COURT OF APPEAL FOR ONTARIO

CITATION: Unicity Holdings Ltd. v. Great British Vape Co., 2022 ONCA 545

DATE: 20220721

DOCKET: C69974

Benotto, Zarnett and Thorburn JJ.A.

BETWEEN

Unicity Holdings Ltd., 27736666 Ontario Inc. and Jorawar Singh Sandhar

Applicants (Respondents)

and

Great British Vape Co., 2755883 Ontario Inc. o/a Signature Vape Plus, and Joe Sormaz

Respondents (Appellants)

Paul Bates and Wilson Xavier Navarrete, for the appellants

Roman Botiuk, for the respondents

Heard: July 13, 2022

On appeal from the judgment of Mr. Justice Edward M. Morgan of the Superior Court of Justice, dated September 27, 2021, with reasons reported at 2021 ONSC 6268.

REASONS FOR DECISION

OVERVIEW

[1] The appellants operate “Signature Vape” store franchises in several cities in Ontario. The stores sell vaping equipment and cannabis accessories.

[2] The respondents are collectively a former franchisee and principal of a Signature Vape store in Windsor, Ontario. At the time of the hearing below, the respondents operated a retail outlet called London Vape, selling products similar to those sold by the appellants’ Signature Vape chain, in the same Windsor location.

[3] The parties entered into a franchise agreement on September 13, 2020 which terminated on January 31, 2021. Thereafter, they mediated their dispute and entered into Minutes of Settlement. Pursuant to the Minutes of Settlement, the appellants were to pay the respondents $100,000 upon fulfillment of certain conditions. Under a separate provision of the Minutes of Settlement the respondents promised to cease “using any and all designs, branding or marks used by Signature Vape”. The appellants claim the respondents did not comply with that obligation and refused to pay the $100,000 to the respondents.

[4] The application judge held that the respondents were entitled to the $100,000 as they did not breach the terms of the Minutes of Settlement. He ordered $27,200 in costs to the respondents, plus post judgment interest.

[5] The appellants claim the application judge failed to consider provisions in the Franchise Agreement specifying what designs, marks and branding were not to be used by the respondents, which resulted in an erroneous interpretation of the Minutes of Settlement, and an order that the appellants pay the respondents $100,000. The appellants also appeal the costs order as they claim the application judge ordered more costs against them than the respondents initially sought in their written submissions.

[6] For the reasons that follow, the appeal is dismissed.

BACKGROUND

[7] The appellants rely on two recitals and paragraph 27(c) of the Franchise Agreement in support of their claim that the respondents were in breach of the terms of the Minutes of Settlement. Those provisions read as follows:

Recital A. Signature Vape Plus together with its and (sic) affiliates have developed a retail business concept, featuring cannabis products and cannabis accessories, using a business format and system which includes unique methods of operation, standards, specifications, manuals including the Manual, proprietary marks, including the Marks, and other Information, as may be reasonably modified by Signature Vape Plus from time to time (the "System'').

Recital C. Franchisee wishes to obtain the right and license from Signature Vape Plus for the use of the System, the Marks, and in association therewith to own and operate a licensed business which offers cannabis products, cannabis accessories and any other items permitted by law for sale in the Store using the System and the Marks (the "Products") in accordance with the standards and specifications of Signature Vape Plus, as required and modified from time to time (the ''Store").

S. 27 Effect of Default and Termination. On the expiration or termination of this agreement for any reason, you will immediately discontinue operation of the Store and the use of the Marks. In addition, within seven (7) days following the effective date of termination or expiration you will:

(c) make such modifications to the Equipment and the Premises as [the appellant] Signature Vape Plus shall require to remove all identification as a business associated with the System, provided Franchisee shall, at Signature Vape Plus’s election, vacate the Premises and provide possession to Signature Vape Plus … [Emphasis added.]

[8] The appellants also claim that the respondents were required, pursuant to sections 11 and 12 of the Minutes of Settlement, to “immediately cease using any and all designs, branding or marks used by Signature Vape” and “not use the chandelier lighting fixture in the Windsor store as it has become an identifying feature of the Signature Vape system.”

[9] In their appeal factum at paragraphs 11 and 22, the appellants specify that the following changes needed to be made: (i) painting the wall a different colour, (ii) removing the signature chandelier, (iii) ceasing to use or covering the grey porcelain tiles, (iv) modifying or removing the high gloss black and full glass display cabinets, and (v) refraining from using an open-concept display case.

[10] It is agreed that the walls were painted a different colour, and the chandelier was never put up. However, the appellants claim the tiles and high gloss black and full glass display cabinets remained, which represented an open-concept display case similar to that of the appellants.

[11] As a result, the appellants claim they are not required to pay the respondents $100,000 “one day after the Franchisee confirming, in writing, the removal of any registered liens against the inventory and receivables from the Mississauga and Hamilton Signature Vape locations,” as stipulated in s. 1 of the Minutes of Settlement.

ANALYSIS OF THE APPLICATION JUDGE’S DECISION AND CONCLUSION

[12] The application judge reviewed the distinguishing features of both franchise outlets to compare the designs, branding and marks. (There was no allegation of breach of a registered mark). As the application judge said, “a picture from the evidentiary record is worth many words.”

[13] The application judge looked at the distinctive features of the respondents’ store that differed from those in the appellants’ stores: the different colour of the walls, the fact that the distinctive chandelier found in the appellants’ store was never installed by the respondents in their store, the new Union Jack emblems and designs affixed to the respondents’ floors and black display cases, and the addition of tri-colour stripes along the entire perimeter of the respondents’ floor. He also noted that although the grey tiles and black glossy display cabinets remained, they appeared different with the addition of the Union Jack emblems and designs. He compared photographs of the two establishments.

[14] The application judge noted that the appellants did not own the concept of an open floor with shelving along the walls used in the respondents’ store and the appellants concede that this concept is not new.

[15] As such, the real issue was whether the grey floor tiles and the black, glossy display cases were design features that made Signature Vape stores so distinctive that the respondents’ store could not be distinguished from them, bearing in mind that the Union Jacks on the cabinets and the tri-colour stripes along the entire perimeter of the floor were unique to the respondents’ premises.

[16] The application judge determined that,

[22] In my view, even if there were something distinctive about the grey floors and black cabinets – a proposition of which I am dubious – the addition of the Union Jacks and coloured stripes distracts from those features and distinguishes the London Vape store from a Signature Vape store. The two stores depicted above resemble each other in the way that, for example, a Rexall Pharmacy’s interior resembles that of a Shoppers Drug Mart, or a Burger King resembles a McDonald’s. The overall impression is similar as the products and businesses are similar; but the branding details are different, and consumers are certainly able to distinguish the brands.

[17] The application judge noted that nothing in the Minutes of Settlement permitted the appellant to attempt to enforce its view of the branding issue by withholding the $100,000 payment provided for in the Minutes of Settlement. The application judge also concluded that regardless of the accuracy of the appellants’ position on the branding issue, the obligation to pay the $100,000 was subject to specific conditions which had been fulfilled.

[18] We see no error in the application judge’s interpretation of the Minutes of Settlement and the Franchise Agreement. We also note that, although the appellants were represented by counsel, neither the Franchise Agreement nor the Minutes of Settlement contains a list of objects, designs, branding or marks for which the appellants claimed a proprietary interest.

[19] The application judge made factual findings to which deference is owed. After comparing and contrasting the two stores and their appearance, he held that the respondents were not using the appellants’ proprietary designs, branding or marks, and the design of London Vape store was sufficiently distinct from that of Signature Vape stores that no customer would be confused into thinking the respondents’ outlet was associated with the appellants’ stores.

[20] He therefore concluded that the appellants must pay the $100,000 to the respondents in accordance with the terms of the Settlement Agreement and that, “the withholding of funds … was a blatant breach and misreading of the Franchise Agreement” amounting to a breach of the duty of good faith. The appellants claim there is no basis for the finding of bad faith, but they concede that nothing turns on the application judge’s finding of a breach of the duty of good faith.

[21] This appeal is therefore dismissed.

[22] Leave was not sought to appeal the costs order. In any event, we see no reason to set aside the costs order imposed by the application judge. Although the respondents originally sought a lower amount, they subsequently increased their claim to $29,832.00. The application judge awarded costs to the respondents in the amount of the costs sought by the appellants in their Bill of Costs: that is, $27,200 on a partial indemnity scale.

[23] Costs of this appeal are awarded to the respondents in the amount of $7,500 all inclusive, as agreed by the parties.

“M.L. Benotto J.A.”

“B. Zarnett J.A.”

“J.A. Thorburn J.A.”