Court File and Parties

COURT FILE NO.: CV-16-548396

DATE: 20190611

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Nicholby’s Franchise Systems Inc., Plaintiff

AND:

Compass Group Canada Ltd., Defendant

BEFORE: Stewart J.

COUNSEL: Jeffrey Hoffman, for the Defendant Moving Party

Ronald Birken, for the Plaintiff Responding Party

HEARD: December 13, 2018

Endorsement

[1] The Defendant Compass Group Canada Ltd. (“Compass”) moves for summary judgment pursuant to Rule 20 of the Rules of Civil Procedure, O. Reg. 575/07. Compass seeks an order dismissing this action brought against it by Nicholby’s Franchise Systems Inc. (“Nicholby’s”).

[2] Nicholby’s takes the position that a just and fair determination of the issues raised in this action will require a trial.

[3] This action involves certain disputes arising from a series of agreements between the parties relating to two Nicholby’s franchise businesses at locations owned by Suncor and three “non-branded” businesses at locations owned by Canadian National Resources Limited (“CNRL”). Although the agreements themselves and many of the facts are not in dispute, there is a major dispute as to the legality and propriety of what is said by Nicholby’s to have occurred.

[4] The locations involved in these disputes are remote oil and gas exploration campsite properties in northern Alberta for which Compass provides a spectrum of lodging, catering and retail services under the terms of separate contracts with each property owner.

[5] In furtherance of its general provision of services, Compass entered into a series of franchise and “non-branded” agreements with Nicholby’s between 2010 and 2013 for the operation of convenience stores at these locations.

[6] When Compass was unable to fulfill what Nicholby’s says were its obligations to open additional franchise locations, Nicholby’s agreed (in what it describes as a “stop-gap measure”) to permit Compass to open additional locations without the Nicholby’s logo. This was done pursuant to a series of “non-branded” agreements which include three agreements covering locations owned by CNRL.

[7] The parties agreed that their agreements were to be construed in accordance with the laws of Ontario and, where applicable, the laws of Alberta. The parties attorned to the exclusive jurisdiction of Ontario for determination of any disputes.

[8] The franchise agreements relating to the operation by Nicholby’s of convenience stores at campsites owned by Suncor provide for their termination on 30 days' written notice by Compass to Nicholby's.

[9] The “non-branded” agreements for operation by Nicholby’s of convenience stores at sites owned by CNRL provide for their termination on 90 days' written notice by Compass to Nicholby's.

[10] On dates in August 2015, Compass purported to give Nicholby's notice of termination of all of these agreements.

[11] Compass maintains that it terminated the franchise agreements in compliance with Suncor’s directive to it to reduce operation costs, and that it was otherwise entitled to terminate the remaining “non-branded” agreements.

[12] Compass also says it terminated the agreements in accordance with the clear and unambiguous provisions of those agreements permitting such termination. Compass therefore argues that there is no genuine issue for trial and that summary judgment should be granted dismissing the action.

[13] Nicholby’s argues that the matter is not that simple.

[14] Nicholby’s takes the position that the long history of the relationship between the parties and the obligations that flow therefrom will have a bearing on the interpretation of the agreements, the legal validity of their purported termination by Compass, and any remedial consequences that might flow from the termination.

[15] Nicholby’s argues that the convenience stores were very small part of the overall operation of the campsite services. It also says was never told by Compass about any cost-cutting directive from Suncor and was never given an opportunity to participate in any cost-cutting plans or proposals.

[16] Among other things, Nicholby’s relies on Compass’ Code of Conduct, which Compass had required Nicholby’s to execute and to agree to be bound by.

[17] That Code of Conduct contains specific provisions requiring both parties to conduct business at the highest ethical level dominated by honesty, fairness, open dialogue, transparency, trust and an obligation to work in support of each other.

[18] Nicholby’s argues that Compass therefore had an obligation to respect and adhere to its own Code of Conduct with all of its suppliers and contractors and failed to do so in its dealings with Nicholby’s. It argues that the application of this obligation has a bearing on the just outcome of this action and a trial is required to determine its application and scope and whether Compass breached its obligations to Nicholby’s in these circumstances.

[19] Nicholby’s also submits that after termination of the agreements Compass replaced Nicholby’s as operator of the convenience stores in some of the locations and the operation of convenience stores then continued virtually unchanged except that Compass reaped the financial benefit. It takes the position that this represents a further breach of the Code of Conduct, the franchise agreements, and the applicable legislation regulating dealings between franchisees and franchisors.

[20] The issue on this motion is whether Nicholby’s has raised genuine issues requiring a trial to determine the claims advanced by it.

[21] Rule 20 of the Rules of Civil Procedure provides that the court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.

[22] This summary judgment rule is to be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims (see: Hryniak v. Mauldin, 2014 SCC 7).

[23] Nicholby’s maintains that the evidence on the motion raises several triable issues, including:

(a) Whether the Termination Notice was lawfully exercised where Compass continued operations without material change or alteration;

(b) Whether Compass was in breach of the Non-Competition provisions contained in paragraphs 1 1. l and 11.2 of the Franchise Agreements in its continued operation of the franchise locations upon termination ;

(c) Whether Compass had an obligation to advise Nicholby's with respect to the overall cost cutting concerns of Suncor with respect to both franchise locations;

(d) Whether Suncor would have delivered a Notice of Termination had it been fully aware of all of the financial considerations, including a “Summit Power Point” presented in April 2015;

(e) Whether Compass had an obligation to provide Suncor with all relevant financial information prior to delivering the termination notices;

(f) Whether Compass was obligated to forward to Suncor the reports provided by Nicholby's to Compass, including the “Summit Power Point” presentation, in order that Suncor make a fully informed decision regarding Nicholby's;

(g) Whether Compass was obligated to provide Nicholby's with the opportunity to adjust the royalty structure, and/or adjust the rebate structure;

(h) Whether Compass was obligated to provide Nicholby's with the opportunity to communicate directly with Suncor for the purpose of permitting Nichol by 's to maintain the franchise operations; and

(i) Whether Compass was obligated to negotiate with Nicholby’s to avoid any termination.

[24] With respect to the “non-branded” locations, Nicholby's says it has raised triable issues which include:

(a) Whether, in view of the background circumstances leading to these agreements, the timing of the notices of termination immediately following the Suncor terminations, the lack of any concerns raised by CNRL with respect to the operations, and the lack of any prior complaint delivered by Compass in connection with operation of these locations, Compass was in breach of its obligations under its agreements and the Compass Code of Conduct in terminating these agreements for no reason other than to appropriate for itself the benefit of the royalty payments and supplier rebates then enjoyed by Nicholby's; and

(b) Whether in such circumstances any obligations of good faith arise in the same manner as they would under applicable franchise law had formal franchise agreements been executed.

[25] Nicholby’s submits that, given the language of agreements between the parties and the incorporation of the Code of Conduct into the “non-branded” agreements as well as the requirement to negotiate in good faith upon receiving notice of material change, the parties clearly understood and committed to each other to negotiate in good faith. It was therefore not open to Compass to arbitrarily terminate the “non-branded” agreements.

[26] Nicholby's also argues that there is a triable issue as to whether Compass intentionally interfered with Nicholby's economic interests in its dealings with Suncor and CNRL.

[27] There is little dispute that the termination of the agreements following the recommendation by Compass to Suncor to do so caused loss to Nicholby's. Nicholby’s argues that there is a triable issue as to whether Compass misled Suncor and whether Compass did so in order to benefit from a renewal of its contract with Suncor, to take over the Nicholby's locations to its own financial advantage, or both.

[28] To the extent Compass asserts that it had expressed concerns to Nicholby’s about its operations prior to the termination, such assertions are denied by Nicholby’s.

[29] Many of the triable issues raised by Nicholby’s are relevant to the more comprehensive issue of whether it was “thrown under the bus” by Compass in furtherance of Compass’ desire to maintain its business relationships with Suncor and CNRL and the very advantageous financial profit margin it enjoyed as a result and whether the law and the agreements and its own Code of Conduct permitted it to do so.

[30] It may be that, following a trial, it will be determinated that the strict language of the agreement concerning rights to terminations will prevail, and that such rights may be exercised freely with no breach and without any requirements for compensation to Nicholby’s. However, I consider that Nicholby’s has raised genuine issues that require a trial. Justice would not be served by attempting to determine these complex factual and legal issues on a paper record.

[31] As a result of the above, I agree with Nicholby’s that it has raised genuine issues that will require a trial to determine. Further, these are not of a nature that would make any form of “mini-trial” or adjudication short of a full trial appropriate.

[32] The motion is therefore dismissed.

[33] The parties have agreed on costs to the successful party on a partial indemnity scale and fixed at $75,000.00 all-inclusive. Compass shall pay that amount to Nicholby’s within 30 days of the date of this decision.

Stewart J.

Date: June 11, 2019