Seto v Wendy’s Restaurants of Canada Inc, 2016 ABQB 493

Court of Queen’s Bench of Alberta Citation: Seto v Wendy’s Restaurants of Canada Inc, 2016 ABQB 493 Date: 20160902 Docket: 1312 00069 Registry: Wetaskiwin Between: Tom Seto, Angela Seto and 1127489 Alberta Ltd Plaintiffs - and - Wendy's Restaurants of Canada Inc, Wendy's Restaurants International Inc, and Philip Goudreau, Mark White and Jane Dann Defendants _______________________________________________________ Reasons for Judgment of L.A.

Smart , Master in Chambers _______________________________________________________ Introduction [ 1 ] The Plaintiffs, Tom Seto, Angela Seto, and 1127489 Alberta Ltd. (112), formerly operated a Wendy’s franchise in Camrose, Alberta. They periodically fell behind in payments owing to Wendy’s and various remittances to Canada Revenue Agency (CRA). While Wendy’s at one point entered into a Forbearance Agreement and subsequently delayed strictly enforcing its termination rights, it elected to terminate the Plaintiffs’ franchise and sublease in March 2011.

Around the same time, the Plaintiffs received an offer from a third party to purchase the franchise. [ 2 ] The Plaintiffs allege that Wendy’s improperly terminated the Agreement before they had an opportunity to sell the franchise.

The Plaintiffs sued Wendy’s and its parent company Wendy’s International Inc. under the following causes of action: 1) Waiver and estoppel; 2) Breach of Contract; 3) Breach of the Duty of Good Faith and Fair Dealing; 4) Unjust Enrichment; and 5) Intentional Interference with Economic Relations. [ 3 ] The Defendants counterclaimed, seeking damages for unpaid amounts owed by the Plaintiffs and for a debt it acquired from the Bank of Montreal. The Defendants have applied for

summary dismissal of the Plaintiffs’ claim and

summary judgment on its counterclaim. The Plaintiffs discontinued as against the individual defendants by consent prior to this application proceeding. [ 4 ] For the reasons that follow, I grant the application for

summary dismissal of the Plaintiffs’ claim, and the application for

summary judgment on the counterclaim. The Test for

Summary Judgment [ 5 ] Rule 7.3(1) of the Alberta Rules of Court , Alta Reg 124/2010 sets out when an application for

summary judgment may be granted: A party may apply to the Court for

summary judgment in respect of all or part of a claim on one or more of the following grounds: (

a) there is no defence to a claim or part of it; (

b) there is no merit to a claim or part of it; (

c) the only real issue is the amount to be awarded. [ 6 ] The Supreme Court recently expanded the scope of matters that may be resolved by way of

summary judgment. The main question that must be answered is whether there is sufficient evidence before the Court to decide the claim on the basis of affidavit evidence alone: Hryniak v Mauldin , 2014 SCC 7 , [2014] 1 SCR 87 at para 57 ; Windsor v Canadian Pacific Railway Ltd , 2014 ABCA 108 , 572 AR 317 at paras 13-16 .

If the affidavit evidence before the Court is sufficient to satisfy the presiding justice that a trial is not required to fairly and justly adjudicate the issues, then the justice may decide the issues on their merits: Windsor at para 15 . [ 7 ] In this case, there are no relevant factual disputes between the parties that require the hearing of viva voce evidence to resolve. Therefore, I am satisfied that it is fair and just to proceed with deciding the issues on their merits.

Waiver, Estoppel, and Breach of Contract [ 8 ] The Plaintiffs concede that they were in arrears with both Wendy’s and the Canada Revenue Agency when Wendy’s terminated the franchise. However, the Plaintiffs argue that Wendy’s waived its right to insist on the immediate payment of arrears and was estopped from terminating the Agreement due to its past conduct. The Plaintiffs also argue that Wendy’s breached the Franchise Agreement by failing to provide them with adequate notice. a.

Background Facts [ 9 ] Wendy’s had the right to terminate both the Franchise and Sublease Agreements if the Plaintiffs failed to pay any amounts owing to Wendy’s when due (clauses 14.3.B and 14.3.L of the Franchise Agreement; clause 19 of the Sublease Agreement). Wendy’s also had the right to terminate the Franchise Agreement if the Plaintiffs failed to pay all other taxes and debts when due (clause 18.1).

The Franchise and Sublease Agreements both contain standard non-waiver and entire agreement clauses (clauses 21.3 and 23 of the Franchise Agreement; clauses 21 and 28 of the Sublease Agreement). [ 10 ] The Plaintiffs periodically fell into arrears for rent, royalties, advertising fees, and other charges owing to Wendy’s. In 2009, the parties executed Forbearance Agreements under both the Sublease and Franchise Agreements to set a payment

schedule for arrears owed to that point. Subsequent defaults in 2010 resulted in Wendy’s issuing a Notice of Termination on March 31, 2010, which gave the Plaintiffs 30 days to cure the defaults. The Plaintiffs were able to repay their arrears before Wendy’s exercised its termination rights. [ 11 ] In 2011, Wendy’s sent the Plaintiffs four notices of default for various accumulated arrears under both the Franchise and Sublease Agreements. The first was sent by Wendy’s legal counsel to the Plaintiffs on January 31, 2011 for unpaid royalties under the Franchise Agreement from November 2010.

The second was sent on February 2, 2011 for unpaid rent under the Sublease Agreement from January 2011. The third was sent on February 25, 2011 for unpaid royalties from December 2010. The fourth was sent on March 3, 2011 for rental arrears from February 2011. [ 12 ] In addition to arrears owed under the Franchise and Sublease Agreements, the Plaintiffs had arrears to the CRA for unremitted source deductions and goods and services taxes. On March 8, 2011, the Department of Justice notified Wendy’s that several writs of seizure and sale had been issued by the Federal Court against 112.

CRA had previously seized the assets of 112 in October 2007 and 112 had filed a Notice of Objection. The bailiff allowed for the franchise’s equipment and machinery to remain in the Plaintiffs’ possession

on a Bailee’s undertaking pending a resolution of the Notice of Objection. In the notice CRA advised it had seized the franchise license.It requested a copy of the Franchise Agreement and Wendy’s position regarding the seizure and sale of the franchise license. In July2013, the CRA issued five Requirements to Pay indicating that the Plaintiffs owed tax debts of approximately $2.66 million in aggregate.In August 2013, 112 withdrew its objection to the seizure without explanation. 112 also owed $576,089.30 to the Bank of Montrealsecured by all of 112’s present and after acquired personal property.

Wendy’s purchased this debt and security interest on February 11,2013 for $225,000. [13] On March 17, 2011, Philip Goudreau, Wendy’s Regional Director for Western Canada, and a bailiff attended at the franchiselocation and served the Plaintiffs with a Notice of Termination of the Franchise and Sublease Agreements. Wendy’s took possession ofthe premises, changed the locks, and re-opened it as a corporate-run restaurant the next day.

The Notice of Termination set out thefollowing reasons for terminating the Agreements immediately: 1) The failure to pay all liabilities on or before their due dates; 2) The failure to cure the defaults specified in the January 31, 2011, and February 2, 2011, Notices of Default within the specifiedcure periods; 3) The Canada Revenue Agency’s seizure of 112’s material assets and personal property; 4) The failure to remit source deductions and goods and services tax to the CRA, and the failure to notify Wendy’s of the same. b. The Law [14] Written contracts are interpreted based on their plain and ordinary meaning.

If the written contract is clear and unambiguous,then that

interpretation must be applied: Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53, [2014] 2 SCR 633 at para 59; EliLilly & Co v Novopharm Ltd, (SCC), [1998] 2 SCR 129 at para 55. [15] The parties’ subsequent actions must be interpreted in conjunction with the original written contract. The presence of non-waiver clauses in contracts is a strong indicator that the parties’ conduct is not intended to waive subsequent enforcement rights: CMTakacs Holdings Corp v 122164 Canada Ltd, 2015 ONSC 5358, [2015] OJ No 4530 at para 10.

Estoppel may still apply if the partieseffectively agree to amend the original contract: RA Keane Enterprises Ltd v Drago’s Place Ltd, [1990] OJ No 673 (Dist Ct). [16] Estoppel by convention may provide an exception in the proper circumstances. Requirements for this estoppel are set out bythe Supreme Court in Ryan v Moore, 2005 SCC 38, [2005] 2 SCR 53 at para 59: 1) The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation bystatement or conduct creating a mutual assumption.

Nevertheless, estoppel can arise out of silence (impliedly). 2) A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legalposition. 3) It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking toestablish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption sincethere has been a change from the presumed position. c.

Analysis [17] In this case, the entire agreement clauses require any amendments to the contract be in writing. The 2009 ForbearanceAgreement is clear that it was intended to only apply to the defaults that preceded September 14, 2009. Nothing in the ForbearanceAgreement modifies the non-waiver clause in the Franchise or Sublease Agreements with respect to subsequent defaults.

The non-waiverclause allows the Defendant to forbear enforcing its contractual remedies without prejudicing its ability to exercise these rights in thefuture. [18] There is no merit to the Plaintiffs’ claim that an “implied agreement” existed between the parties that prevents the Defendantfrom terminating the Franchise Agreement. Taken together, the non-waiver and entire agreement clauses prevent both parties fromamending the contract by conduct alone.

The estoppel by convention analysis therefore fails at step one – the Agreement shows that theparties’ mutual understanding was to prevent the Agreement from being modified by conduct alone. Absent a written amendmentdisclaiming termination rights for the breaches cited in the March 17, 2011 termination notice (such as a new forbearance agreement),Wendy’s termination rights remained in force. [19] Furthermore to satisfy the estoppel by convention test, the evidence must show that both parties are aware of the convention:Ryan at paras 61-62.

The Plaintiffs’ contention that an informal agreement existed between the parties is not supported by Wendy’sconduct. While Wendy’s did occasionally forbear from exercising its contractual remedies without a written notice, Wendy’s previouslyentered into a written forbearance agreement and served written termination notices as well. It cannot be said that a common conventionor pattern of behavior was established sufficient to affect the parties’ legal rights.

At the very least, the evidence does not disclose thatWendy’s was aware of the convention that the Plaintiffs may have subjectively perceived. [20] Finally, Clause 14.2.H gives Wendy’s the right to terminate the Agreement immediately on written notice if the Plaintiffscommit more than one default within a six-month period. The facts show that the Plaintiffs committed multiple breaches that were notcured in the six months leading up to the termination notice. The Defendant properly exercised its right to terminate the Agreementimmediately upon serving written notice of the termination on the Plaintiffs.

Breach of the Duties of Fair Dealing and Good Faith a. Background Facts [21] Clause 13.2 of the Franchise Agreement prohibits the franchisee from selling, transferring, or assigning the agreement to anyother party without Wendy’s prior written consent. While Wendy’s is contractually prohibited from unreasonably withholding itsconsent, it has broad discretion to consider a number of factors when assessing the proposed franchisee’s suitability (enumerated inclause 13.3).

Wendy’s also had a right of first refusal to purchase the franchise from the franchisee on the same terms agreed to betweenthe franchisee and proposed franchisee (clause 13.4). [22] Clause 7.4.D of the Franchise Agreement eliminates the franchisee’s ability to claim compensation for goodwill associatedwith operating the franchise: 7.4.D Any and all goodwill arising from Franchisee’s use of the Proprietary Marks in its franchised operation under the System shallinure solely and exclusively to the benefit of Wendy’s and its subsidiaries, and upon transfer, expiration or termination of this Agreementand the license herein granted, no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee’s use ofthe System or the Proprietary Marks. [23] To remedy their financial problems, the Plaintiffs discreetly canvassed for potential opportunities to sell the franchise as agoing concern.

Between November 2010 and January 2011, the Plaintiffs depose that they received three separate offers to purchase thefranchise, ranging from $1.6 million to $2.15 million. The Plaintiffs decided to accept the highest purchase offer, and executed aCommercial Real Estate Purchase Contract with the prospective purchasers on March 1, 2011. The Plaintiffs then sent a request toWendy’s for the required documents to facilitate the transfer of the franchise under the Franchise Agreement.

Wendy’s provided thesevia email on March 1, 2011, adding that it was the Plaintiffs’ sole responsibility to complete and return the paperwork. The Plaintiffsforwarded the documents via email to the prospective purchasers’ realtor on March 22, 2011.

The prospective purchasers nevercompleted the franchise transfer documents, nor is there any evidence on the record to suggest that Wendy’s had any substantive contactwith the prospective purchasers or their realtor regarding the transfer of the franchise. [24] An email from Tom Seto to the realtor for the purchasers dated April 19, 2011, indicated that the Plaintiffs were stillinterested in proceeding with the sale. The response from the realtor indicated that the Sale Agreement would need to be amended toextend the document disclosure deadline, as the Plaintiffs had failed to meet it.

Although the Plaintiffs appear to have offered to extendthere is no evidence to indicate that the offer was ever accepted by the prospective purchasers. b. The Law [25]

Section 7 of the Franchises Act, RSA 2000, c F-23 states that “[e]very franchise agreement imposes on each party a duty offair dealing in its performance and enforcement.” [26] In the Supreme Court’s decision in Bhasin v Hrynew, 2014 SCC 71, [2014] 3 SCR 494, the Court found that there is a generalorganizing principle of good faith that applies to the performance of all legal contracts.

However, the Court cautioned that existingdoctrines of “good faith” must be looked at first before employing the organizing principle although it can be applied “where the existinglaw is found to be wanting and where the development may occur incrementally in a way that is consistent with the structure of thecommon law of contract and gives due weight to the importance of private ordering and certainty in commercial affairs”: at para 66. [27] In Trillium Motor World Ltd v General Motors of Canada Ltd, 2015 ONSC 3824, 30 CBR (6th) 1, the Ontario SuperiorCourt considered the application of the Bhasin decision in the franchising context.

The Court found that the duty of fair dealing set out inOntario’s Arthur Wishart Act (Franchise Disclosure), SO 2000, c 3, s 3 is similar to the organizing principle of good faith articulated inBhasin. Therefore, the jurisprudence discussing the duty of fair dealing in the franchising context remains relevant in the post-Bhasinera.

Absent exceptional circumstances, the general organizing principle of good faith should not usurp established “good faith” doctrinesin specific contexts. [28] Most case law discussing the duty of good faith in the franchising context involve negligent misrepresentations made by thefranchisor to induce the franchisee to enter into the agreement.

For example, in 1005633 Ontario Inc v Winchester Arms Ltd, (ON SC), [2000] OJ No 2404 (Sup Ct J), pre-contractual misrepresentations made by the franchisor regarding what wouldbe provided to the franchisees to assist them in operating the franchise were considered to be a breach of the duty of good faith thatgoverns pre-contractual negotiations: at para 86. In Perfect Portions Holding Co v New Futures Ltd, [1995] OJ No 2113 (Gen Div) atpara 14, the Ontario Court of Justice stated that: A duty of utmost good faith can be implied in any purchase such as the one described in this case.

The franchisor was under a clearobligation to advise the prospective purchasers of any difficulties which could reasonably be foreseen in light of the informationavailable to it. [29] In Landsbridge Auto Corp v Midas Canada Inc, [2009] OJ No 1279 at para 15 (Sup Ct J), the Court described the duty ofgood faith in the franchising context as follows: While requiring a franchisor to observe standards of honesty, fairness and reasonableness, and to give consideration to the interests of thefranchisees, this duty does not involve an obligation to prefer the interests of the latter, and is not a fiduciary duty in that sense.

If the franchise agreement allows a party to exercise discretion, that discretion must be exercised “reasonably and with proper motive”,and may not be exercised “arbitrarily, capriciously, or in a manner inconsistent with the reasonable expectations of the parties”: at para17.

[ 30 ] In 2130679 Ontario Inc v Cora Franchise Group Inc , 2013 ONSC 3099 , [2013] OJ No 2411, the Court cautioned against using the duty of fair dealing to essentially replace the franchise agreement or alter its terms.

In particular, the Court cautioned against implying terms that are contrary to express terms, as this would “stretch the duty of fair dealing well beyond any reasonable boundary”: at para 21. [ 31 ] In Salah v Timothy’s Coffees of the World Inc , 2010 ONCA 673 , 268 OAC 279, the franchise agreement specified that it would terminate after five years, which corresponded to the termination date of the head lease of the franchised premises.

The franchisee negotiated an amendment to the franchise agreement which provided that, in the event that Timothy’s entered into a new head lease with the Shopping Center, the franchise agreement would be renewed along with a new sublease: at para 3. The franchisor later negotiated a new lease at a different location within the same shopping center, and executed a franchise agreement with a different franchisee to begin operating that location once Mr. Salah’s franchise agreement expired. Mr.

Salah sued for breach of contract and breach of the statutory duty of fair dealing on the basis that he should have been offered the franchise agreement for the new location within the same mall. In discussing the duty of fair dealing and its application to the termination of franchise agreements, Timothy’s argued that the duty of fair dealing only applies to the performance of existing franchise agreements.

The Court did not accept that argument noting that the claim rested on the breach of an express renewal term in the contract and that the circumstances fell squarely within the “performance or enforcement” of the franchise agreement: at para 20. [ 32 ] The duty of fair dealing and good faith in the context of terminating a franchise agreement was discussed in the case of CM Takacs Holdings Corp , supra . In that case, the franchisor (New York Fries) terminated the franchise agreement without notice due to the franchisee’s repeated failures to pay its obligations under the agreement on time.

The franchisee sued claiming inter alia that the termination constituted a breach of the duty of good faith, since the franchisor had previously declined to exercise its termination rights in the franchisee’s favour. The Court found that the presence of a non-waiver clause disposed of the estoppel argument: at para 10. Furthermore, the fact that both parties were sophisticated business entities that had the benefit of legal counsel supported a finding that the franchisee did not misunderstand the written agreements when they were signed.

The Court concluded that the statutory duty of fair dealing does not give rise to an implied notice period that is greater than expressly provided in the contract itself: at para 11. [ 33 ] In Elliott v Trane Canada Inc , 2008 NBQB 79 , 333 NBR (2d) 1, the franchisor terminated the franchise agreement due to customer complaints, substandard service, and the misapplication of cheques. The franchisee sued for loss of profits and loss of opportunity to sell its business at fair market value. The Court concluded that “the Defendants acted in good faith when the Franchise Agreement was terminated.

There was no improper motive or dishonesty employed on the part of the Defendants with respect to such termination”: at para 130. Critically, the Defendants had not triggered the default – the franchisee was in breach of the agreement due to its own actions. Since the Defendants complied with the termination provisions in the contract and did not terminate the agreement for an improper purpose, the termination was proper: at para 132.

The Court also denied recovery for the loss of opportunity to sell the business on the basis that no express or implied representation had been made by the franchisor to guarantee the franchisee’s ability to sell the franchise in the future: at para 198. c. Analysis [ 34 ] There is no merit to the Plaintiffs’ contention that the duty of fair dealing and good faith compels the Defendant to sell the franchise for the Plaintiffs’ economic benefit.

Following Elliott , provided the termination was done in accordance with the contract and was not for an improper or fraudulent purpose, then the franchisor has satisfied the duty of fair dealing. Furthermore, the duty of fair dealing and good faith will not be used to alter the express terms of the contract itself: Cora Franchise Group, supra ; CM Takacs Holdings Corp , supra . [ 35 ] The Plaintiffs concede that the termination was justified given their numerous defaults.

The Franchise Agreement allows for the franchisor to terminate the Agreement immediately if the Franchisee commits the same default whether cured or not within a 6 month period or execution is levied against any of its material assets. The termination was made in accordance with the contractual provisions. [ 36 ] Like Elliott , the Franchise Agreement in this case does not compel Wendy’s to sell the franchise for the franchisee’s benefit. Wendy’s has the right to terminate the franchise and operate it as a corporate location, as it has done.

Furthermore, clause 7.4.D acknowledges that the franchisee has no right to claim compensation for loss of goodwill if the Agreement is terminated – the franchisee merely has the right to operate the franchise while the Agreement is in effect. Imputing a duty to sell the franchise on the franchisee’s behalf would, in effect, compensate the franchisee for goodwill that it is not contractually entitled to.

While the contract is onerous, the Plaintiffs cannot claim that they have been prejudiced by the Defendant for enforcing its contractual rights as contemplated by the Agreement. [ 37 ] The evidence is clear that the unsolicited offer to purchase the franchise from the Plaintiffs was in its earliest stages. Wendy’s had not received any documents from the prospective franchisees, nor did the prospective franchisees have any substantive contact with Wendy’s.

The evidence discloses a sufficient rationale to terminate the franchise, and there is no evidence to support the contention that Wendy’s true purpose was to frustrate the prospective sale of the franchise. Parenthetically if the sale of the franchise was imminent at the time of termination it could well be evidence that the termination was done for an improper purpose.

That was not the case here. [ 38 ] In my view, it would be inappropriate to expand the duty of good faith in the franchising context to mandate that the franchisor must sell the franchise for the franchisee’s benefit when that is not expressly provided for in the agreement. Bhasin makes it clear that existing doctrines of good faith in specific contexts continue to apply, and that any expansion of the duty of good faith should be incremental and give due consideration to the parties’ freedom to order their commercial affairs as they wish.

The statutory duty of fair dealing informs the content of the duty of good faith in the franchising context, and the case law is clear that it should not be used to modify the plain wording of a written contract, nor should it add obligations not expressly contemplated by the parties: Trillium , supra ; Elliott , supra . Expanding the duty of good faith would constitute a radical departure from the existing law, and would not give due weight to commercial certainty and the parties’ freedom to arrange their commercial affairs as they wish.

[39] There is no merit to the Plaintiffs’ argument that the Defendant acted in bad faith when it terminated the FranchiseAgreement. In order to demonstrate that the termination was done in “bad faith”, the Plaintiffs must show that the Defendant terminatedthe Agreement for some improper or fraudulent purpose: Elliott, supra. The pleadings do not disclose any such motive. Rather, the factsshow that the termination accorded with the procedures set out in the contract.

The Plaintiffs concede that they breached the Agreementmultiple times in the immediate period leading up to the termination, and the termination notice itself cited these as reasons for thetermination. [40] The Plaintiffs argue that the Defendant acted in bad faith by terminating the Agreement after receiving notice that the CRAhad seized the Plaintiffs’ property for tax arrears. The Plaintiffs objected to the seizure, and that objection had yet to be resolved at thetime the Defendant terminated the Agreement.

The Agreement expressly states that failing to pay taxes to the CRA when due constitutesa default that is grounds for termination. The duty of fair dealing and good faith operates to limit the exercise of discretion vested in thefranchisor so that it must act reasonably and with proper motive, and not arbitrarily, capriciously, or in a manner inconsistent with theparties’ reasonable expectations: Landsbridge Auto Corp at para 17.

It is not immaterial that the objection to the seizure did not disputethat there were taxes owing but objected on the basis that they were based on CRA’s assessment and that they were too high. Regardless,the seizure of assets by the CRA was only one of many breaches cited in the termination notice. Taken in aggregate, the Defendant hadreasonable and justifiable grounds to terminate the Agreement when it did, and was not required to wait until the CRA proceedings hadconcluded given the many other grounds for termination cited.

Improvident Realizations [41] While not pled, the Plaintiffs argued that the Defendant owed them a duty to sell its assets at the highest market value possible(that is, to sell the franchise as a going concern to maximize value). The Defendant’s failure to do so was argued to be an improvidentrealization. I invited the parties to submit supplemental written briefs on this argument. [42] It is well established that receivers owe debtors a duty to conduct commercially reasonable sales of assets: Landry v PeterAyling and Associates Ltd, 2013 ONSC 3069, [2013] OJ No 2381 at paras 27-28.

Neither the parties nor I can find any authorities thatanalogize receiverships with franchisor/franchisee relationships. As stated above, the duties of fair dealing and good faith in thefranchising context do not compel the franchisor to sell the franchise as a going concern for the franchisee’s benefit unless the partieswere to expressly agree. [43] In the absence of a written agreement compelling the Defendant to sell the franchise as a going concern for the Plaintiff’sbenefit, the Defendant owes no such duty.

Unjust Enrichment [44] The Plaintiffs argue that Wendy’s was unjustly enriched by: • Evicting the Plaintiffs from and then taking control of the franchise; • Taking possession of the Plaintiffs’ assets when the Plaintiffs were going to be paid pursuant to the Sale/Purchase Contract thatwas entered into on March 1, 2011; • Misappropriating the goodwill the Plaintiffs had created without compensating them for same; and • Continuing to profit from the hard work and the accumulated goodwill created by the Plaintiffs thereby achieving higher profitsfrom the franchise than would have been possible otherwise. a.

The Law [45] The test for unjust enrichment is: (1) an enrichment by the defendant, (2) a corresponding deprivation by the plaintiff, and (3)an absence of juristic reason for the enrichment: Garland v Consumers’ Gas Co, 2004 SCC 25, [2004] 1 SCR 629 at para 30. [46] At the first and second stages, the enrichment and corresponding deprivation must constitute an objective benefit that iscapable of being monetarily quantified: Peter v Beblow, (SCC), [1993] 1 SCR 980 at 990. At the third stage, if there isa valid legal explanation for the transfer, then restitution will be denied.

Specifically, if a contract exists between the parties thatexpressly denies restitution to the deprived party, then that party cannot then claim restitution through unjust enrichment: JedfroInvestments (USA) Ltd v Jacyk, 2007 SCC 55, [2007] 3 SCR 679 at para 33; Garland at para 44. The loss experienced was willinglyassumed when risks were allocated between the parties when the contract was formed. Therefore, as long as the loss was contemplatedby the parties when the contract was formed and the contract is otherwise legally valid, restitution by an unjust enrichment claim will beunsuccessful. b.

Analysis [47] With respect to the unjust enrichment allegations against Wendy’s, the Franchise Agreement expressly disclaims restitutionfor the grounds alleged. The contract allows Wendy’s to terminate the Agreement and take control of the franchise if the franchiseecommits

an act of default. Again, the Plaintiffs concede that they breached the Agreement, so Wendy’s is contractually entitled to takecontrol of the franchise. [48] Furthermore, the contract expressly indicates that the Plaintiffs are not entitled to compensation for the loss of goodwill when

the Agreement is terminated. Since the Plaintiffs agreed to assume the risk of Wendy’s repossessing the franchise without compensation for goodwill, the action for unjust enrichment cannot succeed: Jedfro Investments , supra . [ 49 ] As for the allegation that Wendy’s was unjustly enriched when it took possession of the franchise just before the Plaintiffs sold it, the evidence demonstrates that the sales process was, if anything, in very early stages and simply expired in accordance with its terms when the conditions were not satisfied by the Plaintiffs.

In particular, the Franchise Agreement gives Wendy’s a right of first refusal, and a right to review and approve any prospective purchaser of the franchise. The Plaintiffs failed to provide Wendy’s with the required documentation to begin such a review. The Plaintiffs’ allegation treats the sale as a certainty but that was far from the reality of the situation. [ 50 ] Finally, the contract does not oblige Wendy’s to restrain its right to terminate the Agreement in the face of multiple breaches by the Plaintiffs for the sole reason that the Plaintiffs might be able to find a buyer for the franchise.

Intentional Interference with Economic Relations [ 51 ] The Plaintiffs allege that Wendy’s intentionally interfered with the Plaintiffs’ economic relations by preventing the sale of the franchise to a bona fide third party purchaser for value and by preventing the Plaintiffs from operating the franchise. a. The Law [ 52 ] The tort of intentional interference with economic relations was considered by the Supreme Court in AI Enterprises Ltd v Bram Enterprises Ltd , 2014 SCC 12 , [2014] 1 SCR 177.

The tort involves three elements: (1) the defendant commits an unlawful act against a third party; (2) the defendant intended to cause the plaintiff economic harm; and (3) the plaintiff suffered an economic loss. As a tort that protects purely economic interests, its scope is construed narrowly: at paras 29, 74. An important policy consideration is ensuring that the tort does not interfere with legal certainty for commercial affairs: at para 33.

Overall, the Court found that “the conduct must give rise to a civil cause of action by the third party or would do so if the third party had suffered a loss as a result of that conduct”: at para 76. It is clear that the cause of action was intended to be limited to three-party situations, and that this must be specifically pled: MK Engineering Inc v Plecash , 2014 ABQB 483 , [2014] AJ No 1083 at para 64 . b. Analysis [ 53 ] In this case, the pleadings do not properly disclose a cause of action for intentional interference with economic relations.

The Plaintiffs are not alleging that Wendy’s committed a tortious act against a third party that was intended to cause the Plaintiffs economic loss. Rather, the claim rests solely on an allegation that the Defendant’s actions against the Plaintiffs caused the Plaintiffs economic loss. The claim therefore would fail at the first stage of the analysis for not properly disclosing a cause of action: Alberta Rules of Court , R 3.68. Regardless, there is no evidence to support it.

Liability of Wendy’s International [ 54 ] Wendy’s International, the parent company of Wendy’s Restaurants of Canada, was included as a Defendant to the claim. The pleadings do not disclose a cause against Wendy’s International and again there is no evidence to support it.

Counterclaim [ 55 ] Wendy’s counterclaims for judgment on debts owed by the Plaintiffs: • $125,803,33 plus contractual interest of 9.5% from March 17, 2011, which is owed to Wendy’s under the Agreements and Forbearance Agreements; • The assigned debt from the Bank of Montreal in the amount of $576,089.30 plus daily contractual interest of $62.42 from February 11, 2013; [ 56 ] The Plaintiffs filed a Statement of Defence to the Counterclaim, denying liability on the basis that the claims “arose as a direct result of the wrongful and unlawful dealings of the Plaintiff by Counterclaim and as such the Plaintiff by Counterclaim is precluded from advancing any claims in this regard.” [ 57 ] I have already concluded that Wendy’s did not breach the duties of fair dealing and good faith when it terminated the Franchise Agreement.

Furthermore, the debts in question arose independently of that termination. The Plaintiffs have conceded that they were in arrears to Wendy’s prior to the termination. The assigned debt arose between the Bank of Montreal and the Plaintiffs before it was assigned to Wendy’s. The Plaintiffs have not alleged nor provided any evidence that the Bank of Montreal debt was not properly due and owing. [ 58 ] Wendy’s attached an Obligation

Summary to the termination notice that was served on the Plaintiffs. The Obligation

Summary estimates that the Plaintiffs owed $125,803.33 as of March 11, 2011, for the arrears referenced in the termination notice. Notably, the Obligation

Summary indicates that several of the charges are based on estimated (as opposed to actual) sales, and the Co-op advertising balance “may have changed” since its initial estimate on November 30, 2010. No updated figures were provided to the Court. The Defendants conceded in oral argument that they were in arrears when the termination notice was issued, and there is no evidence on the record to show that any payments have been made towards those arrears. Wendy’s is entitled to judgment for unpaid rent, royalties,

advertising fees and other arrears under the Franchise and Lease Agreements. [ 59 ] Wendy’s claims contractual interest of 9.5% on the arrears owed. Clause 13 of the Sublease Agreement provides for 2% monthly interest on all rental arrears. Clause 4.4 of the Franchise Agreement states that, in the event that any royalty or advertising fees are paid late, a $100 penalty plus interest will be assessed. The interest rate is defined as “the rate determined from time to time by Wendy’s or the maximum rate permitted by law, whichever is less.” None of the Default Notices specified an interest rate.

The Promissory Note attached to the Forbearance Agreement provides for contractual interest of 9.5% per annum. The Promissory Note’s term ended on November 1, 2010, and the amounts thereunder fully paid. There is no evidence to connect the rate to subsequent amounts in arrears. With the evidence before me I am unable to determine the appropriate rate of interest on the arrears. [ 60 ] The assigned debt from the Bank of Montreal was $576,089.30 as of February 20, 2013, with a $62.42 per diem interest rate accruing thereafter. As noted the Plaintiffs have not adduced any evidence to deny the existence of this debt.

Conclusion [ 61 ] Accordingly, for the above reasons the application for

summary dismissal of the Plaintiffs’ actions is granted.

Summary Judgment on the counterclaim for the “Bank of Montreal” indebtedness including interest as claimed to today’s date is granted.

Summary Judgment for the arrears and other obligations under the Franchise and Sublease Agreements is granted in an amount inclusive of interest to be agreed upon by the parties failing which they may apply to me for a determination. [ 62 ] Clause 15.7 of the Franchise Agreement provides that the Plaintiffs must reimburse Wendy’s for “reasonable attorneys’ fees incurred by Wendy’s as a result of the default.” In my view this language is insufficient to constitute an entitlement to solicitor and client costs. The Plaintiffs will pay one set of costs to the Defendants under Col 5 of

Schedule C of the Rules plus all reasonable disbursements. Dated at the City of Edmonton, Alberta this 2nd day of September, 2016. L.A. Smart M.C.C.Q.B.A. Appearances: Roger Stephens Simons & Stephens for the Plaintiff Trevor McDonald Burnet Duckworth & Palmer LLP for the Defendants