Elliott et al. v. Trane Canada Inc., (2008) 333 N.B.R.(2d) 1 (TD)

• Judge: Glennie, J.
• Court: Court of Queen's Bench of New Brunswick (Canada)
• Case Date: February 02, 2007
• Jurisdiction: New Brunswick
• Citations: (2008), 333 N.B.R.(2d) 1 (TD);2008 NBQB 79

Elliott v. Trane Can. Inc. (2008), 333 N.B.R.(2d) 1 (TD);

    333 R.N.-B.(2e) 1; 855 A.P.R. 1

MLB headnote and full text

Sommaire et texte intégral

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

.........................

Temp. Cite: [2008] N.B.R.(2d) TBEd. MR.003

Renvoi temp.: [2008] N.B.R.(2d) TBEd. MR.003

Kenneth C. Elliott and K.C. Elliott Limited (plaintiffs) v. Trane Canada Inc. (Formerly Trane Company of Canada Limited), Wabco Standard Trane Co., and Wabco Standard Trane Inc. (defendants)

(S/C/664/03; S/C/915/03; 2008 NBQB 79; 2008 NBBR 79)

Indexed As: Elliott et al. v. Trane Canada Inc.

Répertorié: Elliott et al. v. Trane Canada Inc.

New Brunswick Court of Queen's Bench

Trial Division

Judicial District of Saint John

Glennie, J.

February 27, 2008.

Summary:

Résumé:

In 1975, Elliott entered into a Territorial Franchise Agreement with the defendants. The Franchise Agreement gave Elliott the right to sell the defendants' products for commercial applications in New Brunswick, Prince Edward Island, and a portion of Nova Scotia. The Franchise Agreement provided, inter alia, that it could be cancelled by either party upon 30 days' written notice to the other. Elliott incorporated a company and assigned its franchisee rights to it. In mid-2001 the defendants became aware of customer complaints concerning the company's service, as well as incomplete jobs and the inappropriate use of cheques payable to the defendants. Consequently, on October 17, 2001, the defendants cancelled the Franchise Agreement with the effective date of termination being November 17, 2001. Elliott and the company sued the defendants. The first action was with respect to amounts alleged to be owed for commissions on sales prior to the cancellation of the Franchise Agreement. The second and larger action claimed that the defendants should pay the company for the loss of present and future profits and the value of its service business when the Franchise Agreement was cancelled. The defendants counterclaimed, seeking damages for breach of contract and special damages for legal fees, expenses and liabilities incurred by them "as a result of the negligence and breach of contract" by Elliott and the company.

The New Brunswick Court of Queen's Bench, Trial Division, dismissed the actions and allowed the counterclaim in part.

Contracts - Topic 5

General principles - What constitutes a distributorship agreement - In 1975, Elliott entered into a Territorial Franchise Agreement with the defendants - The Franchise Agreement gave Elliott the right to sell the defendants' products for commercial applications in New Brunswick, Prince Edward Island, and a portion of Nova Scotia - Under the Franchise Agreement, a franchise holder would forward orders to the defendants for the purchase of equipment and the defendants would accept or reject the order - The franchisee holder would receive a commission for an accepted order immediately and the defendants would invoice the customer - The franchise holder was not permitted to contract on behalf of the defendants and a contract entered into without the defendants' agreement would constitute a breach of the Franchise Agreement - The New Brunswick Court of Queen's Bench, Trial Division, held that the relationship between Elliott and the defendants was not that of a franchisor-franchisee relationship - The relationship was that of a manufacturer and a distributor/sales agent - It was in effect a distributorship arrangement and the agreement governing their relationship was effectively a distributorship agreement - See paragraphs 102 to 106.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - [See first Contracts - Topic 4509 ].

Contracts - Topic 4509

Discharge and termination - General - Franchise and distributorship agreements - In 1975, Elliott entered into a Territorial Franchise Agreement with the defendants - The Franchise Agreement gave Elliott the right to sell the defendants' products for commercial applications in New Brunswick, Prince Edward Island, and a portion of Nova Scotia - The Franchise Agreement provided, inter alia, that it could be cancelled by either party upon 30 days' written notice to the other - Elliott incorporated a company and assigned its franchisee rights to it - In mid-2001 the defendants became aware of customer complaints concerning the company's service, as well as incomplete jobs and the inappropriate use of cheques payable to the defendants - Consequently, on October 17, 2001, the defendants cancelled the Franchise Agreement with the effective date of termination being November 17, 2001 - Elliott and the company sued, asserting that the defendants breached the contract, the duty of good faith and fair dealing - The New Brunswick Court of Queen's Bench, Trial Division, dismissed the action - It was obviously an implied term to any commercial contract that the parties act towards each other in good faith with respect to their individual covenants and obligations - There was no dispute that the defendants gave 30 days' written notice as required by the Franchise Agreement - There was no evidence of dishonesty, ill will, improper motive or other intentional conduct equivalent to fraud - The defendants did not trigger the default - Elliott and his company's conduct caused a breakdown of the mutual trust required for a distributorship agreement - See paragraphs 107 to 155.

Contracts - Topic 4509

Discharge and termination - General - Franchise and distributorship agreements - In 1975, Elliott entered into a Territorial Franchise Agreement with the defendants - The Franchise Agreement gave Elliott the right to sell the defendants' products for commercial applications in New Brunswick, Prince Edward Island, and a portion of Nova Scotia - The Franchise Agreement provided, inter alia, that it could be cancelled by either party upon 30 days' written notice to the other - Elliott incorporated a company and assigned its franchisee rights to it - In mid-2001 the defendants became aware of customer complaints concerning the company's service, as well as incomplete jobs and the inappropriate use of cheques payable to the defendants - Consequently, on October 17, 2001, the defendants cancelled the Franchise Agreement with the effective date of termination being November 17, 2001 - Elliott and the company sued, asserting that the defendants breached their fiduciary duty towards them - They asserted that the Franchise Agreement contained several provisions that illustrated a special relationship between the parties and that, over a 25 year history with the defendants, their mutual relationship evolved into one which was akin to a trust or quasi-trust relationship - The New Brunswick Court of Queen's Bench, Trial Division, dismissed the action - In the absence of exceptional circumstances, fiduciary duties did not arise in a manufacturer-dealer relationship or in a commercial context - The relationship which existed between the parties was an arm's length commercial agreement for the sale of materials as set forth in the Franchise Agreement wherein no fiduciary duties arose which would substantiate a breach of fiduciary duty claim - The parties both gained mutual benefits as a result of the relationship and, in the absence of exceptional circumstances, as in this case, a fiduciary relationship could not be found - See paragraphs 156 to 168.

Contracts - Topic 4509

Discharge and termination - General - Franchise and distributorship agreements - In 1975, Elliott entered into a Territorial Franchise Agreement with the defendants - The Franchise Agreement gave Elliott the right to sell the defendants' products for commercial applications in New Brunswick, Prince Edward Island, and a portion of Nova Scotia - The Franchise Agreement provided, inter alia, that it could be cancelled by either party upon 30 days' written notice to the other - Elliott incorporated a company and assigned its franchisee rights to it - In mid-2001 the defendants became aware of customer complaints concerning the company's service, as well as incomplete jobs and the inappropriate use of cheques payable to the defendants - Consequently, on October 17, 2001, the defendants cancelled the Franchise Agreement with the effective date of termination being November 17, 2001 - Elliott and the company sued, asserting that the defendants were unjustly enriched - They submitted that the termination of the Franchise Agreement deprived them of the economic benefits of future service contracts, which flowed as a natural and logical outcome of being a distributor - In addition, Elliott and the company argued that these future economic benefits had flowed to the defendants, and as a result, the defendants had been unjustly enriched to the economic detriment of Elliott and the company - The New Brunswick Court of Queen's Bench, Trial Division, dismissed the action - It was clear that the enrichment occurred for both parties by virtue of the tangible and intangible benefits existing when a company granted a dealership operation to an individual or company - However, the corresponding deprivation which was required did not exist - The franchise and territory was the property of the defendants and were subject to the terms of the Franchise Agreement - Accordingly, Elliott and the company were not deprived of any right or property over which they had an inherent and perpetual right - Finally, with respect to the third requirement, the absence of any juristic reason for the enrichment, there was no expectation of permanent benefits arising as a result of a contractual agreement between the parties - Elliott and the company were treated fairly throughout and there was no foundation for a finding of unjust enrichment - See paragraphs 169 to 183.

Contracts - Topic 4509

Discharge and termination - General - Franchise and distributorship agreements - In 1975, Elliott entered into a Territorial Franchise Agreement with the defendants - The Franchise Agreement gave Elliott the right to sell the defendants' products for commercial applications in New Brunswick, Prince Edward Island, and a portion of Nova Scotia - The Franchise Agreement provided, inter alia, that it could be cancelled by either party upon 30 days' written notice to the other - Elliott incorporated a company and assigned its franchisee rights to it - In mid-2001 the defendants became aware of customer complaints concerning the company's service, as well as incomplete jobs and the inappropriate use of cheques payable to the defendants - Consequently, on October 17, 2001, the defendants cancelled the Franchise Agreement with the effective date of termination being November 17, 2001 - Elliott and the company sued, asserting the contra proferentem rule - They asserted that if the defendants had intended either party to the Franchise Agreement to have a right to terminate the Franchise Agreement without cause, words to that effect should have been incorporated into the Franchise Agreement by the defendants - The New Brunswick Court of Queen's Bench, Trial Division, dismissed the action - The termination provisions contained in the Franchise Agreement admitted no ambiguity - The words were clear - The contra proferentem rule did not apply - See paragraphs 184 and 185.

Contracts - Topic 4509

Discharge and termination - General - Franchise and distributorship agreements - In 1975, Elliott entered into a Territorial Franchise Agreement with the defendants - The Franchise Agreement gave Elliott the right to sell the defendants' products for commercial applications in New Brunswick, Prince Edward Island, and a portion of Nova Scotia - The Franchise Agreement provided, inter alia, that it could be cancelled by either party upon 30 days' written notice to the other - Elliott incorporated a company and assigned its franchisee rights to it - In addition to the sale of the defendants' equipment, the company also operated a service division which provided repairs and maintenance to HVAC equipment - It started two new corporate divisions in 1996, namely a Controls Division and a Cooling Towers Division - It subsequently sustained cumulative operating losses with respect to these divisions - Elliott contended that the defendants intended to buy the service business as part of the defendants' corporate plan - When Elliott informed the defendants of his intention to retire and his desire to sell his business in August of 2000, the defendants offered to purchase the business for less than $100,000 - Elliott refused this offer and indicated that he intended to continue operating his company in hopes of increasing its value through improved operations - In mid-2001 the defendants became aware of customer complaints concerning the company's service, as well as incomplete jobs and the inappropriate use of cheques payable to the defendants - Consequently, the defendants cancelled the Franchise Agreement with the effective date of termination being November 17, 2001 - Elliott and the company sued, asserting that the defendants made representations which effectively resulted in Elliott and the company incurring losses in the controls division - They alleged that representations made with respect to succession planning and the investment in the business, including the controls division, amounted to negligent misrepresentations - The New Brunswick Court of Queen's Bench, Trial Division, dismissed the action - Elliott and the company were not induced into any new contract or arrangement as the result of the succession planning discussions or the decision to enter contracts - The test for negligent misrepresentation required four elements: an untrue statement; negligently made; in the context of a special relationship giving rise to a duty of care; and, the reliance which was foreseeable - None of these requirements were met - See paragraphs 186 to 203.

Contracts - Topic 4509

Discharge and termination - General - Franchise and distributorship agreements - In 1975, Elliott entered into a Territorial Franchise Agreement with the defendants - The Franchise Agreement gave Elliott the right to sell the defendants' products for commercial applications in New Brunswick, Prince Edward Island, and a portion of Nova Scotia - The Franchise Agreement provided, inter alia, that it could be cancelled by either party upon 30 days' written notice to the other - Elliott incorporated a company and assigned its franchisee rights to it - In mid-2001 the defendants became aware of customer complaints concerning the company's service, as well as incomplete jobs and the inappropriate use of cheques payable to the defendants - Consequently, on October 17, 2001, the defendants cancelled the Franchise Agreement with the effective date of termination being November 17, 2001 - Elliott and the company sued, asserting that the defendants interfered with their economic relations -The New Brunswick Court of Queen's Bench, Trial Division, dismissed the action - Elliott and the company failed to establish the primary, essential element of the tort namely that the termination of the Franchise Agreement was unlawful - The parties were clearly in an economic relationship and Elliott and the company had not established any unlawful conduct or conduct which was for the sole purpose of harming them - The customer complaints concerning the company's service, as well as incomplete jobs and the inappropriate use of cheques payable to the defendants created an intolerable situation requiring action to protect the defendants and the territory - There was a breakdown of the mutual trust required for a manufacturer/distributorship relationship to survive - Elliott and the company had further failed to establish existing or future contractual relations that have been interfered with - See paragraphs 204 to 212.

Contracts - Topic 7433

Interpretation - Ambiguity - Contra proferentem rule - [See fourth Contracts - Topic 4509 ].

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - [See second Contracts - Topic 4509 ].

Franchises - Topic 2001

Franchise agreement - General - What constitutes - [See Contracts - Topic 5 ].

Fraud and Misrepresentation - Topic 2508

Misrepresentation - General principles - Negligent misrepresentation - [See fifth Contracts - Topic 4509 ].

Restitution - Topic 62

Unjust enrichment - General - What constitutes - [See third Contracts - Topic 4509 ].

Restitution - Topic 66

Unjust enrichment - General - Conditions precedent - [See third Contracts - Topic 4509 ].

Torts - Topic 5201

Interference with economic relations - Contracts - General - [See sixth Contracts - Topic 4509 ].

Contrats - Cote 5

Principes généraux - En quoi consiste une convention de distribution - [Voir Contracts - Topic 5 ].

Contrats - Cote 3502

Exécution ou rupture - Obligation d'exécution - Exercice de bonne foi - [Voir Contracts - Topic 3502 ].

Contrats - Cote 4509

Décharge et résiliation - Généralités - Conventions de franchisage et de distribution - [Voir Contracts - Topic 4509 ].

Contrats - Cote 7433

Interprétation - Ambiguïté - Règle dite contra proferentem - [Voir Contracts - Topic 7433 ].

Délits civils - Cote 5201

Atteinte aux relations économiques - Contrats - Généralités - [Voir Torts - Topic 5201 ].

Equity - Cote 3607

Rapports fiduciaux ou de créance - Principes généraux - Rapports non fiduciaux - [Voir Equity - Topic 3607 ].

Franchises - Cote 2001

Convention de franchisage - Généralités - Éléments constitutifs - [Voir Franchises - Topic 2001 ].

Fraude et assertion inexacte - Cote 2508

Assertion inexacte - Principes généraux - Assertion inexacte négligente - [Voir Fraud and Misrepresentation - Topic 2508 ].

Restitution - Cote 62

Enrichissement sans cause - Généralités - Éléments constitutifs - [Voir Restitution - Topic 62 ].

Restitution - Cote 66

Enrichissement sans cause - Généralités - Conditions préalables - [Voir Restitution - Topic 66 ].

Cases Noticed:

Valley Equipment Ltd. et al. v. Deere (John) Ltd. (2000), 223 N.B.R.(2d) 264; 572 A.P.R. 264; 4 B.L.R.(3d) 282 (T.D.), consd. [para. 108].

Shelanu Inc. v. Print Three Franchising Corp. (2003), 172 O.A.C. 78; 64 O.R.(3d) 533 (C.A.), refd to. [para. 111].

Jirna Ltd. v. Mister Donut of Canada Ltd., [1975] 1 S.C.R. 2, refd to. [para. 113].

Country Style Food Services Inc. v. 1304271 Ontario Ltd. et al. (2005), 200 O.A.C. 172; 2005 CanLII 23214 (C.A.), refd to. [para. 115].

McKay's Dairy Ltd. v. Hayes, [1986] N.B.J. No. 460 (T.D.), refd to. [para. 116].

Esmail v. Petro Canada Ltd., [1995] O.J. No. 924 (Gen. Div.), refd to. [para. 117].

Riverside Cycle Ltd. v. Hazen et al. (1994), 93 Man.R.(2d) 182 (Q.B.), refd to. [para. 118].

Gateway Realty Ltd. v. Arton Holdings Ltd. and LaHave Developments Ltd. (1991), 106 N.S.R.(2d) 180; 288 A.P.R. 180 (T.D.), affd. (1992), 112 N.S.R.(2d) 180; 307 A.P.R. 180 (C.A.), refd to. [para. 119].

Crawford et al. v. Agricultural Development Board (N.B.) et al. (1997), 192 N.B.R.(2d) 68; 489 A.P.R. 68; 1997 CarswellNB 356 (C.A.), refd to. [para. 121].

Robson (George) Construction (Weston) Ltd. et al. v. Hamilton-Wentworth (Regional Municipality), [2001] O.T.C. Uned. 195; 53 O.R.(3d) 337 (Sup. Ct.), refd to. [para. 125].

MDS Health Group Ltd. v. King Street Medical Arts Centre Ltd. (1994), 12 B.L.R.(2d) 209 (Ont. Gen. Div.), refd to. [para. 125].

1193430 Ontario Inc. v. Boa-Franc Inc. (2005), 203 O.A.C. 320; 2005 CarswellOnt 5661 (C.A.), refd to. [para. 131].

McKinlay Motors Ltd. v. Honda Canada Inc. (1989), 80 Nfld. & P.E.I.R. 200; 249 A.P.R. 200; 1989 CarswellNfld 9 (Nfld. T.D.), refd to. [para. 148].

Hillis Oil and Sales Ltd. v. Wynn's Canada Ltd., [1986] 1 S.C.R. 57; 65 N.R. 23; 71 N.S.R.(2d) 353; 171 A.P.R. 353; 1986 CarswellNS 147, consd. [para. 152].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 158].

Hodgkinson v. Simms et al. (1994), 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1; 117 D.L.R.(4th) 161 (S.C.C.), refd to. [para. 159].

Hardware Agencies Ltd. v. Medeco Security Locks Canada (1995), 35 C.P.C.(3d) 297 (Ont. Gen. Div.), refd to. [para. 160].

Imperial Oil v. H.H.L. Fuels Ltd. et al. (2004), 283 N.B.R.(2d) 1; 740 A.P.R. 1; 2004 CarswellNB 487 (T.D.), affd. (2006), 294 N.B.R.(2d) 371; 765 A.P.R. 371; 2006 CarswellNB 5; 2006 NBCA 1, refd to. [para. 162].

Peter v. Beblow, [1993] 1 S.C.R. 980; 150 N.R. 1; 23 B.C.A.C. 81; 39 W.A.C. 81, refd to. [para. 171].

Taylor (S.A.) Building Ltd. v. Von Muenchhausen et al. (1995), 165 N.B.R.(2d) 219; 424 A.P.R. 219 (C.A.), refd to. [para. 172].

Tuzimek v. JRJ Holdings Ltd. et al. (1995), 169 N.B.R.(2d) 75; 434 A.P.R. 75 (C.A.), refd to. [para. 176].

Corbin v. Standard Life Assurance Co. et al. (1995), 167 N.B.R.(2d) 355; 427 A.P.R. 355; 1995 CanLII 3852 (C.A.), refd to. [para. 177].

Queen (D.J.) v. Cognos Inc. (1993), 147 N.R. 169; 60 O.A.C. 1; 1993 CanLII 146 (S.C.C.), refd to. [para. 188].

Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465 (H.L.), refd to. [para. 188].

Gauthier v. Canada (Attorney General) (2000), 225 N.B.R.(2d) 211; 578 A.P.R. 211 (C.A.), refd to. [para. 189].

Spencer et al. v. Villarroel et al. (1993), 137 N.B.R.(2d) 1; 351 A.P.R. 1; 1993 CarswellNB 431 (C.A.), refd to. [para. 194].

Central Trust Co. v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109, refd to. [para. 196].

Electrical Distributors Ltd. v. WCI Canada Inc. (1992), 112 N.S.R.(2d) 300; 307 A.P.R. 300 (C.A.), refd to. [para. 197].

Parkinson v. Health Sciences Centre (1996), 110 Man.R.(2d) 212; 118 W.A.C. 212 (C.A.), refd to. [para. 205].

Conversions by Vantasy Ltd. et al. v. General Motors of Canada Ltd. (2002), 167 Man.R.(2d) 47 (Q.B.), refd to. [para. 205].

671122 Ontario Ltd. v. Sagaz Industries Canada Inc. et al. (1998), 67 O.T.C. 22; 40 O.R.(3d) 229 (Gen. Div.), refd to. [para. 206].

Torquay Hotel Co. v. Cousins, [1969] 2 Ch. D. 106 (C.A.), refd to. [para. 207].

Dufferin Real Estate Ltd. v. Giralico, [1989] O.J. No. 1525 (S.C.), refd to. [para. 208].

Spencer v. Quadco Equipment Inc. et al. (2005), 286 N.B.R.(2d) 314; 748 A.P.R. 314 (T.D.), refd to. [para. 223].

Authors and Works Noticed:

Burns, Peter, Tort Injury to Economic Interests: Some Facets of Legal Response (1980), 58 Can. Bar Rev. 103, pp. 140, 141 [para. 209].

CCH Canada Ltd., Business Franchise Guide, p. 453 [para. 104].

Earle, Wendy J., Fiduciary Duties and the Franchise Relationship (1997), vol. 7, No. 3 [para. 167].

Levitt, Edward N., in O'Brien's Encyclopedia of Forms and Precedents (11th Ed. 1992), p. 23-1 [para. 103].

O'Brien's Encyclopedia of Forms and Precedents (11th Ed. 1992), p. 23-1 [para. 103].

O'Byrne, Shannon Kathleen, The Implied Term of Good Faith and Fair Dealing: Recent Developments (2007), 86 Can. Bar Rev., No. 2, generally [para. 124].

Counsel:

Avocats:

Howard A. Spalding, Q.C., and Jack M. Blackier, on behalf of the plaintiffs;

M. Shane Dugas, on behalf of the defendants.

These actions and this counterclaim were heard between January 24 and February 2, 2007, by Glennie, J., of the New Brunswick Court of Queen's Bench, Trial Division, Judicial District of Saint John, who delivered the following judgment on February 27, 2008.