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Franchise Disputes

Reliable legal advice and representation for franchisors, master franchisees and area developers in franchise disputes

Franchise disputes involving franchisors, master franchisees, area developers, multi-unit franchisees and single-unit franchisees often come up when franchises are purchased, sold, renewed, and terminated.

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How Law Works Helps You in Franchise Disputes

During the franchise relationship, franchisors and franchisees may sometimes have to deal with allegations of non-compliance with the requirements of the franchise agreement, bad faith conduct, and misrepresentations.

After the franchise relationship ends, parties may be in a dispute about the enforceability of non-competition restrictions and other post-termination obligations in the Franchise Agreement.

HowLawWorksHelpsYou

We represent international and Canadian franchisors, master franchisees, area developers, multi-unit franchisees and single-unit franchisees in franchise disputes throughout the entire dispute process, including:

  • Injunction applications,
  • Trials,
  • Arbitrations and appeals.

Your Franchise Counsel

Our firm’s principal, Ben Hanuka, has acted as counsel in leading franchise court decisions for two decades. He writes frequently about franchise disputes and commercial disputes.

Learn More About Ben Hanuka

FranchiseCouncil

Franchise Litigation

Franchise disputes often arise when franchises are purchased, sold, renewed, and terminated.

Disputes sometimes come up before entering into the franchise agreement about deposits and pre-sale agreements.

Disputes can also arise during the franchise relationship. A franchisor may have to deal with a franchisee’s operational non-compliance with the requirements of the franchise agreement, territorial and location rights, advertising, support, bad faith conduct, or allegations of misrepresentations by a franchisee.

After a franchise relationship ends, a franchisee may be in violation of a non-competition restriction and other post-termination obligations in the franchise agreement, and possibly allege that the non-competition restrictions are not enforceable.

 

Types of Franchise Disputes that Can Benefit from Representation by a Franchise Litigation Lawyer

Franchisors would be wise to retain the services of an experienced franchise litigation lawyer when faced with any of the following disputes:

  • Franchise rescission disputes about alleged disclosure failures in the franchise disclosure document (FDD);
  • Compliance with operational and payment obligations (for example, operational non-compliance, underreporting of sales, failure to pay royalties, etc.);
  • Injunction applications (for example, applications to enforce non-competition restrictions against a former franchisee);
  • Exclusive territory disputes (for example, disputes about the franchisor’s right to set up a competing location inside a territory);
  • Misrepresentation and bad-faith conduct claims;
  • Renewal disputes about the franchisee’s right to renew or compliance with renewal conditions, and
  • Lease takeover and lease renewal disputes.

 

The Franchise Litigation Process

Franchise litigation is a court process for adjudicating a dispute. The final step in the litigation process is a trial (unless the case is settled before that). After a trial is concluded, the trial judge makes a decision about the claim and defence. If the claim is successful, the trial judge may award damages.

The major phases of the franchise litigation process are:

  • internal investigation and evaluation by each side and their lawyer of the key facts, evidence and legal issues in the dispute;
  • commencing the case in court or defending the case – pleadings (claim, defence/response and, if applicable, counterclaim);
  • discovery of the evidence (including out of court witness examination/questioning), court applications/motions to resolve procedural disputes (such as disputes about steps, timetables, production of documents, etc.);
  • trial.

 

What Law Works Brings to The Table

Law Works has the expertise and proven track record in representing franchisors in Ontario and other provinces. We have deep and wide-ranging experience representing parties to franchise disputes in mediations, litigation, arbitrations and appeals. We vigorously protect our clients’ rights and are savvy advisors around the boardroom table in all areas of franchise disputes.

Our principal and founder, Ben Hanuka, has over two decades of experience as a franchise litigator. We have represented franchisors going back to even before franchise legislation was enacted in Ontario (the Arthur Wishart Act (Franchise Disclosure), 2000), and before modern legislation was enacted in other provinces where franchises are regulated (British Columbia, Alberta, Manitoba, New Brunswick, and PEI).

 

Scope and Cost of Litigating a Franchise Dispute

The scope and cost of a franchise litigation dispute can vary significantly depending on the following factors:

  • the complexity and importance of the facts, evidence, and legal issues in the dispute;
  • the amounts in dispute;
  • the complexity of the proceeding;
  • if there are related proceedings;
  • the number of procedural steps that have to be taken or that the opposing party takes;
  • any party’s denial of or refusal to admit anything that should have been admitted;
  • the conduct of any party that tends to shorten or lengthen unnecessarily the duration of the proceeding, and
  • any other relevant factor that can affect the legal fees or overall costs of the litigation.

The following is a general outline of the scope of possible steps that may be involved in a franchise litigation case. It is provided solely for informational purposes as a general rough outline of what to expect when pursuing or defending a franchise dispute through court litigation. This general outline is provided subject to the following conditions:

This scope is general. It is not specific to any particular case. It is intended to provide a general sense of what steps and effort possibly may be involved in a case. Therefore, it is not intended to be read or relied on as legal advice.

Any particular case may include some or all of the steps listed below, or additional steps not listed below.

Each legal case is unique and will have its own circumstances. Each case will result in different fees and overall costs, depending on many factors, including those listed above.

This general scope is subject to change without notice.

 

Notices – Claim and Response

Scope of pleadings:

  • 1-3 days principal, associate lawyer, and litigation clerk.

Key activities include:

  • Analysis of key facts in the dispute (initial analysis, to be refined as more evidence becomes available).
  • Analysis of additional facts about key events to draft either a statement of claim or a statement of defense (for fulsome cases).
  • Drafting statement of claim or statement of defence.
  • Initial correspondence with opposing counsel about procedure (for summary proceedings).

 

Discovery (as agreed in the Discovery Plan between the parties’ lawyers)

The following is a fulsome set of discovery steps. The discovery phase in a litigation proceeding will vary widely based on the nature of the case, the parties’ agreement on how to most effectively streamline the discovery phase. As a result, some or all of these steps may be significantly different, possibly more limited, depending on the litigation case.

There are usually three to four phases in discovery.

 

Discovery Phase 1: Planning and Preparation

Scope of Phase 1:

  • ½ day to 1 ½ days principal or associate lawyer
  • 3 days litigation clerk.

Key activities include:

  • Preparing Documentary Productions – compiling and producing all evidence in the clients’ possession control or within their power relevant to any issue in the case (and providing to opposing counsel).
  • Preparing Discovery Plan.
  • Analyzing the other party’s Documentary Productions for deficiencies.
  • Communications with the other parties about scope of Documentary Productions of each side.

 

Discovery Phase 2: Witness Examination/Questioning

Scope of Phase 2:

  • 4 to 5 days principal or associate lawyer
  • Plus time by litigation clerk.

Key activities include:

  • Preparing for and conducting witness examinations/questioning plus preparation and discussions.
  • Preparing clients for, and attending, their witness examinations/questioning plus preparations and discussions.

This can include disbursements for court reporter charges at addition cost for attendance at the examination/questioning or preparation of transcripts of witness examinations/questioning.

 

Discovery Phase 3: Answering Undertakings Given at Witness Examination/Questioning

Scope of Phase 3

  • ½ day to 1 ½ day principal (and associate lawyer where needed)
  • 1 ½ days to 3 days litigation clerk

Key activities include:

  • Answering undertakings given at examinations/questioning for discovery to provide further evidence.
  • Reviewing the other side’s answers to undertakings.
  • Dealing with refusals given by each side at examinations for discovery.

 

Discovery Phase 4 (if applicable): Resolving Disputes About Documentary Productions or Refusals

Scope of Phase 4:

  • 1 to 4 days
  • Principal or associate lawyer and litigation clerk.

Key activities include:

  • Disputes about scope of Documentary Productions and refusals given at examinations/questioning for discovery.

This can include disbursements at additional cost for:

  • filing fees (pleadings, motions, etc.)
  • process server charges.

 

Mediation

Scope of mediation:

  • 1 ½ to 3 days principal (and associate lawyer where needed)
  • ½ day to 2 days litigation clerk.

Key activities include:

  • Preparing mediation brief and attending one day mediation session.

Meditator’s fees are charged at additional cost.

Note: mediation can take place at any time in the litigation process, typically after the Discovery phases.

 

Motions, Applications/Case Conference

Key activities include:

  • These can take place at any point in the litigation process.
  • Case conferences are with opposing counsel and a judge.
  • Standard motion/application/application: 1-5 days*
  • Injunction motions or motions for summary judgement: 7 to 20 days*

* This includes time for preparing for and attending witness examinations/questioning which can be significant.

 

Pre-Trial

Scope of pre-trial:

  • ½ day to 1 day principal or associate lawyer
  • Up to ½ day litigation clerk.

Pre-Trial takes place after all previous stages have been completed.

Key activities include:

  • Preparing Pre-Trial brief summarizing our position and the evidence that we intend to present at the trial.
  • Attending Pre-trial conference with judge and opposing side to review the case and ensure all steps in the litigation process have been completed and that the case is ready for trial.

 

Trial – this scope is for a 10-day trial

Scope of a trial:

  • Preparation and trial attendance:
  • 19 days to 25 days principal and associate lawyer as needed
  • 6 to 10 days litigation clerk.

Key activities include:

  • Preparing all evidence and exhibits for the trial, lining up witnesses, and preparing legal arguments and submissions.
  • Prepare for trial.
  • Preparing opening submissions, witness examinations, closing submissions.
  • Attending trial.

Law Works - Important
Franchise Dispute Cases

The following is a timeline of franchise court decisions where Law Works acted as counsel. It starts from 2003, only a few years after the passage of Ontario’s franchise legislation, Arthur Wishart Act (Franchise Disclosure), 2000.

Precedent Setting Cases

Many of these decisions have been frequently cited as precedents by lawyers and courts in other franchise disputes.

Circumventing Disclosure Requirements

Bekah v. Three for One Pizza (2003)

Case Synopsis

The franchisor required that the franchisee purchase a store through a conventional purchase and sale agreement before entering into a franchise agreement. By structuring the transaction this way, the franchisor attempted to circumvent the disclosure requirements that the Act imposes on franchisors. This court decision was among the earliest reported franchise disclosure decisions under the Arthur Wishart Act (Franchise Disclosure), 2000.

Failure to Disclose Material Facts About Operational Deficiencies

1518628 Ontario Inc. v. Tutor Time Learning Centres, LLC (2006)

Case Synopsis

This court decision is among the most influential Ontario Superior Court decisions to date under the Arthur Wishart Act (Franchise Disclosure), 2000, on the issue of releases and waivers of statutory franchise rights.

Class Action Rescission Claim

Al-Harazi v. Quiznos Canada Restaurant Corporation (2007)

Case Synopsis

Ben Hanuka represented a group of approximately 200 franchisees in a class action suit against Quiznos after they signed a franchise agreement but never received a location for their restaurant. Quiznos did not finalize details about the lease and construction requirements of the location and the franchise agreement and related franchise document contained conflicting information. This was the first Ontario class action based on the disclosure requirements in the Arthur Wishart Act (Franchise Disclosure), 2000. The class action resulted in a settlement of partial refunds of the franchise fee to different groups of the class members.

Materially Deficient Disclosure Document

Sovereignty Investment Holdings, Inc. v. 9127-6907 Quebec Inc. (2008)

Case Synopsis

The disclosure document did not contain key required components under the Arthur Wishart Act (Franchise Disclosure), 2000. The franchisee brought a court action to cancel (rescind) the franchise purchase and receive compensation. This is an influential Ontario court decision under the Arthur Wishart Act (Franchise Disclosure), 2000.

Misrepresentation and Bad-faith Conduct in a Termination

Sirianni v. Country Style (2012)

Case Synopsis

Franchisees renewed the franchise agreement, unaware that the landlord and Country Style were involved in a significant dispute about the renewal of the head lease, and that Country Style had agreed with the landlord to terminate the lease. This is an influential Ontario court decision under the Arthur Wishart Act (Franchise Disclosure), 2000.

Arbitration/Franchise Procedure Dispute Involving Non-signatories

Kanda Franchising Inc. and Kanda Franchising Leaseholds Inc. v. 1795517 Ontario Inc. (2017)

Case Synopsis

Law Works represented the franchisor in this case in a dispute with its franchisee. The franchisor took the position that the arbitration provisions in the franchise agreement applied and that the franchise dispute had to be arbitrated outside of court. The court ruled that the arbitration agreement did not apply because other parties were involved in the dispute, i.e., the individual principals of the franchisee and affiliates of the franchisor, who were not signatories to the arbitration agreement.

Non-compliant Franchise Disclosure Document

Mendoza v Active Tire & Auto Inc., 2017 ONCA 471

Case Synopsis

This is a frequently cited decision of the Court of Appeal for Ontario, which reversed the decision of the motion judge and granted summary judgment for rescission in favour of the franchisee. There were significant disclosure deficiencies in the franchise disclosure document, including stale-dated financial statements of the franchisor, required signatures of the franchisor’s officers and directors, and piecemeal disclosure. This decision is also the first Court of Appeal decision expressly holding that the test for a franchisor’s compliance with its disclosure obligations under the Arthur Wishart Act (Franchise Disclosure), 2000, is objective; that the focus is on the nature of the deficiency and its impact on the disclosure requirements on a reasonable (not subjective) standard.

Non-compliant Franchise Disclosure Document

Giroux et al. v. 1073355 Ont. Ltd. et al (2018)

Case Synopsis

The Ontario Superior Court granted rescission to the franchisee under the Arthur Wishart Act (Franchise Disclosure), 2000, on the basis that the franchisor provided projections in the franchise disclosure document without disclosing the basis for them and other information required under the Wishart Act, as well as for delivering the disclosure document in in piecemeal.

Non-compliance with Franchisor’s Certificate Requirements and Misrepresentations

2483038 Ontario Inc. v. 2082100 Ontario Inc. (2020)

Case Synopsis

Law Works represented the franchisor in this case, defending against a rescission claim brought by a franchisee. The Ontario Superior Court granted judgment for rescission to the franchisee against the franchisor and the franchisor’s associates on the basis that the franchisor’s certificate in the franchise disclosure document did not contain the required signature of the franchisor’s officer and director, and that another section in the franchise disclosure document, signed by the franchisor, contained misrepresentations.