The franchisor, Print Three, appealed a trial judgment finding it liable for fundamental breach of a franchise agreement and breach of a duty of good faith.
The franchisee, Shelanu, had entered into a subsequent oral agreement regarding royalty rebates, which Print Three later refused to honour.
The Court of Appeal upheld the enforceability of the oral agreement despite an entire agreement clause, finding the parties had amended their written agreement by conduct.
The Court also affirmed that a duty of good faith exists in franchisor-franchisee relationships.
However, the Court found the trial judge erred in concluding that Print Three's establishment of a new franchise concept breached this duty, and further erred in finding a fundamental breach that excused Shelanu from future performance.
The appeal and cross-appeal were allowed, and damages on the franchisor's counterclaim were reassessed.