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Author: Anthony Pugh, Law Works
Editor: Ben Hanuka, Law Works
In Taylor v. Blenz The Canadian Coffee, a June 7, 2019, decision of the Supreme Court of British Columbia, the court held that the proposed amendments to the pleadings of the franchisees were not statute barred under British Columbia’s Limitation Act because the factual foundation of the proposed amendments were based on existing factual allegations in the pleadings.
Three franchisees sued Blenz Canada and its affiliates for alleged breach of the franchise agreements. The court analyzed whether the proposed amendments constituted a new cause of action that could be barred under the Limitation Act. It then conducted a prejudice assessment to determine whether the proposed amendments should be allowed unconditionally or subject to right of limitation defences at trial.
The franchisees each entered into franchise agreements and subleases with Blenz Canada and its affiliates. Under each franchise agreement, the franchisee could not assign or transfer the franchise to a third party without a prior written approval of the Blenz franchisor.
Two franchisees wanted to sell their Blenz businesses. They asked Blenz to confirm its commitment to extend the terms of their respective head lease agreements. Blenz required the first franchisee to sign a new franchise agreement as a condition to the extension. Blenz also required the second franchisee to renovate the Blenz business premises before granting the extension.
A third franchisee alleged that Blenz imposed unreasonable requirements on interested buyers. The franchisee claimed that Blenz was responsible for its agreement to sell the business falling through. The franchisee also alleged that Blenz breached the franchise agreement because it unreasonably withheld its required approval.
The three franchisees started proceedings to seek damages against Blenz. They alleged that Blenz led them to believe that they were each entering a long-term business relationship with the franchisor. The franchisees alleged that prior representations were made to them by Blenz regarding the renewal of their head lease agreements; that Blenz promised them the right to have the term of their head lease agreement coincide with the terms of their franchise and sublease agreement.
The franchisees also claimed against their real estate agent alleging that the real estate agent breached his fiduciary duty.
They later applied for permission to amend their pleadings.
About the franchisor’s conduct, two franchisees amended their allegations against Blenz. In their proposed amendments, the franchisees characterized the franchisor’s conduct as a breach of a pre-contractual duty to disclose, rather than as fraudulent and negligent misrepresentations.
About the real estate’s agent conduct, the first two franchisees abandoned their claim against him in the proposed amendments, but the third franchisee continued its claim. In the proposed amendments, the third franchisee characterized the real estate agent’s conduct as a claim of negligence arising from his alleged failure to inform the franchisee about an interested buyer, rather than a claim for breach of fiduciary duty owed by the real estate agent to the franchisee.
The proposed amendments did not affect the limitation period
The court determined that the amendments proposed by the franchisees in relation to the franchisor’s conduct did not raise a new cause of action, as the set of facts raised in the action remained the same. The facts were always about the dealings that took place between Blenz and the franchisees regarding the franchisor/franchisee relationship before entering into the franchise agreements.
The court ruled that the allegations submitted in the proposed amendments were a recast of the legal characterization of the wrong that was alleged to have arisen from the franchisor’s conduct. They reformulated the franchisor’s alleged wrong from an express misrepresentation inducing the formation of the franchisee/franchisor relationships to breach of a duty to disclose, but for which the franchisee/franchisor relationships would not have been formed.
The court considered the prejudicial effect of the proposed amendments to the parties involved in the decision, including the extent of the delay, the reasons for delay and any explanation for it, the expiry of a limitation period, the presence or absence of prejudice, and the extent of the connection between the proposed amendments and the existing claims. The court found that the proposed amendments were just and convenient in relation to the parties involved and should be allowed unconditionally.
About the amendments relating to the real estate agent, the court followed the same analysis that it used for the prior set of proposed amendments. It found that the proposed amendments about the real estate agent did not raise a new cause of action. The facts were always about the dealings between the franchisee and the real estate agent in relation to his efforts in selling the franchisee’s Blenz business. The proposed amendments did not change the facts. Rather, the proposed amendments only recast the legal wrong from an alleged breach of fiduciary duty to a claim of negligence against the real estate agent.
In assessing the prejudicial effect of the proposed amendments, the court ruled that the proposed amendments were just and convenient in relation to the parties and should be allowed unconditionally.
Overall, the court confirmed that in a civil case, pleading a new or alternative remedy based on an existing factual foundation is a permitted amendment. Such proposed amendment merely recharacterizes the legal claim and does not affect the potential expiry of the limitation period.
***Tags : Disclosure, Franchise Agreement, Misrepresentation, Resale, Damages
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