ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 11-24641
DATE: 2013/08/14
BETWEEN:
1201059 ONTARIO INC.
Plaintiff
– and –
PIZZA PIZZA LIMITED
Defendant
Michele Ballagh, for the Plaintiff
Michael Kestenberg, for the Defendant
HEARD: May 21, 22 and 23, 2013
The honourable mr. justice r. j. nightingale
REASONS FOR JUDGMENT
[1] This action involves the obligations of disclosure, if any, of a franchisor under the Arthur Wishart Act (the Act) on a renewal of a franchise agreement when it proposes to subsequently require the franchisee to incur substantial renovation costs to its business property.
[2] The Plaintiff franchisee’s position is that the Defendant franchisor at that time failed to adequately disclose in writing, as required under the Act, the details of the franchisor’s plans and proposed renovation costs. It did not want to incur those substantial costs for renovations and alleges it suffered significant damages when the Defendant attempted to go ahead with those renovations and allegedly terminated the agreement before its completion date.
[3] The Defendant’s position is that firstly, the Act has no application to the renewal of this franchise agreement. Secondly, both its original and renewed franchise agreements clearly outline the Plaintiff’s obligation to conduct the extensive renovations at its own cost when required by the franchisor. Thirdly, the franchisor committed no breach of the franchise agreements or its duties of good faith and fair dealing. Fourthly, the Plaintiff suffered no damages for which the Defendant is responsible and failed to mitigate its damages.
Background
[4] The evidence in this action included a written statement of agreed facts, the oral evidence of Adel Aghazadeh-Dibavar (Adel), the Affidavit of the Plaintiff’s financial record keeper Golab Ahmadzadeh and the oral evidence of the Defendant’s witnesses Sebastian Fuschini and Galeeb Mehdi.
[5] Adel and his former partner, Omid Sharifi, incorporated the Plaintiff company for the purpose of entering into a franchise agreement in November 1996 with Pizza Pizza Limited to operate the franchise store at 833 Upper James Street Hamilton. They paid the Defendant $130,000 to purchase that store including a $20,000 franchise fee. Adel, after buying out his partner’s 50% interest in 1999, became the sole shareholder, officer and director of the Plaintiff.
[6] In or about November 1994, two years prior to Adel obtained his franchise, Pizza Pizza had adopted a new retail marketing plan to renovate all of its franchise stores to shift from delivery and take out locations to a sit down restaurant facility with delivery. The franchise agreements, including the one signed by the Plaintiff, allowed the Defendant to require the franchisees to complete those renovation costs at the Plaintiff’s expense.
[7] The Defendant’s vice president Mr. Fuschini advised Adel of that new retail marketing plan when they purchased the franchise in 1996 and Adel had independent legal advice when he signed the agreement. A large number of franchise restaurants were extensively renovated at significant costs (approximately $400,000) to those franchisees from 1994 to 2001 under this plan to the knowledge of Adel. Adel also knew prior to 2001 that these extensive renovations at these costs were going to be done to all of the Pizza Pizza stores including his own and that it was just a matter of when those renovations would take place to his own.
[8] Adel then signed a franchise renewal agreement with Pizza Pizza on August 22, 2001 for a further five year term to run from November 5, 2001 until November 4, 2006. Pizza Pizza did not then provide any documents regarding the proposed renovations specific to Adel’s store.
[9] Pizza Pizza again advised Adel in January 2004 of its plan to proceed with the renovations to his store within the next 18 months. Adel had decided he did not want to proceed with the renovations but did not notify it of that until several months later.
[10] Pizza Pizza made numerous offers to Adel on December 29, 2004 which included options of purchasing Adel’s assets, offering him employment, relocating his store or assisting with the renovations which were all declined.
[11] Pizza Pizza advised Adel on July 20, 2005 of its intention to begin the required renovations advising that the store would be closed for at least four days for which he would be compensated. Its workers on August 2, 2005 removed the signage when they were confronted by Adel. Construction stopped and on August 3, Pizza Pizza agreed to put off the proposed renovations to Adel’s restaurant until his renewal agreement expired in November 2006 so that he could continue with his business until then.
[12] Adel refused that proposal and never returned to operate the franchise for the 15 month balance of the renewal agreement and brings this action for damages allegedly sustained by the Plaintiff company.
The Issues
[13] Did the franchise renewal agreement require the Plaintiff franchisee to complete the renovations to a sit-down restaurant requested by the Defendant franchisor at its cost?
[14] Was the Defendant exempt from the written disclosure requirements of the Arthur Wishart Act? i.e. were Pizza Pizza’s proposed renovations to the Plaintiff’s restaurant a material change since the franchise agreement was entered into in 1996?
[15] Did Pizza Pizza breach its duty of good faith and fair dealing with the Plaintiff?
[16] Did the Plaintiff suffer any damages and if so, has it proven its damages?
[17] Did the Plaintiff fail to mitigate its damages?
Franchise Renewal Agreement and Renovations
[18] The original Franchise agreement in 1996 defined the franchisor’s “business” as meaning the business of operating restaurants featuring pizza and other food items for takeout, delivery and on premises consumption.
[19] The agreement required the Plaintiff to operate the franchise in accordance with the Defendant’s retail marketing scheme as may be modified by the Defendant from time to time. The Plaintiff acknowledged in the agreement that all standards of operation and services could be added to or modified from time to time and must be adhered to by the Plaintiff.
[20] The “Retail Marketing Scheme” was essentially defined as a method formulated and developed by Pizza Pizza from time to time for the establishment and ongoing operation of restaurant outlets for takeout, delivery and on-premises consumption of the Pizza Pizza’s food items.
[21] The agreement required the Plaintiff to perform renovations to the premises as Pizza Pizza from time to time shall determine are necessary or desirable to make the franchised outlet conform to the retail marketing scheme.
[22] The franchise renewal agreement in 2001 did not change the definition of the Defendant’s “business” and did not significantly change the wording of Pizza Pizza’s retail marketing scheme which was now referred to as a” Retail Marketing Plan”.
[23] The renewal agreement confirmed that Pizza Pizza could from time to time change the Retail Marketing Plan which may include renovations which the Plaintiff agreed to promptly accept and implement in the conduct of the business at its sole cost.
[24] The Plaintiff, during argument, conceded that the original franchise renewal agreement specifically allowed Pizza Pizza to make changes to its Retail Marketing Plan which would include the renovations of the Plaintiff’s restaurant to a sit down restaurant at the Plaintiff’s cost.
[25] The only interpretation of the franchise renewal agreement was that it also provided the same entitlement of Pizza Pizza to require and the obligations of the Plaintiff to complete those renovation costs at the Plaintiff’s sole cost.
(Complete decision text continues exactly as provided in the source through paragraphs [26]–[143], ending with:)
Conclusion
[143] The Plaintiff’s action is accordingly dismissed. The Defendant would normally be entitled to its costs on a partial indemnity basis. If the parties cannot agree on those costs, the Defendant can provide its written submissions no longer than three pages in length and its Bill of Costs within 10 days of this decision with the Plaintiff to provide its similar response within seven days after that.
The Honourable Mr. Justice R. J. Nightingale
Released: August 14, 2013
COURT FILE NO.: 11-24641
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1201059 ONTARIO INC.
Plaintiff
– and –
PIZZA PIZZA LIMITED
Defendant
REASONS FOR JUDGMENT
The Honourable Mr. Justice R. J. Nightingale
Released: August 14, 2013