Franchise Law - SCJ

This decision addresses a costs award following the dismissal of a franchisee class action against Pet Valu Canada Inc. The court awarded costs to the defendant on a partial indemnity basis, adjusting senior counsel's hourly rate to align with the Grid.

The defendant's motion to hold a non-party, Robert Rodger (the plaintiff company's sole shareholder), jointly and severally liable for these costs was dismissed.

The court found that the defendant failed to satisfy the three-step test for non-party costs, specifically by not demonstrating that the plaintiff company was a "man of straw" or a sham.

The plaintiff was awarded $10,000 in costs for successfully defending the non-party liability motion, which was deducted from the defendant's overall award.

The plaintiffs sued their former lawyers for solicitor's negligence, alleging they missed a limitation period in a prior action against Mitsubishi, thereby losing the opportunity to appeal on the merits of misrepresentation, negligence, and Arthur Wishart Act claims.

The defendant law firm moved for partial summary judgment to dismiss the misrepresentation component of the damages claim, arguing that the original motion judge's finding of no misrepresentations was not appealed.

The court granted the motion, finding that the plaintiffs' Notice of Appeal did not challenge the motion judge's findings on common law or statutory misrepresentation, thus no "lost opportunity" existed for this specific claim.

Costs were deemed a wash due to the defendants' initial broader motion.

The plaintiff franchisor sought an interlocutory injunction against a former franchisee, Gregory Boundris, and related entities (D.B.V. Co. Ltd., Sub Works Inc., and Haralabbi Boundris), alleging breach of a restrictive covenant in a franchise agreement.

The former franchisee had opened a competing sandwich shop, "Sub Works," at the same location shortly after his Mr. Sub franchise agreement terminated.

The court applied the "strong prima facie case" standard for the injunction, finding it would effectively be a final determination.

The court granted the injunction against Gregory Boundris due to his admitted involvement in the competing business, but dismissed the motion against the other defendants, finding insufficient evidence to establish a strong prima facie case or irreparable harm against them.

The defendants moved to set aside service ex juris, dismiss for want of jurisdiction, or stay the action on the basis of forum non conveniens in a franchise dispute.

The plaintiffs sought a declaration of valid rescission of Saab Dealer Sales and Service Agreements under the Arthur Wishart Act (Ontario) and Alberta Franchises Act, and damages for statutory misrepresentation or breach of contract.

The court found a real and substantial connection to Ontario because the defendant franchisor carried on active business in the province.

The court also determined that California was not a clearly more appropriate forum, considering factors such as the residence of plaintiffs, location of witnesses, governing law, and the avoidance of proving Ontario law in a foreign jurisdiction.

The motion was dismissed.

A motion was brought to set aside a registrar's order dismissing an action for delay, which was prematurely issued due to a court staff error.

The court found the registrar lacked authority to issue the dismissal order, rendering it a nullity.

Despite some delay attributable to former counsel's inadvertence and the plaintiffs' initial inaction, the court emphasized the policy bias towards hearing cases on their merits.

The defendant's claims of prejudice were not substantiated or causally linked to the plaintiffs' delay, and their passivity in addressing the dismissal order undermined their position.

The motion was granted, setting aside the dismissal order and reinstating the action with new deadlines for mediation and setting down for trial.

The plaintiff and defendant entered into agreements characterized by the defendant as a training and brokerage license agreement.

The plaintiff paid a $29,500 fee.

After the defendant terminated the agreement, the plaintiff sought rescission and damages under the Arthur Wishart Act, arguing the relationship was a franchise.

The court found that the arrangement met the statutory definition of a franchise, as the fee was a condition of entering the relationship, the business was associated with the defendant's trademarks, and the defendant exercised significant control.

The court granted summary judgment for the plaintiff, awarding $99,835 in damages.

The defendant brought a motion for an order requiring the corporate plaintiff to post security for costs.

The corporate plaintiff resisted, claiming impecuniosity and that its claim was not devoid of merit.

The court found that the corporate plaintiff failed to meet the high evidentiary burden to establish impecuniosity, as it did not provide complete financial disclosure.

Furthermore, the court determined that the corporate plaintiff did not have a good chance of success on the merits of its claims regarding uncompetitive pricing and alleged threats by the defendant.

The motion was granted, and the corporate plaintiff was ordered to post $40,000 in security for costs.

The franchisor (moving party) brought a motion to hold the former franchisees (responding parties) in civil contempt for breaching an interlocutory injunction that required them to immediately shut down their home care businesses.

The court found that while the franchisor's own confusing communications mitigated some of the franchisees' conduct, the franchisees deliberately violated the order by sending communications to caregivers and customers stating their intention to remain in business.

The court held the corporate franchisees and their individual operating minds in civil contempt, reserving the penalty to a future hearing.

The defendants brought a motion for summary judgment seeking to dismiss the plaintiffs' claim for rent arrears and for judgment on their counterclaim for rescission of a franchise agreement.

One of the defendants made an assignment in bankruptcy before the statement of defence and counterclaim was issued.

The court found that the counterclaim vested in the trustee in bankruptcy under section 71 of the Bankruptcy and Insolvency Act, rendering the statement of defence and counterclaim a nullity.

The court declined to cure the nullity, noting the bankrupt defendant had intentionally destroyed business records.

The motion for summary judgment was dismissed.

A franchisor sought an interlocutory injunction restraining former franchisees from breaching post‑termination obligations and effectively continuing operations, while the franchisees sought an injunction preventing termination of their businesses.

Applying the interlocutory injunction test, the court found a serious issue to be tried and concluded the franchisor had a strong prima facie case that the franchisees breached contractual prohibitions against common ownership and multiple franchise interests.

Both parties demonstrated potential irreparable harm, but the court held the franchisor’s harm to goodwill, reputation, and system integrity—combined with the franchisees’ inability to satisfy damages—tipped the balance of convenience.

The court emphasized the franchisor’s duty to maintain the integrity of its system under franchise legislation and the risk posed by a rogue franchisee operating contrary to contractual obligations.

The defendants moved to set aside a default judgment obtained in a franchise dispute concerning exclusive rights to market a restaurant concept in British Columbia.

They argued the statement of claim had not been properly served and that the affidavits of service from the process server were unreliable.

The court found the alleged service on both the corporate defendant and its director did not comply with the Rules of Civil Procedure and accepted evidence that the individuals said to have received the documents were not authorized agents or members of the household.

The court held that improper service rendered the judgment irregular and that the defendants also satisfied the discretionary factors for relief, including prompt action, a plausible explanation for default, and arguable defences on the merits.

The default judgment and noting in default were therefore set aside.

The franchisor defendants brought a motion for summary judgment seeking dismissal of a franchisee action and judgment on a counterclaim following termination of four franchise agreements without notice.

The franchisees alleged breaches including failure to provide notice and violation of the duty of fair dealing under the Arthur Wishart Act.

The court held the terminations were justified due to substantial defaults amounting to acts of bankruptcy and rejected arguments based on estoppel and statutory good faith.

The plaintiffs also failed to produce basic financial documentation capable of proving lost profits, rendering their damages claim unsustainable.

Summary judgment was granted dismissing the action, while the counterclaim was left for trial due to disputed facts.

Franchisee applicants sought declarations that their franchise agreements had been terminated due to fundamental breaches by the franchisor entities and that restrictive covenants were unenforceable.

The applicants alleged the franchisor failed to maintain the franchise system, including advertising, training, approved suppliers, branded materials, and operational support.

The court held these failures constituted fundamental breaches terminating the franchise agreements.

As a result, the non‑competition clauses were declared void, and the court ordered the waiver of landlord consent requirements to permit assignment of certain commercial leases under s. 23 of the Commercial Tenancies Act.

Costs of $20,000 on a partial indemnity basis were awarded to the applicants.

The applicant franchisor sought to enforce a restrictive covenant against a former franchisee who continued to operate a similar home medical equipment business at the same location after the franchise agreement expired.

The respondents argued the covenant was unenforceable due to a failure to provide a disclosure document under the Arthur Wishart Act and that the covenant was an unreasonable restraint of trade.

The court found that disclosure was not required because the franchisor was not sufficiently involved in the sale of the franchise.

The court also held that the restrictive covenant was unambiguous, reasonable in its 18-month and 30-mile scope, and protected the franchisor's legitimate business interests.

The application was granted and the respondents were ordered to cease operating the competing business.

The defendant moved to dismiss the plaintiffs' 2003 franchise dispute action for delay under Rule 24.01(1)(e), and the plaintiffs brought a cross-motion to restore the action to the trial list.

The court found a period of inordinate and unexplained delay, largely attributable to the plaintiffs' former counsel's neglect.

However, the court also found that the delay caused actual prejudice to the defendant, as key executives involved in the franchise negotiations had left the company during the delay period, creating a substantial risk that a fair trial was no longer possible.

The defendant's motion was granted and the action was dismissed.

On motions to strike in a franchise dispute arising from the post-bankruptcy restructuring of an automotive manufacturer, the court dismissed the entire claim against the U.S. parent entities and struck discrete allegations against the Canadian franchisor.

The court held that a franchisor’s associate is not liable under s. 3 of the Arthur Wishart Act unless it is also a party to the relevant franchise agreement, and further found the pleadings did not satisfy the statutory definition of franchisor’s associate.

The court also held that the pleadings did not justify piercing the corporate veil to impose contractual liability on the parent companies.

Allegations concerning misuse of government bailout funds and the defendants’ preference of their own interests were struck as irrelevant, scandalous, and abusive.

Leave to amend was refused.

The applicants, former franchisees of a Baton Rouge restaurant, brought an application seeking declarations that a non-competition clause in their franchise agreement was void and unenforceable as an unreasonable restraint of trade or for ambiguity.

They also sought a declaration that their proposed new restaurant menu did not violate the clause, and claimed damages for breach of the duty of fair dealing under the Arthur Wishart Act.

The court dismissed the application, finding the 5-year, 10-kilometre restrictive covenant to be reasonable and unambiguous given its narrow scope, which only prohibited selling products using the franchisor's recipes.

The court declined to rule on the proposed menu without evidence of the actual recipes and found no evidence of bad faith by the franchisor.

The applicant brought an application to enforce a settlement agreement for the transfer of shares in a company holding Tim Hortons franchise licenses.

The respondent estate trustee refused to sign the closing documents, arguing her former solicitor lacked authority to agree to the $10,000 purchase price and that essential terms were missing.

The court found that the solicitor had apparent authority to negotiate the agreement and that a binding contract was formed.

The court declined to set aside the agreement, noting the $10,000 price was commercially reasonable given the franchisor's valuation of the business and outstanding debts.

The application was granted and the respondent was ordered to execute the transfer.

In a franchise disclosure action, the plaintiffs moved to enforce an agreed timetable for a pending summary judgment motion, while the defendants cross-moved for production of an affidavit of documents before being required to respond.

The court held that, following the 2010 amendments to the Rules of Civil Procedure, there was no automatic entitlement to an affidavit of documents after the close of pleadings and no right to compel one in the absence of a discovery plan.

Applying the modern summary judgment approach endorsed in Hryniak, the court found that responding parties retained adequate procedural tools to obtain relevant evidence without defaulting to conventional documentary discovery.

The plaintiffs' motion to enforce the timetable was granted with revised dates, and the defendants' cross-motion was dismissed.

The defendants moved to dismiss a multi-plaintiff action brought by Saab dealers in five provinces, arguing Ontario lacked jurisdiction or was not the convenient forum.

The court held that the Canadian distributor carried on business in Ontario and throughout the provinces where it established dealers, and that the claims arose from the same series of transactions and common issues concerning the failure of a national dealer network.

Applying the Van Breda connecting factors, the court found jurisdiction simpliciter in Ontario for all claims, upheld joinder of all plaintiffs and defendants, and concluded Ontario was the most convenient Canadian forum.

The motion was dismissed and the plaintiffs were awarded substantial indemnity costs because the motion was found patently meritless and pursued in an abusive, wasteful manner.