Dispensing Justice: Spina v. Shoppers Drug Mart

A decision on the merits has finally been rendered in one of Canada’s longest-running franchise law cases, Spina v Shoppers Drug Mart Inc., 2023 ONSC 1086. Certified in 2013, this class action raised four claims against the defendants (collectively, “Shoppers”) by “Shoppers Drug Mart” franchisees. This article summarizes those claims and the four corresponding takeaways for franchise lawyers, namely:

1. Estoppel: If a franchisor provides a service not listed in the franchise agreement, and the franchisees support the provision of that service, the franchisees may be estopped from later disputing the fees charged by the franchisor for that service;
2. Discretionary Fees: If the franchise agreement gives a franchisor discretion to set fees for services it provides franchisees, the franchisor may set those fees at a level higher than its actual costs of providing those services;
3. Unwanted Inventory: If a franchisor requires a franchisee to purchase significant unwanted inventory, the franchisor may be in breach of the duty of fair dealing; and
4. Franchisor’s Revenues: Franchisors may have to disclose sources of revenue obtained because of a franchisee, even if the franchisee has no right to that revenue.

(1) Estoppel

Shoppers operates a loyalty program called “Optimum”. The franchisees were required to participate in the Optimum program. Shoppers charged franchisees a fee to participate in Optimum.  This fee was not expressly listed in the franchise agreement. Shoppers relied on a term in the franchise agreement allowing it to charge for “services from time to time rendered”, besides “included services”, to charge the franchisees the fee related to Optimum.

The plaintiff alleged that participation in Optimum was an “included service”. The court rejected that claim. In the alternative, the court endorsed Shoppers’ other argument: even if Optimum was an “included service”, franchisees were estopped from disputing the fee because: (1) they were “eager participants in the Optimum Program” and told Shoppers as much, and (2) Shoppers relied on the franchisees’ words and deeds to incur the huge expenses of underwriting the Optimum program costs (paras 732-736). 

From a practical point of view, this finding should be of comfort to responsible franchisors who undertake system changes in consultation with their franchisees.  Where the franchisees’ response to a change or new program is positive, and the changes are implemented collaboratively, the franchisor is justified in relying on the franchisees’ positive words and deeds.  Franchisees may be estopped from retroactively claiming that changes were improper if they willingly embraced and sought the benefits of such changes. 

For franchisees, this finding stands as a reminder to raise concerns promptly and clearly if they perceive changes to be improper or problematic. Acquiescence may be interpreted as endorsement.