6646107 Canada Inc. v. The TDL Group Corp., 2019 ONSC 2240

Court File and Parties

COURT FILE NO.: CV-18-602701-0000 DATE: 2019-04-10 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 6646107 CANADA INC., Plaintiff/Responding Party AND: THE TDL GROUP CORP., Defendant/Moving Party

BEFORE: Justice S. Nakatsuru

COUNSEL: Richard Quance and Emily Dubis, for the Plaintiff/Responding Party Jennifer Dolman and Sarah McLeod, for the Defendant/Moving Party

HEARD: March 5, 2019

Endorsement

1The TDL Group Corp. (henceforth “TDL”) is the franchisor of Tim Hortons. Tim Hortons is a well-known Canadian coffee shop. 6646107 Canada Inc. (henceforth “664”) operates a Tim Hortons franchise in Canmore, Alberta (henceforth the “Franchise”). The Franchise was operated pursuant to a License Agreement (henceforth the “Franchise Agreement”) dated November 23, 2006. This Franchise Agreement has an expiry date of December 29, 2016. It expressly contains no renewal provision. It further can only be amended by written approval of the parties. TDL did not renew the franchise. 664 has sued. It pleads that TDL through its representative, a Jeff Parkinson, made a binding verbal agreement to renew the Franchise Agreement. It further pleads that TDL made negligent/false representations to the Plaintiff regarding the renewal of the Franchise Agreement. In its Amended Statement of Claim, 664 brings causes of action against TDL for breach of contract, breach of TDL’s common law and statutory duty of good faith and fair dealing, and for negligent and/or intentional misrepresentation.

2TDL moves to strike the Amended Statement of Claim. It submits that under rule 21.01(1)(a), I should dismiss the claims for breach of contract and the breach of good faith and fair dealing. TDL submits that the Franchise Agreement is clear and unambiguous and does not permit 664 to renew. TDL further submits that under rule 21.01(1)(b), I should strike out all the claims as it is plain and obvious that the pleadings do not disclose a reasonable cause of action. TDL submits no leave to amend should be granted.

3664 amended its original Statement of Claim on February 11, 2019. It submits that any deficiencies in its pleadings have been remedied by the Amended Statement of Claim. It submits that the test under either rule has not been met. 664 argues that the Amended Statement of Claim should not be struck and TDL’s motion should be dismissed.

A. Breach of the Franchise Agreement and Breach of the Duty of Good Faith and Fair Dealing Under the Franchise Agreement

4In assessing TDL’s submissions, I must point out that in the Amended Statement of Claim, there are two agreements at issue: 1. The Franchise Agreement dated November 23, 2006, that expired December 29, 2016, and; 2. the oral agreement between TDL and 664 made at some point in time from October 2016, and onward, between Mr. Parkinson and 664. This oral agreement is referred to in the claim as the “Renewal Agreement.” I will start with the claim regarding the breach of the Franchise Agreement and then deal with the Renewal Agreement.

5The basic principles of commercial contract interpretation were summarized in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279. At para. 16, Winkler C.J.O. stated:

When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties.

6In the Franchise Agreement, the parties agreed that there would be no renewal of the Franchise under this agreement. The sections dealing with renewals are noted to be “Intentionally Deleted.” In addition, there is found in section 16.00 a “Non-Waiver” provision and in section 16.02 an “Entire Agreement” provision.

7Under rule 21.01(1)(b), I find it plain and obvious that any cause of action alleging that the failure to renew the Franchise Agreement was a breach of the Franchise Agreement, is certain to fail given the provisions in the contract. The Franchise Agreement explicitly contains no renewal provision. TDL’s failure to renew it cannot amount to a breach of the Franchise Agreement.

8In addition, 664 pleads that TDL breached its duty of fair dealing under s. 7 of the Alberta Franchises Act, R.S.A.2000, c. F-23 and the common law duty of good faith and honest performance of the contractual terms and obligations under the Franchise Agreement. However, it is plain and obvious that this claim has no reasonable chance of success. Any breach of these duties must be tied to the Franchise Agreement. Because the Franchise Agreement does not provide for renewal, any dereliction of the duties by TDL when it comes to a renewal of the Franchise Agreement is certain to fail. There is no contractual obligation to renew. Any renewal of the Franchise alleged by 664 falls outside of the Franchise Agreement. Thus, being untethered to this agreement, any failure in the fair dealing or the good faith performance of the renewal process cannot amount to a reasonable cause of action. There is no free-standing common law or statutory duty of good faith and fair dealing that exists independent from an agreement. Put another way on the facts of this claim, there is no free-standing duty on TDL to fairly or in good faith renew the franchise: Fairview Donut Inc. v. TDL Group Corp., 2012 ONSC 1252 at paras. 500-501.

9No other breach of TDL’s fair dealing and good faith duties under the Franchise Agreement is alleged. No material facts are pleaded to support any other breach.

10Consequently, I find that the following references in the Amended Statement of Claim must be struck: 1) In paragraph 21 the phrase “in breach of its contractual obligations to the Plaintiff”; 2) In paragraphs 23a, 24, and 24a the phrase “the Franchise Agreement”.

11TDL also moved to strike these portions of the pleading under rule 21.01(1)(a). 664 argued that no recourse could be made to rule 21.01(1)(a) because the issues raised questions of mixed fact and law. I prefer to dispense of TDL’s submission on another basis. While it seems to me that the interpretation of the non-renewal provision of the Franchise Agreement is a question of law that is plain and obvious, even if that be the case, in the context of these pleadings, the determination of the question would not dispose of all or part of the action, substantially shorten the trial, or result in a substantial saving in costs.

12In my opinion, the core of the pleading has little to do with whether TDL breached the Franchise Agreement. It has to do with whether TDL breached a verbal agreement to renew the Franchise. In other words, whether TDL breached the Renewal Agreement. As I will next explain, nearly all of the action will continue on with respect to the issues raised by the Renewal Agreement and the representations made by Mr. Parkinson. As a result, acceding to TDL’s submission regarding rule 21.01(1)(a) about the Franchise Agreement, will not make the trial any shorter. No costs will be saved.

13Thus, the above references will be struck under rule 21.01(1)(b). There will be no leave to amend. While leave to amend is not to be easily denied, I find it is not possible to amend the claim to remedy this deficiency.

B. Breach of the Renewal Agreement and Breach of the Duty of Good Faith and Fair Dealing Under the Renewal Agreement

14The Amended Statement of Claim states that by failing to renew the Franchise, TDL breached the Renewal Agreement. On this motion, TDL submits that it is plain and obvious that this cause of action has no reasonable chance of success. It is a question of law that can plainly and reasonably be decided in its favour. It submits that the verbal agreement is an amendment or modification of the Franchise Agreement which is barred by the Entire Agreement provision. It further submits that the Renewal Agreement is not enforceable since the terms of the renewal are not clear and ascertainable. The Renewal Agreement is simply a vague “agreement to agree” and not a valid contract.

15TDL points to the Entire Agreement clause found in s. 16.02 of the Franchise Agreement where it states the Agreement constitutes the whole agreement and that no amendment, change or variance of the Agreement is binding unless mutually agreed to and executed in writing. It also relies on the Non-Waiver provision which requires a strict compliance with the terms of the Franchise Agreement. TDL submits that these clauses precludes the oral Renewal Agreement. TDL supported its position by referring to authorities that hold verbal agreements cannot stand in the face of such provisions: Mr. Lube Canada Limited Partnership v. 2070778 Ontario Ltd., 2016 ONSC 7707 at para. 51; Seto v. Wendy’s Restaurants of Canada Inc., 2016 ABQB 493 at para. 18.

16On the other hand, 664 submits that the Entire Agreement clause only applies to pre-contractual representations and does not apply to representations/agreements that were made during the course of or after the Franchise Agreement.

17In my opinion, I find that it is not plain and obvious that the terms of the Franchise Agreement would preclude the oral Renewal Agreement. The determination of this issue will be a matter of mixed fact and law. It will depend on what was said and agreed to by TDL and 664 in the Renewal Agreement in addition to the interpretation of the Franchise Agreement. Two authorities relied upon by 664 supports this conclusion. In Shelan v. Print Three Franchising Corp., [2003] O.J. No. 1919 (C.A.), a franchisee alleged that an oral agreement was reached. The issue was whether the entire agreement clause from a terminated franchise agreement still applied. Weiler J.A. found that it did not and that the entire agreement was not intended to cover any and all future contractual relations between the franchisee and the franchisor. Similarly in Sobocynski v. Beauchamp, 2015 ONCA 282, the Ontario Court of Appeal held that subject to express wording to the contrary, entire agreement clauses do not apply to agreements or representations that post-date the contract in which the clause is found.

18TDL attempts to distinguish these authorities on the basis that the Renewal Agreement was a variation or a modification of the Franchise Agreement and thereby came within the scope of the Entire Agreement clause. Whatever the ultimate merits of that argument, I am mindful of the nature of this motion. It is not a summary judgment motion. On the material facts in the Amended Statement of Claim, the Renewal Agreement could reasonably be found to be a separate and independent contract and not an attempt to amend the non-renewal term of the Franchise Agreement. I am not satisfied that 664 should be removed from the driver’s seat of this litigation based on this argument.

19Regarding the second argument of TDL, I find that it is not plain and obvious that this is only an agreement to agree or is unenforceable due to insufficient certainty. TDL relies upon the case of TDL Group Ltd. v. 1060284 Ontario Ltd., [2000] O.J. No. 1239 (S.C.J.). With respect to the unenforceability of “agreements to agree”, TDL relies on Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93 at para. 27.

20I have little difficulty with this principle of law. However, I find both the authority and the principle not determinative on the motion before me. TDL Group Ltd. v. 1060284 Ontario Ltd. is distinguishable on its facts. In that case, Wright J. was deciding a motion for a declaration that a franchise lease had expired as well as a cross-motion for an injunction. It was not a motion to strike. Further, the franchisee’s position was that because of the long-standing good relationship with TDL and past practices regarding renewal, the franchisee had a reasonable expectation that despite there being no renewal provision in the existing agreement, the franchise would be renewed and TDL acted in bad faith in not doing so. Wright J. acknowledged that despite there being no renewal option, if the evidence disclosed a commitment made to renew on terms certain or ascertainable agreed to by the parties or by their conduct, it was open for a court to find that a contract to renew had been formulated. However, on the evidence before Wright J., there had only been discussions about renewal and no specifics about the negotiations such that the terms of the renewal were sufficiently ascertainable.

21I find the situation different here. The Amended Statement of Claim does not simply state that there were discussions about a renewal. It is specifically pleaded that Mr. Parkinson made express representations to 664: 1). A new lease was being negotiated with the landlord. The franchising structure was that TDL leased the premises and then subleased it to the franchisee; 2). 664 would be entitled to renew its Franchise Agreement upon completion of the negotiations. The renewal was to take place once the lease was in place; and 3). 664 would be granted a sublease for the Franchise location. While particulars such as the term of the lease have not been directly pleaded, there are other paragraphs in the Amended Statement of Claim that gives more substance and certainty to the nature of and the binding quality of the representations. It is pleaded that it was understood that Gerald Walsh, a son of the principal of 664 who was added with TDL’s consent as a shareholder of 664 in December of 2015, would become a Guarantor in the Renewal Agreement which would be renewed on or about December 29, 2016. It is further pleaded that 664 and Mr. Walsh were provided with the form of the franchise agreement that would be executed upon renewal. In response to a Request, this form is said to be the same as the Franchise Agreement and the Amending Agreement that added Mr. Walsh. Thus, I can infer from these facts that as a part of the oral agreement, 664 is relying on the renewal being on the same terms (including duration and conditions) as it had previously signed in the Franchise Agreement. Finally, based upon Mr. Parkinson’s representations, it is pleaded that the parties entered into a binding agreement as to a renewal called the Renewal Agreement. The Renewal Agreement would on the same terms as before and in accordance with TDL’s standard form of franchise agreements. I find that when these provisions of the Amended Statement of Claim are read generously, 664 essentially claims that the oral Renewal Agreement was a binding agreement that would be consistent with the existing Franchise Agreement and with the standard TDL franchise agreement which would formally be executed when the lease was negotiated with 664 holding the sublease.

22This is sufficiently certain and ascertainable on the test I must apply on a motion to strike. Therefore, I reject TDL’s position.

23In addition, 664 pleads that the Renewal Agreement (as with the Franchise Agreement) included the implied terms of the statutory duty of fair dealing and the common law duty of good faith and honest performance. On this motion, TDL submitted that the cause of action based on a breach of these duties has no reasonable chance of success.

24TDL has not satisfied me that the alleged breach of these duties as they pertain to the Renewal Agreement, plainly will not succeed on the material facts pleaded. In this case, the Franchise Agreement expired. However, 664 continued to operate the Franchise until on February 23, 2017, TDL advised 664 that it was treating the Franchise Agreement as expired and giving the Franchise to someone else on March 15, 2017. This, says 664, breached the Renewal Agreement. Furthermore, 664 claims that TDL acted unfairly, dishonestly, and in bad faith in doing so. In paragraph 22 of the Amended Statement of Claim, 664 gives particulars of TDL’s breach of its common law duty of good faith and its statutory duty of fair dealing. These essentially outline an allegation that TDL under new ownership, took actions to reduce the profitability of its existing franchises, artificially created breaches of standards of operation and staffing, and ceased its long standing practice of permitting renewals of franchises in order to favour large multi-unit operators of Tim Hortons. As I have noted in the previous analysis of the Franchise Agreement, 664 further claims that TDL breached these duties of good faith, fair dealing, and honest performance by misleading 664 about the renewal.

25I have some reservations about 664’s reliance on these breaches of the duties of good faith, fair dealing, and honest performance when it comes to the Renewal Agreement. It seems to me, these causes of action are redundant to the claim that TDL breached the Renewal Agreement by failing to renew. All that said, given the nature of this motion, and given that added facts regarding TDL’s bad motives and misleading behavior are claimed vis-à-vis this aspect of the breach of the Renewal Agreement, I cannot say that these claims should not survive this motion. I also find sufficient particulars have been pleaded. Of course, given that I have struck these same claims when they related to the Franchise Agreement, it will only be TDL’s actions and intentions that relate to the performance of the Renewal Agreement (as opposed to the Franchise Agreement) that will be relevant to the litigation.

C. Negligent/Intentional Misrepresentation

26In my view, the Amended Statement of Claim has fixed the deficiencies in the pleading earlier complained of by TDL with respect to setting out the essential requirements of each cause of action. Further, sufficient particulars have been identified. The specific impugned representations are the ones made by Mr. Parkinson.

27TDL argues that the Entire Agreement clause precludes any reliance on these misrepresentations. However, I find that the case of D.L.G. & Associates Ltd. v. Minto Properties Inc., 2015 ONCA 705 at para. 39 is a sufficient answer to this submission. The Ontario Court of Appeal held that the evidential detail necessary to decide whether an entire agreement clause precluded reliance on negligent misrepresentations was not available on a motion to strike. To do so would be premature. I conclude the same here.

28The final point made by TDL is that 664 suffered no loss since all the purported losses claimed by the Plaintiff are existing obligations under the Franchise Agreement. I do not agree. In this case, 664 has pleaded that it suffered damages as a result of TDL’s improper conduct. 664 has pleaded that the renovations, the repairs, and the hiring of additional staff was done “in reliance” on the misrepresentations. Further, 664 continued to operate the Franchise after the expiry of the Franchise Agreement. Whether 664 did or would have had to do these actions under the Franchise Agreement regardless of the misrepresentations is a matter for trial.

D. Conclusion

29Aside from the specific portions of the Amended Statement of Claim identified above that are to be struck, this motion is dismissed.

30If the issues of costs cannot be resolved between the parties, I will entertain written submissions, each one limited to two pages regarding when the issue of costs should be resolved, and the nature of the costs award. The Plaintiff shall file within 20 days of this decision. The Defendant shall file within 10 days thereafter. There will be no reply submissions without leave of the court.