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[Article] Global Franchising, International Standards and the Law
http://www.azfranchising.com/article-global-franchising-international-standards-and-the-law/
BY KELLY FRIEDMAN
It is fundamental to the success of a franchise system to have consistent operations by all franchisees. International standards can encourage the growth of a franchised business into countries separated by distance, culture, language, history and legal regimes by setting a well-defined, internationally-recognized baseline for all franchisees to follow regardless of their location.
This article explains that using international standards not only assists with much-needed uniformity across a franchise system, using international standards can also lower the risk that the franchisor or a franchisee might be found to be negligent if their business conduct is legally challenged.
The International Organization for Standardization
There are many international standards organisations, covering a wide range of industries and subject areas. A prominent player in the international standards space is the International Organization for Standardization (the “ISO”), which is the world’s largest developer of voluntary international standards.
The ISO is an independent, non-governmental organization made up of members from the national standards bodies of 163 countries and 3,368 technical bodies. The ISO has published more than 19,500 international standards covering almost every industry, including technology, food safety, energy, agriculture and healthcare [http://www.iso.org/iso/home/about.htm]. Standards Council of Canada is the Canadian member body and a voting member in the ISO.
An ISO standard is developed through a consensus-based process. Expert advisors from participating countries work together to create a standard based on global expert opinion. The standard is only published if and when a two-thirds majority of the participating members in the particular technical committee or subcommittee vote in favour of the standard and not more than one quarter of the total member votes cast are negative. Once published, ISO standards are voluntary and are specifically not intended to contradict or supersede local jurisdictional laws and regulations [http://www.iso.org/iso/home/about.htm].
A given ISO standard can become legally binding
Despite their voluntary nature, ISO standards can become legally binding on companies. Specifically, they become legally binding to the extent they are incorporated into the terms of a contract by the parties to the contract, or when they are incorporated into local statutes by lawmakers.
In Canada, ISO Standards can be incorporated into federal or provincial legislation or regulations, and in that way, become binding on those doing business or subject to law in that Canadian jurisdiction. There are many examples, from different industries. As one example, a regulation under Ontario’s Farm Implements Act [RSO 1990, c F.4] provides that tractor dealers must comply with specific ISO standards regarding testing for the safety of rollover protective structures on tractors [RRO 1990, Reg 369].
If an ISO standard is not referenced in a contract or legislation, it can still affect legal rights
In a more subtle fashion than direct incorporation by reference into a contract or statute, the content of an ISO standard can be relevant to a company’s legal position in court. In particular, if the company’s conduct is being challenged because it has caused harm to a third party, compliance with an ISO standard can assist a party to establish that the conduct was not negligent and, therefore, the company ought not to be required to pay damages.
The Reasonable Person Test in Canadian Negligence Law
Courts and tribunals in Canada regularly assess the behaviour of actors before them by comparison to the behaviour one would expect of the “reasonable person”. The legal decision-maker decides whether the behaviour sufficiently deviates from the standard of conduct set by the hypothetical “reasonable person” to determine whether the behaviour warrants a finding of fault, to determine a legal dispute or to assess criminal responsibility.
The “reasonable person” test is at the core of the law of negligence in Canada. Conduct is negligent if it creates an objectively unreasonable risk of harm. To avoid liability, a person must exercise the standard of care that would be expected of an ordinary, reasonable and prudent person in the same circumstances. The measure of what is reasonable depends on the facts of each case including the likelihood of a known or foreseeable harm, the gravity of that harm, and the burden or cost which would be incurred to prevent the injury.
Importantly, the Supreme Court of Canada has held that the judge may look to external indicators of reasonable conduct, such as custom, industry practice, and statutory or regulatory standards [Ryan v Victoria (City), 1999 CanLII 706 (SCC)]. Indeed, Canadian judges seek guidance from published standards, including international standards.
Compliance with a published standard is certainly not determinative of reasonable behaviour. That being said, decision-makers in Canada do refer to published standards as evidence of what constitutes reasonable behaviour. A published standard which has gone through a rigorous, consultative and consensus-building process with broad participation is arguably objective, or at least more objective than the view of any one particular expert, series of experts, or witness.
National standards in Canadian case law
It is common for Canadian courts to refer to Canadian Standards Association (“CSA”) standards in making reasonable person determinations in cases with Canadian parties. The CSA is one of five organizations in Canada accredited by the Standards Council of Canada as standards development organizations. CSA’s role is to facilitate the development of standards, many of which become National Standards of Canada, indicating that they conform to criteria and procedures established by Standards Council of Canada and reflect consensus reached by competing views and ideas of affected sectors [http://www.csagroup.org].
CSA standards have been used in a variety of negligence cases in Canada to test the reasonableness of behaviour. For example, in a case involving a house fire allegedly caused by a defective fan, the manufacturer of the fan successfully escaped liability by proving that the fan complied with CSA standards [Dickson v Broan-NuTone Canada Inc., [2007] O.J. No. 5114, aff’d 2008 ONCA 734 (CanLII)]. CSA standards have also been used to help establish negligence. In a case alleging the improper installation of windows, the plaintiff was successful at establishing negligence where the court found that “the installation does not comply with the Canadian Standards Association A440.4.98 Window and Door Installation in any respect” [Alexandru v Century Windows and Doors, [2007] O.J. No. 2274].
ISO Standards in the Courtroom
ISO standards are also used in Canadian courts. For example, an ISO Standard was considered by an Ontario court to determine whether a manufacturer was negligent in its design of mechanical prosthetic heart valves and annuloplasty rings [Andersen v St. Jude Medical, Inc., 2012 ONSC 3660 (CanLII)]. In a Nova Scotia trip and fall case, an expert for the plaintiff performed testing to find the coefficiency of friction between two surfaces. To put these test results into context, the expert drew comparisons with standards for flooring prepared by the American Society for Testing and Materials (ASTM), the British Standards Institute (BSI) and the ISO [Corbin v Halifax (Regional Municipality), 2003 NSSC 121 (CanLII)].
Canada’s largest trading partner, the United States, also uses ISO standards in legal decision-making. For example, the United States Court of Appeals for the Fifth Circuit upheld a decision of the United States District Court for the Eastern District of Texas in which ISO Standards were considered to determine whether coal hauling vehicles were faulty, injuring coal miners [Bartley v Euclid Inc., 169 F. 3d 215 (1999)].
Not only have ISO standards been used in Canadian courtrooms, judicial commentary supports the view that judges can take judicial notice of ISO standards. Judicial notice is a very useful doctrine of evidence law. In general, each and every fact presented to a court must be proven by calling a witness to provide testimony as to the existence of the fact. In other words, the normal rule is that a fact cannot be used in the judge’s decision unless a witness testifies as to the fact and the witness is believed by the judge. However, by taking judicial notice, a judge can accept something as fact without a party being required to present evidence to establish the fact. In Canadian law, judicial notice can be taken where the fact is so notorious or generally accepted as not to be the subject of debate among reasonable persons, or where the fact is capable of immediate and accurate demonstration by resort to readily accessible sources of indisputable accuracy [R v Spence, 2005 SCC 71]. At least one Canadian court has stated that, based on the doctrine of judicial notice, a judge can recognize and accept the existence of the facts embodied in an ISO standard as commonly known by ordinary persons, without establishing the existence of each fact by separate pieces of expert evidence [Gabie v The Queen, 1998 CanLII 419 (TCC)]. This is a very powerful tool for a litigant – the combination of a relevant ISO standard, readily available on the internet, along with testimony of a credible witness that the conduct was ISO-compliant, could lead a company to defeat a claim for negligence, even in a class action context.
The importance of international standards to the law is likely to grow
When ISO standards are developed, they are voluntary and are specifically not intended to contradict or supersede local jurisdictional laws and regulations. Nonetheless, ISO standards can be incorporated into local laws either by statute or contractually. Further, case law suggests that Canadian courts and those of Canada’s largest trading partner recognize the importance that ISO standards can play in determining whether conduct is wrongful or legally acceptable. As commerce becomes increasingly global, it stands to reason that ISO standards will continue to be used as a yardstick for reasonable behaviour in legal disputes, particularly where the parties are from different jurisdictions or in assessing behavior in transactions with international dimensions. In the franchising context, ISO standards can be used to implement consistent business practices and simultaneously reduce litigation risk exposure.
ABOUT THE AUTHOR
Kelly Friedman is an experienced litigator at DLA Piper (Canada) LLP with unique expertise in electronic information issues, including electronic discovery, data security and privacy. Kelly is an expert advisor to Standards Council of Canada, Canada’s member body in the International Organization for Standardization (ISO), advising and negotiating with respect to international standards on information technology security and e-discovery. Kelly can be reached at 416-369-5263 or kelly.friedman@dlapiper.com.
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