Ontario Superior Court upholds ‘fair dealing’ in franchise dispute

The case involved disagreements over equipment maintenance and financial obligations

Ontario Superior Court upholds ‘fair dealing’ in franchise dispute

The Ontario Superior Court of Justice has ordered a new hearing in a franchise dispute, emphasizing the principle mandating fair dealing in franchise relationships.

In First of Five Incorporated v. Recipe Unlimited Corporation, 2024 ONSC 2050, the court overturned the denial of an injunction to First of Five Incorporated, a franchisee of a combined Harvey’s and Swiss Chalet restaurant in Napanee. The court ordered a new hearing by a different judge, emphasizing the need to thoroughly examine the complex issues involved.

The franchise agreement, secured by First of Five from Recipe Unlimited Corporation in 2013, was set to expire in 2024 with an option for a ten-year renewal. In late 2022, Recipe informed First of Five that they did not meet the renewal requirements and intended to terminate the agreement due to alleged defaults. First of Five contested these defaults and sought judicial intervention to prevent their franchise agreement's termination and maintain their lease.

The core of the dispute involved various contentious issues, including disagreements over equipment maintenance and financial obligations, which led to multiple notices of default from Recipe. Despite these conflicts, First of Five endeavoured to renew their franchise agreement, asserting they had met the conditions stipulated in the agreement.

In October 2023, the motions judge rejected First of Five’s request for an interlocutory injunction to halt the termination of the franchise agreement, concluding that the injunction would inappropriately extend the agreement indefinitely. Disagreeing with this perspective, First of Five appealed the decision.

Upon review, the Superior Court found that the motions judge's brief reasons were insufficient for appellate review and did not adequately address the complexities of the franchise renewal provisions or the alleged defaults. The court criticized the original ruling for its lack of depth in considering the franchise agreement's renewal clause and Recipe’s obligations under the Arthur Wishart Act, which mandates fair dealing in franchise relationships.

Read next: What a franchise dispute lawyer does

Moreover, the appellate court highlighted the importance of Recipe's undertaking not to terminate the franchise agreement pending the determination of the injunction motion. It ruled that these undertakings should remain in effect until the conclusion of the re-hearing of the injunction, including any potential appeals.

Ultimately, the court directed the case to be sent back for a new hearing, underscoring the court's insistence on a detailed factual analysis by a trial judge and the importance of adhering to contractual and statutory obligations in franchise relationships. The court also mandated that Recipe continue to allow First of Five to operate the franchise until the injunction is resolved.

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