relationship of the parties:

In the Canadian legal system expert witnesses can play a crucial role in providing specialized knowledge to assist judges and arbitrators in making informed decisions. Their testimony must meet certain standards, including:

1. Knowledge: demonstrated significant experience and knowledge in their respective fields
2. Impartiality: no bias or favouritism of the parties or their counsel
3. Relevance: relevance of their analyses and opinions of the issues
4. Reliability: expert evidence must be independent, valid and properly applied

Some court decisions have highlighted the need for vigilance in assessing expert opinions. As a general matter, expert opinions cannot take the nature of legal opinions. The admissibility and validity of expert evidence is governed by established legal precedents, and ongoing discussions about the role of expert witnesses continue to evolve within the legal community.

The role of expert witnesses in civil actions was detailed in an online article published by Gowling WLG:[1]

It is well-established in Canadian law that expert witnesses have a special duty to the Court to provide fair, objective and non-partisan assistance. Courts have disagreed, however, on how and when to deal with concerns raised about the independence of expert witnesses—should independence and impartiality be considered at the threshold admissibility stage, or only in the weight given to the evidence?

In White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, the Supreme Court of Canada has clarified that independence concerns should be considered at the threshold admissibility stage, but that threshold requirement is not onerous: the expert must simply be aware of his/her primary duty to the Court and able and willing to carry it out.

The Supreme Court restated and clarified the two-stage test for admissibility of expert opinion evidence as follows:

In Canada, expert witnesses in franchising can provide opinions on various aspects of franchisee-franchisor relations, including earnings claims, encroachment, covenants not to compete, damages, costs, and other claims. They may also testify on the standards and practices in franchising. These experts can provide written opinions, initial feasibility studies, sales practices, valuations, appraisals, and operational reviews.

Given the reference in the Wishart Act and other provincial franchise statutes to “fair dealing” and “reasonable commercial standards,” experts can also given evidence on what is meant by these terms in the context of specific franchise operations. Franchise expert witnesses gather evidence through document review, interviews, research, and data analysis to provide expert testimony in lawsuits. The role of a franchise expert witness involves understanding franchising law, franchise operations, franchise standards, franchise agreements, and disclosure documents.

In civil cases, experts are not certified or approved by the judge or arbitrator. The judge or arbitrator will need to be satisfied by the expertise of the expert, and an opposing counsel may challenge the expertise or evidence of the expert and seek disqualification or redaction of the report. In Ontario, an expert in a court proceeding  must file a specific form (Form 53)  sworn by the expert confirming who retained the expert and acknowledge that it is the expert’s duty to provide evidence in relation to the proceeding as follows:

The expert must also acknowledge that the duty referred to above prevails over any obligation which the expert may owe to any party by whom or on whose behalf the expert is engaged.

Experts are retained by counsel for the plaintiff(s) or defendant(s) in an action or claimant(s) or respondent(s) in an arbitration. The engagement letter will be detailed and include the fees, the opinions to be given, the facts relied upon, the documents reviewed, and confirmation of no conflict or other matter which could prevent the expert from giving evidence in the case. They are not directly retained by the parties. There will be a solicitor-client privilege between the experts and their respective counsel protecting certain communications and documents as being privileged and not required to be disclosed.  Fees will be paid by counsel who will usually collect the amounts from their clients.

Experts and their counsel must be certain that the expert has prepared the opinion and that counsel to the expert has not drafted or redrafted the opinion.

Experts will be subject to examination on their reports and subject to cross-examinations by opposing counsel.  They are also open to questions from the judge or arbitrator.

I have personally been engaged as an expert in franchise actions involving many diverse issues as listed below.

1. Alleged negligence of a lawyer
2. • for a franchisor in relation to advice given or not given relating to franchise documents or disclosure requirements;
   • relating to advice given to a franchisor in respect of compliance with statutory standards or common law requirements.
3. Advice given or not given to a prospective franchisee in respect of franchise law requirements and review of documents.
4. Standards in franchising relating to
   • renewal practices, major changes to system practices, and advertising and marketing practices including fees, costs, and marketing analysis;
   • international franchise agreements.
5. Franchisor use of related, designated or approved entities for required programs including construction, accounting, technology and product and service purchasing.
6. Standards and sufficiency of operations manuals.
7. Use of “stand-alone” buy back clauses in franchise or area development agreements.
8. Ontario law and interpretation relating to international franchise agreements.
9. Procedures and standards for establishing suppliers for a US franchisor expanding to Canada and importation of foods under a development agreement.

Franchise counsel should become familiar with the use of experts in relevant cases to provide evidence of practices and standards in franchising which will assist the judge or arbitrator in reviewing particular evidence and the business or operations issues in a case.  In certain cases, accountants or valuation experts will be useful for determination of damages or costs. The choice of an expert and the evidence to be provided in a franchise case should be determined after careful and detailed review of the qualifications and experience of the proposed expert with the understanding that expert evidence can be very relevant to the outcome of the case.

ABOUT THE AUTHOR

Frank Zaid practiced franchise law for 40 years at Osler, Hoskin & Harcourt LLP where he chaired Canada’s leading franchise law practice group and was involved with over 400 franchise systems. Today, he is a franchise mediator, arbitrator, and ombudsman with ADR Chambers in Toronto, an expert witness, and a consultant/ advisor on strategic domestic and international franchise structuring, relationship and growth matters.  He also serves as a member of franchisor advisory boards or boards of directors. The Canadian Franchise Association honoured Frank with its initial Lifetime Achievement Award in 2009. He served as General Counsel for the Canadian Franchise Association and has been on the Executive Committee and Board of Directors of both the International Franchise Association and the Canadian Franchise Association. He provides his various services through his own business, Frank Zaid FRANlegal Support Services.  For more information, review his website www.frankzaid.com or contact him at (416) 837-5973 or via e-mail at fzaid@frankzaid.com.

[1] https://gowlingwlg.com/en/insights-resources/articles/2015/supreme-court-clarifies-requirement-of-independence