2176693 Ontario Ltd. et al. v. Cora Franchise Group Inc., 2015 ONCA 152

• Judge: Epstein, van Rensburg and Benotto, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: September 24, 2014
• Jurisdiction: Ontario
• Citations: 2015 ONCA 152;(2015), 330 O.A.C. 271 (CA)

2176693 Ont. v. Cora Franchise Group (2015), 330 O.A.C. 271 (CA)

MLB headnote and full text

Temp. Cite: [2015] O.A.C. TBEd. MR.016

2176693 Ontario Ltd. and 2130679 Ontario Inc. (applicants/respondents) v. The Cora Franchise Group Inc. (respondent/appellant)

(C58420; 2015 ONCA 152)

Indexed As: 2176693 Ontario Ltd. et al. v. Cora Franchise Group Inc.

Ontario Court of Appeal

Epstein, van Rensburg and Benotto, JJ.A.

March 12, 2015.

Summary:

The Ontario Superior Court, in a decision reported as 2014 ONSC 600, granted an order on application by two corporate franchisees of "Cora" restaurants, declaring void and unenforceable a clause in their franchise agreements requiring delivery of a release as a condition of the franchisees' assignment of their franchise agreements. The franchisor appealed. The main issue was whether the impugned clause, while unenforceable with respect to claims under the Arthur Wishart Act (Franchise Disclosure) ("AWA"), should nonetheless be enforced in part.

The Ontario Court of Appeal dismissed the appeal. "[T]he impugned clause in the franchise agreement is not voided by s. 11 of the AWA, but rather it is unenforceable, as enforcement would result in a release which would be void by virtue of s. 11. In all the circumstances of this case and in light of the purpose of s. 11 and the other provisions of the AWA, the impugned clause should not be notionally severed and enforced in part to require the delivery of a release of non-AWA claims by the franchisee as a condition of the franchisor's consent to an assignment."

Contracts - Topic 1806

Severable agreements - Circumstances when contract will be severed - The Ontario Court of Appeal, in the context of franchise agreements, considered the general principles of severance - See paragraphs 35 to 39.

Contracts - Topic 1806

Severable agreements - Circumstances when contract will be severed - [See fifth Franchises - Topic 7 ].

Contracts - Topic 5603

Unenforceable contracts - Unenforceable contract defined - [See third Franchises - Topic 7 ].

Franchises - Topic 7

General - Waiver or release of right under legislation - This appeal involved the interpretation of a "general release" clause (s. 22.6.4) in two franchise agreements, in light of s. 11 of Ontario's Arthur Wishart Act (Franchise Disclosure) ("AWA") - The Ontario Court of Appeal, in considering the standard of review, stated that "both the interpretation of s. 22.6.4 and the issue of whether that section of the contract is entirely unenforceable or can be severed, raise questions of mixed fact and law. They involve an assessment of the words of the contract, considered in light of the context and the broader policy objectives of the AWA. The decision of the application judge is therefore reviewable on the standard of palpable and overriding error." - See paragraphs 21 and 22.

Franchises - Topic 7

General - Waiver or release of right under legislation - Section 11 of Ontario's Arthur Wishart Act (Franchise Disclosure) ("AWA") provided that "[a]ny purported waiver or release by a franchisee of a right given under this Act ... is void" - The appellant franchisor asserted that the application judge erred in concluding that the impugned clause of the franchise agreements contravened s. 11, and was therefore unenforceable - The clause, by its terms, required the respondent franchisees, as a condition of the respondents' assignment of their franchise agreements, to provide a general release of any claims against the franchisor - The Ontario Court of Appeal held that s. 11 was clearly engaged - The Court rejected the appellant's argument that the words "in the form specified by the Franchisor" expressly allowed the franchisor to determine the scope of the release, including to make it compliant with the AWA - The Court similarly rejected the appellant's argument that, as it required only a release of common law claims from the respondents, s. 11 was not engaged - See paragraphs 23 to 27.

Franchises - Topic 7

General - Waiver or release of right under legislation - Section 11 of Ontario's Arthur Wishart Act (Franchise Disclosure) ("AWA") provided that "[a]ny purported waiver or release by a franchisee of a right given under this Act ... is void" - This appeal involved the interpretation of a "general release" clause (s. 22.6.4) in two franchise agreements, in light of s. 11 - The application judge had concluded that the requirement to provide a general release was both void and unenforceable - The Ontario Court of Appeal held that s. 11 did not render the impugned clause void; rather the obligation imposed by the clause, and that the appellant franchisor sought to enforce, was unenforceable - "On its plain language, this provision operates to void the release or waiver itself, and not the provisions of a contract requiring such a release to be provided. Section 22.6.4 of the franchise agreement is not itself a release of a right under the AWA - it simply requires that such a release be provided in the event of an assignment of the franchise by the franchisee. Section 11 therefore does not operate so as to void the impugned clause from the outset. A void provision would result where ... the contract contains an explicit waiver of rights where the waiver is prohibited by statute." - See paragraphs 28 and 29.

Franchises - Topic 7

General - Waiver or release of right under legislation - The issue in this appeal was whether clause 22.6.4 of the franchise agreement that required the provision of a general release of all claims was unenforceable as contrary to s. 11 of Ontario's Arthur Wishart Act (Franchise Disclosure) ("AWA") - The Ontario Court of Appeal stated that "[o]nce it is recognized that s. 22.6.4 requires the franchisee, in order to exercise certain rights under the franchise agreement, to provide a general release of all claims (and not just such claims as the franchisor may specify), then it is unenforceable as requiring the performance of something that would contravene s. 11 of the AWA. It is acknowledged that the clause cannot be enforced to require a release of AWA claims. The question is then whether the court should read down the requirement to compel only the performance of something that would be legal, i.e.: a release, but not of AWA claims. This engages the doctrine of severance." - See paragraph 31.

Franchises - Topic 7

General - Waiver or release of right under legislation - The Ontario Court of Appeal interpreted the rights and obligations of franchisors and franchisees under the Arthur Wishart Act (Franchise Disclosure) ("AWA"), in the context of the franchisor's consent to an assignment of a franchise agreement to a third party - The Court held that the impugned clause (s. 22.6.4) of the agreement that required a general release of all claims was unenforceable as contrary to s. 11 of the AWA - The application judge did not err when she held that the clause could not be severed or read down and enforced only to the extent it was not in conflict with s. 11 - "[Section] 22.6.4 should not be read down to permit the appellant [franchisor] to require a release of only non-AWA claims. The blue pencil approach does not apply in the circumstances, because there is no phrase in s. 22.6.4 that could be struck to enable the clause to require a release of only non-AWA claims. The clause should not be notionally severed given that severance would undermine the purposes of the AWA. ... The potential for some windfall to the respondents [franchisees] in this particular case does not outweigh the potential for abuse and subversion of the purposes of s. 11 of the AWA if severance were permitted." - See paragraphs 39 to 62.

Franchises - Topic 7010

Transfer of franchises - General - Consent of franchisor - [See fifth Franchises - Topic 7 ].

Cases Noticed:

405341 Ontario Ltd. v. Midas Canada Inc. (2010), 264 O.A.C. 111; 322 D.L.R.(4th) 177; 2010 ONCA 478, refd to. [para. 14]; consd. [paras. 40 et seq.].

Seidel v. Telus Communications Inc., [2011] 1 S.C.R. 531; 412 N.R. 195; 301 B.C.A.C. 1; 510 W.A.C. 1; 2011 SCC 15, refd to. [para. 15]; dist. [paras. 63 et seq.].

KRG Insurance Brokers (Western) Inc. v. Shafron et al., [2009] 1 S.C.R. 157; 383 N.R. 217; 265 B.C.A.C. 1; 446 W.A.C. 1; 2009 SCC 6, refd to. [para. 16].

Creston Moly Corp. v. Sattva Capital Corp. (2014), 461 N.R. 335; 358 B.C.A.C. 1; 614 W.A.C. 1; 373 D.L.R.(4th) 393; 2014 SCC 53, refd to. [para. 21].

Transport North American Express Inc. v. New Solutions Financial Corp., [2004] 1 S.C.R. 249; 316 N.R. 84; 183 O.A.C. 342; 2004 SCC 7, refd to. [para. 35].

Shelanu Inc. v. Print Three Franchising Corp. (2003), 172 O.A.C. 78; 64 O.R.(3d) 533 (C.A.), refd to. [para. 38].

Statutes Noticed:

Arthur Wishart Act (Franchise Disclosure), S.O. 2000, c. 3, sect. 11 [para. 7].

Authors and Works Noticed:

Hall, Geoff R., Canadian Contractual Interpretation Law (2nd Ed. 2012), p. 194 [para. 38].

Counsel:

Geoffrey B. Shaw and Derek Ronde, for the appellant;

Darren Smith, for the respondents.

This appeal was heard on September 24, 2014, before Epstein, van Rensburg and Benotto, JJ.A., of the Ontario Court of Appeal. In reasons written by van Rensburg, J.A., the Court delivered the following judgment, released on March 12, 2015.