Court of Queen ’ s Bench of Alberta Citation: Sears Canada Inc. v. C & S Interior Designs Ltd., 2011 ABQB 471 Date: 20110719 Docket: 1001 00789 Registry: Calgary Between: Sears Canada Inc. Plaintiff - and - C & S Interior Designs Ltd., Shelley Jean Unser and John Christian Boehm Defendants _______________________________________________________ Memorandum of Decision of J.B.

Hanebury, Master in Chambers _______________________________________________________ [ 1 ] This is an application by the defendants, an alleged franchisee, C& S Interior Designs Ltd., and its guarantors, to determine whether an action should proceed in Ontario or Alberta. The alleged franchisor, Sears Canada Inc., has filed identical claims in Alberta and Ontario. The defendants ask that the Alberta action be dismissed or stayed. Sears, whose own contract specifies that Ontario is to be the venue for litigation, opposes the application and argues that its claim against the defendants should proceed in Alberta.

FACTS

[ 2 ] Sears entered into agreements with various parties for the operation of its floor covering centres in stores across Canada. The contracts provided that the operators could only purchase product from Sears-approved manufacturers. Sears allegedly received “paybacks” from these manufacturers which were not passed on to the operators. [ 3 ] In May, 2009, a class action was commenced in Ontario by the operators of the flooring centers against Sears.

The operators allege that the agreements are franchise agreements; that there is a duty to disclose under provincial franchise legislation; and that these paybacks were hidden and not properly disclosed. They seek damages of $30,000,000.00. Sears filed a statement of defence and denied that the agreements were franchise agreements and denied the alleged undisclosed rebates.

It also filed a counter claim alleging that sales were under-reported by the operators and royalties and marketing levies therefore underpaid, and that unauthorized product was sold. [ 4 ] The Ontario class action is being case managed by Justice Strathy. On August 23, 2010, he certified the class action and reserved the question of whether the Alberta plaintiffs would be included.

In the course of his decision he stated that Sears had admitted that the agreements it had with its operators are subject to provincial franchise legislation and that it did receive rebates that were not passed on to the operators. [ 5 ] In the course of his reasons Strathy J. noted that the provisions of the Alberta Franchises Act R.S.A. 2000, c. F-23, would not preclude the plaintiffs from bringing an action in Ontario but they could require the Ontario court to apply the law of Alberta, the province in which the franchisee was located.

Due to differences in provincial legislation, he said, some issues may not be common to all members of the class. [ 6 ] On October 15, 2010, he determined the question under reserve and he created an Alberta sub-class for the purposes of the class action. The defendant C & S is a member of that sub-class. [ 7 ] On the same date, unbeknownst to counsel for the defendants in the case before this court, Sears filed an action in Ontario virtually identical to this one in Alberta. That action, and this one, seek the payment of invoices for outstanding fees and charges and damages for breach of the licensing agreement.

The actions allege, inter alia , the under-reporting of sales and the resulting failure to pay royalties and marketing levies. The relief sought seeks in excess of $500,000.00 for general and special damages. [ 8 ] This was not the only action commenced by Sears against its licencees.

The minutes of the class action case conference of Sept. 20, 2010, note that the plaintiffs in the class action asked for a stay of the various individual actions and counterclaims as between Sears and class members until further order of the Court. [ 9 ] In three instances the counterclaims of the operators in the individual actions related to the issues in the class action and Strathy J. took over the management of those actions so they could proceed in tandem, as appropriate, with the class action. [ 10 ] In three other cases he did not take over the case management of the actions against the operators.

The pleadings in those cases were not provided, but I note that two of them were filed in small claims court. ARGUMENTS [ 11 ] The defendants argue that Ontario is the appropriate jurisdiction and to allow the action to proceed here is an abuse of process. They point to a number of factors that they say support Ontario as the appropriate venue. [ 12 ] They argue that they will file a counterclaim to the claim of Sears, raising the same issues as those found in the class action in Ontario, where the defendant, C& S, is a plaintiff.

C & S is represented by class counsel in Ontario who, C & S says, would also handle this individual action in Ontario.

[ 13 ] They believe that Strathy J. would agree to case manage this action. The defendants say that this would avoid the risk of conflicting decisions as the claims between the parties arise out of the same fundamental facts. The defendants argue that this risk and simple expediency point to Ontario being the appropriate venue. There would be a procedural unfairness in allowing the action to be heard in this jurisdiction. [ 14 ] They also point to the location of the main office and documents of Sears in Ontario to support their argument.

They also argue that as Sears has denied the applicability of the Franchises Act in its Statement of Defence in Ontario, it must follow the choice of law and venue clause found in its contract. That clause stated that Ontario law and the Ontario courts would govern disputes between the parties. [ 15 ] As to the issue of abuse of process, the defendants allege that Sears is trying a “divide and conquer” strategy by suing individual operators in their home jurisdictions.

Further evidence of Sears’ inappropriate dealings, they say, is found in the commencement by Sears of an identical action against them in Ontario, about which they were never told. They point to the affidavit evidence and cross-examination of Mr. Westreich, Sears’ representative, which makes no mention of this identical action. They say that they only discovered the action months later and a week before the hearing of this application, by chance, when the Ontario Clerk of the Court sent them a Notice to Take Next Step. [ 16 ] Sears wants its action to continue in Alberta.

It responds that: there is little risk of conflicting decisions; the actions are different; the Ontario courts have not put all of Sears’ litigation with its franchisees with the same judge; Alberta law is best applied by Alberta courts; the agreements were entered into in Alberta; the franchises were operated in Alberta; the obligations arose in Alberta; and, Alberta is the most convenient forum ( forum conveniens ) for the defendants.

It would be prejudicial to Sears if it had to register its judgment in Alberta in order to ultimately collect on it. [ 17 ] Sears argues that, even though its contract states that any action should be heard in Ontario and be governed by Ontario law, the action should be heard in Alberta. Sears says that despite its defence in Ontario denying that the agreements are franchises, it has now admitted that the contracts are franchise agreements and the Alberta Franchises Act , applies. [ 18 ] It points to s.16 of the Act which provides that the law of Alberta applies to franchise agreements.

Section 17 states that any provision in a franchise agreement restricting jurisdiction or venue to any forum outside Alberta is void. [ 19 ] Therefore, it says, the provisions of that legislation render its choice of law and venue clause void. As its own choice of venue is void, it says that the matter is best heard in this jurisdiction. [ 20 ] The defendants respond that these admissions are not binding on Sears and should not be considered. ISSUE [ 21 ] Should the Alberta action be struck or stayed in light of the commencement of an identical action in Ontario?

ANALYSIS [ 22 ] I invited the parties to file further argument on the question of whether the admissions of Sears to the effect that the licensing agreement is a franchise agreement subject to the Franchises Act are binding upon it. After a review of the material filed I am of the view that these admissions, being foundational to my determination of this matter, are in the nature of formal binding admissions: Martin v. Busenius 1999 CarswellAlta 545 (QB) . As a result, I have accepted these admissions and considered them in making my determination.

[23] Even though the contract is a franchise and subject to the Alberta legislation, that does not settle the matter. As noted byStrathy J., the Franchises Act does not state that all litigation relating to franchise agreements governed by Alberta law must be broughtin Alberta. Therefore the choice of venue remains an issue that can be determined by this court. [24] This application is under rule 3.68 of the Alberta Rules of Court, which provides that an action may be struck or stayed whenit is an abuse of process or frivolous, irrelevant or improper.

An abuse of process is usually found when there is a multiplicity ofproceedings, such as two or more law suits for virtually the same matter: Whitehead v. Taber, 1983 CarswellAlta 379. [25] However, this rule is not absolute. Case law has held that the fact that two actions are allowed to proceed is not fatal and doesnot always result in a stay. See: Amchem Products Inc. v. British Columbia (WCB) (SCC), [1993] 1 SCR 897 SCC;Teck Cominco Metals Ltd. v. Lloyd’s Underwriters 2009 SCC 11 , [2009] SCJ No. 11 SCC, Direct Energy Marketing Ltd. v.Hillson 1999 ABQB 455 , 1999 ABQB455; Phillips v.

Avena 2006 ABCA 19. [26] As the court noted in Tech, relying on Amchem, at para. 38: While sympathetic to the difficulties presented by parallel proceedings, the desire to avoid them cannot overshadow the objective of theforum non conveniens analysis, which is to ensure, if possible, that the action is tried in the jurisdiction that has the closest connectionwith the action and the parties. [27] In short, the fact that there are parallel proceedings will not result in an automatic stay being granted in this jurisdiction.

Thecourt must determine if, in its view, the Alberta action should be stayed or allowed to proceed. [28] This determination involves a two step test. The first question is whether this court has jurisdiction simpliciter, ie. can thiscourt exercise jurisdiction? [29] The franchise agreement in this case was for the operation of a business in Alberta. The alleged breaches of the agreementoccurred in Alberta. With the admissions made by Sears, the Alberta Franchises Act applies.

There is clearly a real and substantialconnection to this jurisdiction and this court has jurisdiction simpliciter. [30] The second question is whether this court should exercise jurisdiction. Is this court the forum conveniens or is there a clearlymore appropriate forum for the action? [31] The factors to be considered when determining forum conveniens were well-summarized in Norex Petroleum Ltd. v.

ChubbInsurance Co. of Canada 2008 ABQB 442. they include: 1. where each party resides; 2. where each party carries on business; 3. where the cause of action arose; 4. where the loss or damage occurred; 5. any juridical advantage for the plaintiff in this jurisdiction; 6. any juridical disadvantage for the defendant in this jurisdiction; 7. convenience or inconvenience to potential witnesses; 8. the cost of conducting the litigation in this jurisdiction; 9. applicable substantive law; and 10. difficulty in proving foreign law, if necessary.

[ 32 ] Since that decision new Rules of Court have been implemented in Alberta. Rule 3.68, the rule applicable to this application, has been considered through the lens of the foundational rule, rule 1.2: Donaldson v. Farrell 2011 ABQB 11 . The court has held that when applying rule 3.68, it should ensure that it considers both timeliness and cost-effectiveness. [ 33 ] In this case Sears is in Toronto and the defendants are in Alberta, except for Mr. Boehm who has moved to Mexico.

Both Sears and the franchisee carry on business in Alberta, and Sears also carries on business in Ontario, and elsewhere in Canada. [ 34 ] The cause of action arose in Alberta and the loss or damage occurred there as well. There is a juridical and procedural advantage to both parties in having the matter heard in Alberta as the action is governed by the substantive law of Alberta. [ 35 ] However, in this case there should be little difficulty in proving the law of Alberta in Ontario. There is already an existing sub-class of Alberta litigants in the existing class action.

Even if Justice Strathy were to decline to case manage this action, the law between the two jurisdictions is not so different as to be difficult of proof. [ 36 ] Witnesses will come from both jurisdictions. There is likely little advantage either way to this factor. [ 37 ] From a procedural perspective, should Sears’ action in Ontario be successful, it would need to register its judgment in Alberta in order to collect on it. This will require it to undertake an extra procedural step. However, as the difference in jurisdictions is merely provincial, not international, this impediment is not significant.

Registrations of this kind are governed by legislation and done routinely. [ 38 ] There are clearly procedural advantages to proceeding in Ontario. Ontario has ongoing litigation that involves the parties on related issues. The counterclaim of the defendants in this action will raise issues claimed against Sears in the Ontario class action. Justice Strathy is case managing several other actions that are related to the class action to ensure both the efficiency and fairness of the process. [ 39 ] Sears and its franchisees are clearly at loggerheads.

Each is accusing the other of failing to pay funds owing as a result of the same franchise agreements. It is easier to ensure that duplication is avoided and that there are not conflicting findings or inequities in the treatment of the actions if the matters are carried on within the same court system. This court cannot and would not direct Justice Strathy to case manage this action.

However, whether he does so or not, the inter-relationship between this action and the class action means that, from the viewpoint of cost-effectiveness and expediency, this action should be heard in Ontario. [ 40 ] Differences between the timeliness in each jurisdiction are more difficult to assess. It is unlikely that the action would proceed more quickly in Alberta than in Ontario. Furthermore, even if it would, it appears that Sears has agreed to stay the collection on any ultimate judgment obtained in its individual claims in Ontario, pending the outcome in the class action.

If that were not the case in this Alberta action, this court could certainly require Sears to do so. Therefore, any advantage as to timeliness gained by proceeding in Alberta may ultimately be of limited significance. [ 41 ] Overall, the advantages of having the action heard in Ontario, in my view, trump the slight disadvantages of requiring the proof and

interpretation in Ontario of Alberta law and the registration by Sears of any ultimate judgment in Alberta. CONCLUSION [ 42 ] The Alberta action is stayed until further order of this court or the disposition of the identical action in Ontario. [ 43 ] If the parties cannot agree as to costs, they may arrange with the clerk to speak to the issue within thirty days of the release of this decision.

Heard on the 19 th day of May, 2011. Dated at the City of Calgary, Alberta this 19 th day of July, 2011. J.B. Hanebury M.C.C.Q.B.A. Appearances: Katie Robinson Parlee McLaws LLP for the Plaintiff Sears Canada Inc. R. Brickard Ratcliffe R. Brickard Ratcliffe & Associates LLP for the Defendant ’ s C & S Interior Designs Ltd. and John Christian Beohm Cass Lintott YSL Lawyers LLP for the Defendant Shelley Jean Unser