TDL Group Ltd. v. Zabco Holdings Inc. et al., (2008) 232 Man.R.(2d) 225 (QB)

• Judge: Joyal, J.
• Court: Court of Queen's Bench of Manitoba (Canada)
• Case Date: September 15, 2008
• Jurisdiction: Manitoba
• Citations: (2008), 232 Man.R.(2d) 225 (QB);2008 MBQB 239

TDL Group Ltd. v. Zabco Holdings (2008), 232 Man.R.(2d) 225 (QB)

MLB headnote and full text

Temp. Cite: [2008] Man.R.(2d) TBEd. SE.020

The TDL Group Ltd. (plaintiff) v. Zabco Holdings Inc., Kevin Michael Zaborniak, Cheryl Lynn Zaborniak, Christopher Jason Zaborniak, Irene Zaborniak and John Zaborniak (defendants)

(CI 98-01-07620)

The TDL Group Ltd. (plaintiff) v. 3505741 Manitoba Ltd., Zabco Holdings Inc., Kevin Michael Zaborniak, Cheryl Lynn Zaborniak and Christopher Jason Zaborniak (defendants)

(CI 02-01-31125)

(2008 MBQB 239)

Indexed As: TDL Group Ltd. v. Zabco Holdings Inc. et al.

Manitoba Court of Queen's Bench

Winnipeg Centre

Joyal, J.

September 15, 2008.

Summary:

The defendants operated two Tim Hortons restaurants in Winnipeg from 1996 to 1998 as franchisees. The franchisor brought two actions, which were heard together, seeking monies owing under the agreements.

The Manitoba Court of Queen's Bench held that the franchisor had established its monetary claim and granted judgment for the franchisor, including 100% of its costs of the litigation.

Editor's Note: For related decisions involving these parties, see (2007), 224 Man.R.(2d) 23 and (2008), 227 Man.R.(2d) 66.

Contracts - Topic 1544

Formation of contract - Duty to disclose - What constitutes a contract uberrimae fidei (utmost good faith) - The defendants operated two Tim Hortons restaurants in Winnipeg from 1996 to 1998 as franchisees - The franchisor brought two actions, which were heard together, seeking monies owing under the agreements - The Manitoba Court of Queen's Bench held that the franchisor had established its monetary claim - See paragraphs 173 to 188 - The court rejected the defendants' assertion that the relationship between the franchisor and franchisee was one of utmost good faith - Rather, the relationship was that of parties to a commercial agreement, which, as in every relationship governed by contract, generated a duty to act in simple good faith - Nor was the franchisor a fiduciary to the defendants - Any duty of good faith owed by the franchisor was limited to the performance of the franchisor's own contractual obligations - See paragraphs 189 to 199.

Contracts - Topic 4183

Remedies for breach - Rescission - When available - General - The defendants operated two Tim Hortons restaurants in Winnipeg from 1996 to 1998 as franchisees - The franchisor brought two actions, which were heard together, seeking monies owing under the agreements - The Manitoba Court of Queen's Bench held that the franchisor had established its monetary claim - See paragraphs 173 to 188 - The court rejected the defendants' claim for rescission based on post-contractual bad faith - Rescission (the only remedy sought by the defendants) was not available as a remedy - As a species of breach of contract, post-contractual bad faith, if it could be established, gave rise to a remedy of damages, not rescission - Where there had been a fundamental breach of contract as a result of post-contractual conduct by one of the parties, the other party could repudiate the contract, not rescind it - Repudiation would relieve the party from future performance and give the party a claim for damages - It did not void the agreement ab initio - See paragraphs 261 to 269 - Even if rescission was available for post-contractual conduct, its availability would be limited to those allegations of bad faith conduct that could properly be characterized as dishonest and unreasonable conduct that went to the root of the contract - Such impugned conduct had to reflect something completely different in substance between what was supposed to be, and what was taken, so as to constitute a failure of consideration - Here, irrespective of the nature of the bad faith allegations and whether they were properly rooted in the franchisor's contractual obligations, based on the evidence, none of the allegations had been factually established - See paragraphs 270 to 284.

Contracts - Topic 4195

Remedies for breach - Rescission - Negligent misrepresentation - [See Contracts - Topic 4197 ].

Contracts - Topic 4197

Remedies for breach - Rescission - Bars - The defendants operated two Tim Hortons restaurants in Winnipeg from 1996 to 1998 as franchisees - The franchisor brought two actions, seeking monies owing under the agreements - In response to the first action, the defendants filed a statement of defence, counterclaim and cross-claim, alleging that the franchisor had made negligent misrepresentations that induced the defendants to enter into the agreements - In November 2004, in response to the second action (filed two years earlier), the defendants filed a statement of defence and counterclaim in which they asserted a new allegation of pre-contractual negligent misrepresentation by non-disclosure in that the franchisor had not told them that "no Tim Hortons store in Winnipeg was capable of making a profit without concessions" - The franchisor asserted that, assuming that rescission was otherwise available and applicable, bars precluded the defendants from claiming the equitable remedy - The Manitoba Court of Queen's Bench agreed, but only with respect to the defendants' pre-contractual claim - Two important bars disentitled the defendants to rescission: affirmation and delay - The defendants' continuation of business activities, including the acquisition of a second franchise, after becoming aware of the nature of the alleged misrepresentation, constituted affirmation - Further, the allegation of negligent misrepresentation by non-disclosure was made after a delay of a number of years - Given the delay and the fact that the defendants had affirmed the contract after becoming aware of the financial challenges facing their business, even if the negligent misrepresentation claim had been established, the defendants would not have been entitled to the equitable remedy of rescission - See paragraphs 317 to 324.

Equity - Topic 1106

Equitable relief - Contracts - Rescission - When available - [See Contracts - Topic 4183 ].

Equity - Topic 1111

Equitable relief - Contracts - Bars - [See Contracts - Topic 4197 ].

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - [See Contracts - Topic 1544 ].

Equity - Topic 3716.2

Fiduciary or confidential relationships - Commercial relationships - Distributorship or franchise agreements - [See Contracts - Topic 1544 ].

Franchises - Topic 2063

Franchise agreement - Duties of franchisor - To provide statement of material facts (disclosure) - [See Fraud and Misrepresentation - Topic 2502 and Fraud and Misrepresentation - Topic 2824 ].

Franchises - Topic 2067

Franchise agreement - Duties of franchisor - Duty of good faith - [See Contracts - Topic 1544 ].

Franchises - Topic 2207

Franchise agreement - Termination - Rescission - [See Contracts - Topic 4183 and Contracts - Topic 4197 ].

Fraud and Misrepresentation - Topic 2502

Misrepresentation - General principles - Elements of actionable misrepresentation - The defendants operated two Tim Hortons restaurants in Winnipeg from 1996 to 1998 as franchisees - The franchisor brought two actions, which were heard together, seeking monies owing under the agreements - The Manitoba Court of Queen's Bench held that the franchisor had established its monetary claim - See paragraphs 173 to 188 - The court rejected the defendants' assertion that there had been a pre-contractual negligent misrepresentation by non-disclosure in that the franchisor had not told them that "no Tim Hortons store in Winnipeg was capable of making a profit without concessions" - Convincing evidence demonstrated that some stores were profitable in the relevant period - Even if that were not true, the franchisor had properly provided the necessary cautions and disclosures regarding the market realities - Further, any such non-disclosure, even if proven, did not amount to a silent misrepresentation or a non-disclosure that was negligent - The requirements of reliance and detriment were not established - The defendants had conducted their own due diligence, visiting other franchises and preparing a relatively sophisticated business plan - Further, evidence of the level of sales indicated that there should have been profitability and, but for mismanagement, this would have been so - There was no causal link between the suggested misrepresentation coming in the form of the alleged non-disclosure and the financial detriment or harm incurred by the defendants - See paragraphs 200 to 241.

Fraud and Misrepresentation - Topic 2508

Misrepresentation - General principles - Negligent misrepresentation - [See Fraud and Misrepresentation - Topic 2502 ].

Fraud and Misrepresentation - Topic 2707

Misrepresentation - What constitutes misrepresentation - Falsity by silence - [See Fraud and Misrepresentation - Topic 2502 ].

Fraud and Misrepresentation - Topic 2824

Misrepresentation - Defences - Agreement excluding liability - The defendants operated two Tim Hortons restaurants in Winnipeg from 1996 to 1998 as franchisees - The franchisor brought two actions, which were heard together, seeking monies owing under the agreements - The Manitoba Court of Queen's Bench held that the franchisor had established its monetary claim - See paragraphs 173 to 188 - The court rejected the defendants' assertion that there had been a pre-contractual negligent misrepresentation by non-disclosure in that the franchisor had not told them that "no Tim Hortons store in Winnipeg was capable of making a profit without concessions" - However, even if the alleged failure to disclose had constituted negligent misrepresentation, such a claim was prima facie precluded by the terms of the agreements which included both "entire agreement" and "non-reliance" clauses - The defendants, in the agreements, had acknowledged that they would seek independent legal advice and conduct their own due diligence - The evidence established that they had done so - The defendants could not reasonably suggest that they had relied on what they alleged was the pre-contractual misrep-resentative silence of the franchisor - See paragraphs 242 to 251.

Fraud and Misrepresentation - Topic 2825

Misrepresentation - Defences - Lack of reliance - [See Fraud and Misrepresentation - Topic 2824 ].

Limitation of Actions - Topic 1586

Equitable relief - When time begins to run - [See Practice - Topic 2110 ].

Practice - Topic 2110

Pleadings - Amendment of pleadings - Adding new cause of action or "claim" - The defendants operated two Tim Hortons restaurants in Winnipeg from 1996 to 1998 as franchisees - The franchisor brought two actions, seeking monies owing under the agreements - In response to the first action, the defendants filed a statement of defence, counterclaim and cross-claim, alleging that the franchisor had made negligent misrepresentations that induced the defendants to enter into the agreements - In November 2004, in response to the second action (filed two years earlier), the defendants filed a statement of defence and counterclaim in which they asserted a new allegation of pre-contractual negligent misrepresentation by non-disclosure in that the franchisor had not told them that "no Tim Hortons store in Winnipeg was capable of making a profit without concessions" - The actions were heard together - The defendants had not applied to amend their pleadings, but asserted that the new allegation was subsumed in the original statement of defence, counterclaim and cross-claim - The franchisor asserted that the claim for negligent misrepresentation by non-disclosure was statute-barred - The Manitoba Court of Queen's Bench agreed - The first meaningful and identifiable appearance of the precise non-disclosure allegation as a claim had not occurred until 2004 - In the context of the defendants' desire for an equitable remedy (rescission), the defendants should have applied to amend their pleadings so that the court could scrutinize whether the new cause of action had been brought within the required six years from discovery - Had such an amendment been sought, the new cause of action (based on information about which the defendants had knowledge prior to March 1998) would have been statute-barred - See paragraphs 252 to 260.

Practice - Topic 2111

Pleadings - Amendment of pleadings - Prohibition against adding new action or "claim" which is statute barred - [See Practice - Topic 2110 ].

Practice - Topic 7808

Costs - Solicitor and his own client costs - Agreements - Validity of - The defendants operated two Tim Hortons restaurants in Winnipeg from 1996 to 1998 as franchisees - The franchisor brought two actions, which were heard together, seeking monies owing under the agreements - The Manitoba Court of Queen's Bench held that the franchisor had established its monetary claim - Regarding costs, the agreements provided that the franchisor was entitled to full indemnification for all costs incurred to collect any amount outstanding - This meant that the franchisor was entitled to 100% of the costs that had been incurred in the litigation - The court indicated that, where the parties had contemplated costs to be a matter of contractual damages, such should be the costs payable - See paragraph 329.

Cases Noticed:

Machias v. Mr. Submarine Ltd., [2002] O.T.C. 190; 24 B.L.R.(3d) 228 (Sup. Ct.), dist. [para. 42].

Shelanu Inc. v. Print Three Franchising Corp. (2003), 172 O.A.C. 78; 226 D.L.R.(4th) 577; 64 O.R.(3d) 533 (C.A.), dist. [para. 43].

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1; 99 D.L.R.(4th) 626, refd to. [para. 53].

Imasco Retail Inc. v. Blanaru et al., [1995] 9 W.W.R. 44; 104 Man.R.(2d) 286 (Q.B.), affd. [1997] 2 W.W.R. 295; 113 Man.R.(2d) 269; 131 W.A.C. 269 (C.A.), refd to. [para. 192].

3317447 Manitoba Ltd. et al. v. Beaver Lumber Inc. (2006), 286 Sask.R. 290; 21 B.L.R.(4th) 209; 2006 SKQB 414, refd to. [para. 193].

Pepsi-Cola Canada Inc. and Pizza Hut Inc. v. P.M. Foods Ltd. et al. (1985), 61 A.R. 340 (Q.B.), refd to. [para. 195].

Khagen Investments Ltd. v. 710497 Ontario Ltd. et al. (1999), 98 O.T.C. 241 (Sup. Ct.), refd to. [para. 195].

A-Wear Clothing Inc. v. Axiom Fashions Ltd. et al., [2002] B.C.T.C. 316; 22 B.L.R.(3d) 234; 2002 BCSC 316, refd to. [para. 195].

Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701; 219 N.R. 161; 123 Man.R.(2d) 1; 159 W.A.C. 1; 152 D.L.R.(4th) 1, refd to. [para. 196].

Nutrilawn International Inc. v. Stewart et al. (1999), 91 O.T.C. 339 (Gen. Div.), refd to. [para. 237].

BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; 147 N.R. 81; 20 B.C.A.C. 241; 35 W.A.C. 241; 90 D.L.R.(4th) 577, refd to. [para. 243].

Hayward and Govier v. Mellick and Mellick (1984), 2 O.A.C. 161; 45 O.R.(2d) 110; 5 D.L.R.(4th) 740 (C.A.), refd to. [para. 245].

Lister (Ronald Elwyn) Ltd. et al. v. Dunlop Canada Ltd. (1978), 85 D.L.R.(3d) 321 (Ont. H.C.), refd to. [para. 246].

Dufour v. Sunbay Foods Inc. et al. (1986), 48 Sask.R. 33 (Q.B.), refd to. [para. 246].

Peters v. Parkway Mercury Sales Ltd. (1975), 10 N.B.R.(2d) 703; 4 A.P.R. 703; 58 D.L.R.(3d) 128 (C.A.), refd to. [para. 246].

Carman Construction Ltd. v. Canadian Pacific Railway Co. and C.P. Rail, [1982] 1 S.C.R. 958; 42 N.R. 147; 136 D.L.R.(3d) 193, folld. [para. 251].

R.I.S. Equities Inc. et al. v. Spivak et al. (1991), 77 Man.R.(2d) 81 (Q.B.), revd. (1992), 78 Man.R.(2d) 230; 16 W.A.C. 230 (C.A.), refd to. [para. 254].

Madill v. Alexander Consulting Group Ltd. et al. (1999), 237 A.R. 307; 197 W.A.C. 307; 71 Alta. L.R.(3d) 50; 176 D.L.R.(4th) 309; 1999 ABCA 231, refd to. [para. 254].

Dyck v. Sweeprite Manufacturing Inc. and Boehm, [1990] 1 W.W.R. 673; 62 Man.R.(2d) 250 (C.A.), refd to. [para. 256].

Jaman v. Hussain et al. (2005), 193 Man.R.(2d) 136; 2005 MBQB 37, refd to. [para. 257].

Place Concorde East Limited Partnership et al. v. Shelter Corp. of Canada Ltd. et al., [2003] O.T.C. 1144; 43 B.L.R.(3d) 54 (Sup. Ct.), refd to. [para. 264].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1; 178 D.L.R.(4th) 1, refd to. [para. 267].

Jirna Ltd. v. Mister Donut of Canada Ltd., [1975] 1 S.C.R. 2; 40 D.L.R.(3d) 303, refd to. [para. 270].

Hongkong Bank of Canada v. Wheeler Holdings Ltd., [1993] 1 S.C.R. 167; 148 N.R. 1; 135 A.R. 83; 33 W.A.C. 83; 100 D.L.R.(4th) 40, refd to. [para. 319].

Samson v. Lockwood et al. (1998), 110 O.A.C. 301; 40 O.R.(3d) 161 (C.A.), refd to. [para. 321].

Ennis v. Klassen (1990), 66 Man.R.(2d) 117; 70 D.L.R.(4th) 321 (C.A.), refd to. [para. 322].

Murray v. TDL Group Ltd., [2002] O.T.C. 1024; 2002 CanLII 23609 (Sup. Ct.), refd to. [para. 322].

Authors and Works Noticed:

Chitty on Contracts (29th Ed. 2004), vol. 1, p. 482 [para. 265].

Fridman, Gerald Henry Louis, The Law of Contract in Canada (4th Ed. 1999), pp. 854, 855 [para. 262].

Snell, E.H.T., Principles of Equity (29th Ed. 1990), pp. 31, 32 [para. 318].

Counsel:

Rod C. Roy, for the plaintiff;

Gene G. Zazelenchuk, for the defendants.

These actions were heard by Joyal, J., of the Manitoba Court of Queen's Bench, Winnipeg Centre, who delivered the following judgment on September 15, 2008.