COURT OF APPEAL FOR ONTARIO

CITATION: Coffee Time Donuts Incorporated v. 2197938 Ontario Inc., 2022 ONCA 435

DATE: 20220601

DOCKET: C69596

van Rensburg, Harvison Young and Copeland JJ.A.

BETWEEN

Coffee Time Donuts Incorporated

Plaintiff (Respondent)

and

2197938 Ontario Inc. and Tirath Singh Gill

Defendants (Appellants)

Ranbir S. Mann, for the appellants

James S. Quigley, for the respondent

Heard: May 18, 2022

On appeal from the judgment of Justice Grant R. Dow of the Superior Court of Justice, dated May 31, 2021, with reasons reported at 2021 ONSC 3109.

REASONS FOR DECISION

[1] The appellants appeal the decision of the motion judge to grant summary judgment in favour of the respondent.

[2] The parties entered into a franchise agreement on July 31, 2009. The agreement related to the appellants operating their business as a “Coffee Time” store. The central terms of the agreement are set out in the reasons of the motion judge. The written agreement expired on July 31, 2014. However, the motion judge found that the appellants remained in operation pursuant to its terms: they continued to pay the royalties set out in the written agreement, to purchase products from exclusive suppliers under the agreement, and to operate under “Coffee Time” branding. The appellants stopped paying royalties on February 16, 2016, but continued to use the “Coffee Time” branding and to purchase products from exclusive suppliers. The respondent continued to send invoices for payment of royalties under the agreement, and sent notices of default when the invoices were not paid.

[3] The respondent commenced an action for the unpaid royalties on the basis that the parties continued the agreement by their conduct after the expiration of the written agreement. The respondent moved for summary judgment. In the summary judgment motion, the respondent sought payment of $90,283.84, plus interest at rates under the agreement to January 25, 2021, the date the “Coffee Time” branding was removed from the appellants’ store.

[4] At the summary judgment motion, the appellants contended that there were credibility issues that made the matter unsuitable for summary judgment, and that all or portions of the claim were beyond the time permitted under the Limitations Act, 2002, R.S.O. 2002, c. 24, Sched. B.

[5] The motion judge found that the respondent’s claim rose or fell on the issue of whether the terms of the franchise agreement were continued by the parties after the expiration of the written agreement on July 31, 2014. He found that the agreement was continued after that date by the conduct of the parties. In making this finding, he relied on the undisputed evidence that the appellants had continued to pay royalties payable under the agreement between July 31, 2014 and February 16, 2016, and had continued to use “Coffee Time” branding on their store and to purchase products from the exclusive suppliers under the agreement, even after they stopped paying royalties to the respondent. He also relied on the principles of contractual interpretation set out by this court in Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24. The motion judge concluded:

In these circumstances, I am prepared to adopt the terms of the expired franchise agreement as effective until January 25, 2021 on the basis that the entirety of the agreement was being followed by the parties for almost 19 months following its expiry.

[6] With respect to the limitation defence, the motion judge found that the respondent had discovered its claim shortly after February 16, 2016, when the non-payment by the appellants began. The respondent did not issue the statement of claim until August 9, 2019. The motion judge held that although the respondent hoped that the appellants would resume paying royalties after February 16, 2016, the non-payment constituted a default under the terms of the franchise agreement which had been continued by the parties’ conduct. As a result, he held that the portions of the respondent’s claim between February 16, 2016 and August 9, 2017 were beyond the applicable two-year limitation period. As the conduct of the appellants operating as a “Coffee Time” store continued until January 25, 2021, the motion judge found that the respondent was entitled to judgment for amounts due under the agreement for the time period of August 9, 2017 to January 25, 2021, plus interest as provided for in the agreement.

[7] We see no error in the motion judge’s finding that the agreement between the appellants and the respondent was continued by the conduct of both parties after the term of the written agreement expired. The motion judge found that the appellants continued to buy products from the exclusive suppliers under the franchise agreement after the end of the term of the written agreement, continued to use “Coffee Time” branding, and continued to pay franchise royalties to the respondent until February 16, 2016. Even after the appellants ceased paying the franchise royalties, they continued to use the “Coffee Time” branding for their business and to purchase products from authorized suppliers. In the circumstances, we see no basis to interfere with the finding by the motion judge that the agreement was continued by the conduct of the parties after the expiration of the written agreement: Saint John Tug Boat Co. Ltd. v. Irving Refining Ltd., 1964 CanLII 88 (SCC), [1964] S.C.R. 614, at pp. 621-22.

[8] The motion judge made no error in finding that the full machinery of a trial was not required to decide the issues in this claim. We do not accept the appellants’ argument that the matter was not properly decided by summary judgment because the affidavits before the motion judge were “untested and unproven”. The basic facts and chronology of events after the term of the written agreement ended were not in dispute. Neither party opted to cross-examine on the affidavits filed on the motion. The affidavits filed on behalf of the respondent asserted that the agreement continued on a month-to-month basis after the expiration of the written agreement, and set out the conduct of parties that was the basis for that assertion, in particular, the appellants’ continued operation under “Coffee Time” branding, continued purchasing from exclusive suppliers, and continued payment of royalties. The affidavits tendered on behalf of the appellants asserted that the benefit to them of operating as a “Coffee Time” franchise and purchasing from the exclusive suppliers was “free” after the expiration of the written agreement, and that they only made royalty payments from July 31, 2014 to February 16, 2016 “out of courtesy”. The motion judge’s finding that the appellants’ position “flies in the face of commercial realities” and did not give rise to a genuine issue for trial was reasonable on the record before him.

[9] We also do not accept the appellants’ submission that the motion judge erred in granting summary judgment when there was no evidence of whether sales continued at their store after the term of the written agreement. The appellants did not raise the issue of sales or sales figures in the affidavits filed on the motion. Nor did they dispute the quantum of the invoices for royalties delivered to them by the respondent after the term of the written agreement. Sales data for the store was in the possession of the appellants. Having chosen not to file any evidence on the summary judgment motion about their sales or to dispute the amounts in the invoices sent by the respondents, the appellants cannot now complain about the absence of evidence on that issue. Further, after the motion judge gave his reasons, the parties reached an agreement on the calculation of the damages for the relevant time period.

[10] Nor do we accept that there was any unfairness in the motion judge using January 25, 2021 as the end date for calculating damages. This was the date that the “Coffee Time” branding was removed from the appellants’ business, pursuant to the consent order of Diamond J. Up until that date, the appellants’ business was operating as a “Coffee Time” store.

[11] The appellants argued in their written submission that the entire claim by the respondent was statute-barred, but did not pursue the argument in oral submissions. We see no error in the motion judge’s conclusion that only the portion of the claim prior to August 9, 2017 was statute-barred.

[12] The appeal is dismissed. As agreed between the parties, costs are payable by the appellants to the respondent in the amount of $13,800, all inclusive.

“K. van Rensburg J.A.”

“Harvison Young J.A.”

“J. Copeland J.A.”