DMS Caf é Ltd. v. Grandma Lee, 2011 ABQB 622

Court of Queen ’ s Bench of Alberta Citation: DMS Caf é Ltd. v. Gill, 2011 ABQB 622 Date: 20111012 Docket: 1003 12308 Registry: Edmonton Between: DMS Caf é Ltd. and Grandma Lee ’ s Canada Inc. Respondents - and - Nasib Kaur Gill Appellant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R. Paul Belzil _______________________________________________________ The Appeal [ 1 ] The Appellant appeals the decision of a Master granting

Summary Judgment of portions of a claim made against her. Facts

[ 2 ] Grandma Lee’s Canada Inc. franchises restaurant operations in Alberta and elsewhere. [ 3 ] DMS Café Ltd. is the successor company of Denomme Management Services Ltd. [ 4 ] In 2004 Denomme entered into a franchise agreement wherein Raja Azlan and Nancy Cheong were granted the right to operate a Grandma Lee’s franchise at the Bonnie Doon Shopping Centre in Edmonton. [ 5 ] On February 27, 2008 the Appellant submitted a written offer to purchase this franchise. The offer to purchase was stipulated to include good will, equipment, fixtures and a lease of premises.

The offer was accepted on March 14, 2008. [ 6 ] On or about July 1, 2008 Azlan and Cheong, Gill and DMS entered into an assignment of the franchise agreement whereby Azlan and Cheong assigned their interest in the franchise to the Appellant. [ 7 ] On or about July 2008 Grandma Lee’s and Gill entered into an equipment lease wherein she leased a kneading machine. [ 8 ] On July 20 th the Respondents issued a Statement of Claim against the Appellant alleging breaches of the franchise agreement and equipment lease wherein various heads of damages were claimed. [ 9 ] The Appellant filed a Statement of Defence on July 29, 2010. [ 10 ] On March 1, 2011 Master Schlosser heard an application for

Summary Judgment by the Respondents relating to claims under the equipment lease and for franchise royalty payments. [ 11 ] The Appellant cross-applied to amend her Statement of Defence to allege misrepresentations and a failure to provide proper training by the franchisor. [ 12 ] On March 25, 2011 he issued a Memorandum of Decision. [ 13 ] Initially he concluded that neither the existing pleadings or the evidence in support of the proposed amended pleadings disclosed a meritorious defence respecting a claim under the equipment lease. He awarded the Appellant

Summary Judgment in the amount of $3,071. 25 together with interest at the contract rate. [ 14 ] He then considered the claim for franchise royalties and noted that the Appellant was claiming to have a meritorious defence relating to alleged misrepresentations which induced her to enter into the contract and subsequently breach it. [ 15 ] He noted that the vendor accepted the Appellant’s offer on March 24, 2008 and that the evidence before him disclosed that the Appellant was to speak to the vendor about its financial status.

He noted that the vendor was not a party to this action and that interaction between the vendor and the Appellant could not found a defence to claims by the Respondents in this action. [ 16 ] He also observed that the alleged misrepresentations by the Respondents were made after the Appellant had purchased the business and thus could not constitute an inducement to contract.

[ 17 ] He also dismissed the Appellant’s argument that the Respondents failed to provide her with adequate training. He observed that the Respondents provided the training they promised and that in any event the franchise agreement did not oblige the Respondents to provide training and that it was the vendors who were to provide additional training to the Appellant. [ 18 ] Having concluded that the Appellant had no meritorious defence to the royalty claim he awarded

Summary Judgment in the amount of $34,470.72 together with interest in accordance with the agreement. [ 19 ] Respecting the remaining claims and cross-claim for damages, he granted the Appellant leave to amend her pleadings. Standard of Review [ 20 ] A decision of a Master is reviewed using a standard of review of correctness, Wolfert v. Shuchuk 2003 ABCA 109 . Grounds of Appeal [ 21 ] The Appellant has raised four issues on appeal: (

a) Whether the Master failed to consider the provisions of the Franchises Act R.S.A. 2000, c. F-23? (

b) Whether the Master properly considered evidence relating to timing and substance of alleged misrepresentations made to the Appellant by the Respondents? (

c) Whether the Master properly found that the Respondents did not breach contractual obligations to the Appellant with respect to training? (

d) Whether the Master erred by not taking into account the Respondents’ failure to mitigate damages resulting from the alleged breach of the equipment lease? Discussion (

a) Whether the Master failed to consider the provisions of the Franchises Act R.S.A. 2000, c. F-23? [ 22 ]

Section 4 of the Act imposes upon a franchisor certain legal obligations including a duty to act in good faith and a duty to deal fairly with a purchaser.

[ 23 ] However, s. 5(1) exempts from the operation of s. 4 a sale of a franchise not affected by or through the franchisor. [ 24 ] Section 5(2) stipulates that a sale is not effected by or through a franchisor merely because the franchisor has a reasonable right to approve or disapprove the sale. [ 25 ] It is uncontroverted that the Appellant purchased the franchise from a franchisee and not the franchisor thus s. 4 of the Act does not apply. It necessarily follows that the Master committed no reviewable error in not considering the Act . (

b) Whether the Master properly considered evidence relating to timing and substance of alleged misrepresentations made to the Appellant by the Respondents? [ 26 ] It is uncontroverted that the vendor accepted the offer to purchase on March 14, 2008 prior to any alleged misrepresentations by the Respondents. [ 27 ] Moreover, during the application before the Master the Appellant acknowledged that she received 12 days of training and missed a further two days due to illness. [ 28 ] The Master correctly concluded on the evidence before him that there was no improper inducement of the Appellant and that the Respondents provided the training they promised her. (

c) Whether the Master properly found that the Respondents did not breach contractual obligations to the Appellant with respect to training? [ 29 ] There is no evidence that the Respondents were contractually bound to provide any additional training to the Appellant. The Master correctly concluded that the agreement did not oblige the Respondents to provide any training and that the Appellant was substantively provided with the training she was promised by them. (

d) Whether the Master erred by not taking into account the Respondents’ failure to mitigate damages resulting from the alleged breach of the equipment lease? [ 30 ] The issue of mitigation of damages was not raised before the Master. Moreover the Appellant filed no evidence which would support a defence based on an alleged failure to mitigate. It necessarily follows that the Master committed no reviewable error in not considering mitigation of damages. Conclusion [ 31 ] In the result, none of the grounds of appeal are meritorious. The appeal is dismissed with costs to the Respondents.

Heard on the 30 th day of September, 2011. Dated at the City of Edmonton, Alberta this 7 th day of October, 2011.

R. Paul Belzil J.C.Q.B.A. Appearances: Allison L. Murray Fraser Milner Casgrain LLP for the Plaintiff Nasib Kaur Gill appeared on her own behalf