COURT FILE NO. CV-19-00625230-0000
DATE: 20210531
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
COFFEE TIME DONUTS INCORPORATED
Plaintiff
– and –
2197938 ONTARIO INC. and TIRATH SINGH GILL
Defendants
James Quigley, lawyer for the Plaintiff
Ranbir S. Mann, lawyer for the Defendants,
HEARD: April 14, 2021
REASONS FOR DECISION
G. DOW, J.
[1] The plaintiff, Coffee Time Donuts Incorporated, (“Coffee Time”) seeks summary judgment from the defendants, 2197938 Ontario Inc. and Tirath Singh Gill for unpaid royalties on product used and advertising expenses incurred after February 16, 2016 until January 25, 2021. This latter date is when the business relationship between the parties was terminated on consent and confirmed in the Order of Justice J. Diamond.
[2] The defendants opposed the relief sought on the basis all or portions of the claim are beyond the time permitted under operation of the Limitations Act, R.S.O. 2002 c. 24, Schedule B and that credibility issues by way of untested affidavit evidence make this matter unsuitable for summary judgment.
Background
[3] The parties entered into a franchise agreement on July 31, 2009 which set out all the terms including:
a) the agreement expired after five years or July 31, 2014 without provision for renewal (clauses 1.01(h) and 2.02);
b) the defendant, Tirath Singh Gill signed a personal guarantee for any amounts owed by the defendant corporation and such guarantee was not discharged by any amendment or alteration of the franchise agreement (clauses 13.01(c)(iii) and (l));
c) the defendants would pay 2% of its gross sales to the plaintiff as part of its contribution to the advertising of the brand by the franchisor (clause 4.07(c));
d) the defendants agreed to pay 5% of its gross sales in exchange for supply of the franchisor’s products (clause 7.02);
e) the agreement contained an entire agreement clause (clause 14.06);
f) interest on overdue payments was subject to 24% per year interest (clause 7.04);
g) termination was defined to include expiry of the agreement as well as the franchisor exercising its rights to terminate the agreement as the result of an event of default (clause 9.01);
h) termination did not release the defendants of any of its obligations accrued under the agreement (clause 9.02); and
i) events of default were defined to include failure to pay any money required when due (clause 8.02(b)).
[4] The agreement expired July 31, 2014. However, the defendants remained in operation and paying the royalties as if the agreement continued. The payments stopped February 16, 2016 while the use of the franchisor name and suppliers continued. The plaintiff has quantified the loss to be $90,283.84 plus interest to January 25, 2021 of $117,860.98 for total of $208,144.82.
Analysis
[5] The claims rise (or fall) on whether the terms or franchise agreement supersede its expiry on July 31, 2014. Despite counsel submitting our courts commonly have found implied agreements to be enforceable, I was not directed to any specific decision on point. Instead, the plaintiff relied on well known Court of Appeal statements that commercial contracts be:
a) given meaning in a manner that considers the agreement as a whole and avoids rendering one or more terms ineffective;
b) determined in accordance with the intention of the parties and the language used;
c) determined in a manner giving preference to the objective evidence over any subjective intentions, particularly where there is an ambiguity; and
d) enforced in accord with good business sense and avoid commercial absurdity (see Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205 at paragraph 24).
[6] Counsel for the defendants offered no alternative to this approach. As indicated, it sought to move the matter forward by having credibility issues determined. However, it did not cross-examine on any of the evidence put forward by the plaintiff but only tendered its own evidence of a belief the benefit of operating as a Coffee Time franchise and using the franchisor supplier was free and payments made between July 31, 2014 and February 16, 2016 were made “out of courtesy”. This flies in the face of commercial realities and the approach mandated by Hryniak v. Mauldin, 2014 SCC 7 to determine if there is a genuine issue for trial. The often cited phrase of “putting one’s best foot forward” is appropriate.
[7] In these circumstances, I am prepared to adopt the terms of the expired franchise agreement as effective until January 25, 2021 on the basis the entirety of the agreement was being followed by the parties for almost 19 months following its expiry.
[8] The next issue to address is whether the Statement of Claim, issued August 9, 2019, captures the plaintiff’s claims after February 16, 2016 and until August 9, 2017. That is, the period of time more than two years after the payments fell due and remains unpaid.
[9] Counsel for the plaintiff relied on a variety of decisions in support of its position in the entirety of the claim is within any applicable limitation period. However on careful review, this was reduced to only a belief by the plaintiff that the defendants would eventually pay and that time only began to run when it realized the defendants were not going to pay.
[10] I would distinguish the decision of Bank of Nova Scotia v. Mazin, 2010 ONSC 5827 (Div. Ct.) which was a credit card debt with the agreement providing for the holder to continue use of the card after a breach of the term to make the minimum monthly payment.
[11] The other decisions, such as, 407 ETR Concession Co. v. Day 2016 ONCA 709 are also different in that non judicial remedies existed which could delay the discovery of the claim and a proceeding being an appropriate remedy in order to seek recovery. I have concluded the expired terms of the franchise agreement ought to apply to be in accordance with sound commercial principles. That agreement provided for an act of default to have occurred when the franchisee failed “to pay, when due, any monies required to be paid”. The plaintiff clearly had discovered its claim shortly after non payments began to occur after February 16, 2016. As a result, I conclude the portion of the claims between February 16, 2016 to August 9, 2017 are beyond the applicable two year limitation period and are dismissed.
Conclusion
[12] The plaintiff is entitled to judgment of the amounts billed from August 9, 2017 to January 25, 2021. I also award the 24% per year interest (or 2% per month) due as contained in the expired franchise agreement.
[13] Counsel were unable to provide me with that amount. Should they not be able to agree on same (and I urge them to do so), they may make written submissions to me, not to exceed than five typewritten pages, double spaced in a readable font setting out their positions within 30 days of the release of these Reasons.
[14] Similarly, if the parties cannot agree on costs, (which I again urge them to do), they shall forward to me their Costs Outlines and written submissions, again not to exceed five typewritten pages, double spaced in a readable font setting out their position within the same 30 days of the release date of these Reasons.
_____________________________ Mr. Justice G. Dow
Released: May 31, 2021
COURT FILE NO. CV-19-00625230-0000
DATE: 20210531
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
COFFEE TIME DONUTS INCORPORATED
Plaintiff
– and –
2197938 ONTARIO INC. and TIRATH SINGH GILL
Defendants
REASONS FOR DECISION
Mr. Justice G. Dow
Released: May 31, 2021