CITATION: Mega Wraps B.C. Inc. v. Mega Wraps Holdings Inc., 2008 ONCA 887

DATE: 20081223

DOCKET: C48408

COURT OF APPEAL FOR ONTARIO

O’Connor A.C.J.O., Doherty and Goudge JJ.A.

BETWEEN:

Mega Wraps B.C. Inc.

Plaintiff (Respondent)

and

Mega Wraps Holdings Inc.

Defendant (Appellant)

AND BETWEEN:

Mega Wraps Holdings Inc.

Plaintiff by Counterclaim (Appellant)

and

Mega Wraps B.C. Inc., Mega Wraps B.C. Restaurants Inc. and Mahmoud Pouladi

Defendants by Counterclaim (Respondents)

Fernando Souza for the appellant Mega Wraps Holdings Inc.

Ali Pouladi for the respondent Mega Wraps B.C. Inc.

Heard and released orally: December 17, 2008

On appeal from a judgment of Justice Alison Harvison Young of the Superior Court of Justice dated January 24, 2008.

ENDORSEMENT

[1] The trial judge found that the appellant’s purported termination of the Master Area Franchise Agreement constituted a breach of that agreement, first, because it was not delivered to the respondent, and second, because the monies said by the appellant to be owing to it, were not in fact owing.

[2] We see no error in her reasoning in this respect. The termination appears to have been acted on by the appellant even before it was brought to the respondent’s attention. More importantly, the particular sums said to be owing, and upon which the purported termination was founded, were based on the appellant’s position that these sums were to be paid to the appellant once the franchise stores were opened, whether or not the sales of those stores had closed.

[3] We disagree with that position. The Agreement makes clear in paragraphs 5.02 and 3.01.6 that these sums are to be paid to the appellant only upon closing of the sales by the respondent to the individual franchisees. Thus, the purported termination was based on a misconception of the respondent’s payment obligation and was therefore made in breach of the Master Area Franchise Agreement. This conclusion is enough to dispose of the appeal as to liability.

[4] We are not satisfied that the trial judge erred in her approach to the quantification of the respondent’s damages suffered as a result of the breach of the franchise contract as found by her. We are, however, satisfied that the trial judge made certain mathematical errors in quantifying those damages which we will deal with later in these reasons.

[5] The trial judge concluded at para. 103 that the respondent was entitled to damages for loss of profits in relation to the thirteen new franchises that cancelled their franchise agreements between February and July 2004 as a result of the problems caused by the wrongful termination of the main franchise agreement. The trial judge calculated the loss to the respondent for each cancellation, $25,000 per store, by reference to figures used in the appellant’s own promotional material. We see no error in her doing so. We are not satisfied, despite counsel’s forceful arguments, that the evidence justifies any deduction from this amount for funds retained by the respondent in respect of these thirteen cancelled franchises.

[6] The trial judge also concluded at para. 104 that the respondent was entitled to one year of lost royalties for each of the thirteen franchises that cancelled between February and July 2004. We see no error in the conclusion that the loss of one year’s worth of royalties was caused by the breach of the main franchise agreement.

[7] Finally, the trial judge, at para. 105, found that but for the improper termination of the main franchise agreement, the respondent would have sold an additional fourteen franchises in the next year. We think the evidence, in particular the very terms of the main franchise agreement itself, justify her finding that the respondent could reasonably have been expected to sell fourteen new franchises. We also think that an award including a loss of potential profits for sales in a one year period was a reasonable estimate of the damages flowing from this breach.

[8] The trial judge made a number of mathematical errors in her calculation of damages. At para. 104 of her reasons, she made an award of $7,200 for the loss of royalties for each of the fourteen stores for the period between July 2004 and July 2005. The respondent accepts that the correct number of stores was thirteen. Thus, the total award should be reduced by $7,200.

[9] In her summary of the damages, the trial judge failed to include the amount of $350,000 for the loss of construction profits for fourteen additional stores. Earlier, she had erroneously referred to this amount as $836,000.

[10] Making the adjustments referred to above, the losses incurred total $1,261,400.

[11] From this amount there should be deducted $120,000 in accordance with para. 107 of the trial judge’s reasons. The award is, therefore, $1,141,400.

[12] Accordingly, the appeal as to liability is dismissed, the appeal as to damages is allowed and the award below is adjusted to $1,141,400.

[13] There will be no order as to costs.

“D. O’Connor A.C.J.O.”

“Doherty J.A.”

“S.T. Goudge J.A.”