Hanewich v Budget Brake & Muffler Franchising Ltd, 2016 ABQB 727

Court of Queen’s Bench of Alberta Citation: Hanewich v Budget Brake & Muffler Franchising Ltd, 2016 ABQB 727 Date: 20161221 Docket: 1308 00193 Registry: Medicine Hat Between: John Hanewich and 1211550 Alberta Inc. Plaintiffs - and - Budget Brake & Muffler Franchising Ltd. and Budget Brake & Muffler Distributors Ltd. Defendants _______________________________________________________ Memorandum of Decision of J.T. Prowse , Q.C. Master in Chambers _______________________________________________________ [ 1 ] I gave oral reason for

summary judgment in this action on September 7, 2016. [ 2 ] In those reasons I summarily dismissed the claims made by the plaintiffs John Hanewich (“Hanewich”) and 1211550 Alberta Inc. (“121”) against the defendants Budget Brake & Muffler Franchising Ltd. (“Franchising”) and Budget Brake & Muffler Distributors Ltd. (“Distributors”). [ 3 ] In addition, I granted Franchising

summary judgment against Hanewich and 121. [ 4 ] The parties cannot agree on a form of order that reflects my reasons, and have applied for directions in that regard. [ 5 ] In order to put the disagreement as to the form of order into context, I will provide a brief description of the dispute between the parties.

Background [6] From 2006 onwards, Hanewich/121carried on business as franchisees and subtenants of Franchising in Medicine Hat,Alberta. [7] The other defendant, Distributors, is the parent company of Franchising. [8] In 2012 and 2013 the franchise was operating at a loss and Hanewich/121 purported to terminate the franchise and subleaseby notice to Franchising effective December 31, 2013. [9] The franchise agreement and sublease were not due to expire until July of 2016.

Hanewich/121 took the position that thatthey had no responsibility to Franchising for any royalties or rent after December 31, 2013. [10] Franchising in return purported to terminate the relationship by a notice effective January 20, 2014, preserving its right toclaim post-termination damages from Hanewich/121. Franchising counterclaimed against Hanewich/121for those damages.

The identity of the franchisor [11] While many grounds for relief were asserted by Hanewich/121, in the end the focus became that fact that the franchiseagreement between Franchising and Hanewich/121, which was signed by Hanewich, was mistakenly signed by Distributors instead ofFranchising. [12] The reasons for judgment which I pronounced on September 7, 2016, concluded that the franchisor was Franchising, and thatthe signature of Distributors on the franchise agreement was simply as typographical error. [13] This conclusion was advocated by Franchising in its written argument filed August 19, 2016, in which it argued as follows,and I agree with these arguments: On its face, the franchise agreement signed by Mr.

Vance and Hanewich is between Franchising and Hanewich. The cover page listsFranchising as the franchisor, and the first page of the agreement defines "Franchisor" within the meaning of the agreement asFranchising. In addition, Recital F. to the franchise agreement distinguishes between Distributors and Franchising (as the "Franchisor").It is abundantly clear that references to the "Franchisor" in the Franchise Agreement are references to Franchising.

Although thesignature block at page 30 of the franchise agreement lists "Budget Brake & Muffler Distributors", the substitution "Distributors" for"Franchising" was simply a typographical error. This does not alter the fact that the franchising agreement was made betweenFranchising and Hanewich. Although the franchise agreement clearly states that it is between Franchising and Hanewich, Hanewich's admissions demonstrate that,leading up to, at the time of, and following the execution of the franchise agreement, Hanewich knew and understood that he would becontracting with Franchising.

Hanewich admitted that: • he was told and believed he had an agreement with Franchising when he signed the franchise agreement; • he knew, beginning in 2003, Distributors and Franchising were two separate entities, and as a Franchising franchisee in Alberta,his agreement would be with Franchising; • when he signed the franchise agreement, he understood he was going to be making an agreement with Franchising, and: • he understood the sublease was between him, as franchisee, and Franchising as franchisor. [14] It was clear between the parties that the franchisor was Franchising.

Franchising invoiced Hanewich/121 a total of 550 timesfor monthly franchise fees, and Hanewich/121 paid them to Franchising 550 times, over more than 7 years. [15] The law is clear that, where parties act under a contract, it is binding on them even though at the outset it was intended thatthere be a written contract signed by both of them.

See the following passage from Kevel Holdings Ltd. v 408230 Alberta Ltd., (AB KB), 1994 CarswellAlta 32, [1994] 5 W.W.R. 435, at para’s 29 and 30: In Mills v Marriott (1912), (SCC), 3 W.W.R. 841, a decision of the Supreme Court of Canada, the vendors, but not thepurchaser, had signed the sale agreement. The vendors then argued that they were not bound as the purchaser had not signed thecontract.

Sir Charles Fitzpatrick C.J. stated (at pp. 842-43) that: I take it to be settled law that "It is sufficient if the memorandum bears the signature of the party to be charged in the action unless it isshown that he only intended to be bound in the event of the other party also signing a memorandum so as to make the other party'ssignature a condition precedent to his liability." The Supreme Court was of the view that on all the facts in the Mills case the parties intended to be bound by the agreement, and thatthey attached no importance to the omission of the plaintiff's signature which was due to an oversight on his part.

The Court referred tothe parties' subsequent conduct, and noted that both parties subsequently acted upon the contract and accepted it, as if it had beencompletely executed. As a result they could not now withdraw from the terms of the concluded agreement. Position taken by Hanewich/121 regarding the form of judgment to be signed

[ 16 ] In written submissions made regarding the form of judgment to be signed, Hanewich/121 121 assert that the judgment to be signed ought to: • declare that there was a ‘mutual mistake’ made by the parties • order a rectification of the franchise agreement to ‘Franchising’ from ‘Distributors’ • make a finding that the right of Hanewich and 121 to rescind the franchise agreement, under

section 13(

b) of the Franchises Act , runs from the date of rectification, so that the Court should now allow the claim of Hanewich and 121 for rescission. [ 17 ] In my view, there is no merit to these submissions. [ 18 ] To begin with, there was no ‘mistake’ as that term in used in contract law. This was not a situation where Hanewich/121 thought that the franchisee was Distributors while Franchising thought the franchisee was Franchising. They both thought that the franchisee was Franchising. [ 19 ] There is no need to rectify the franchise agreement.

The franchise agreement throughout refers to the franchisor as Franchising. It is only the signature page which contains a typographical error, which did not prevent the parties from carrying on business between Franchising on the one hand and Hanewich/121 on the other hand for the next 7 years. [ 20 ] The statutory rescission rights of a franchisee are set out in

section 13 of the Franchises Act which states as follows: If a franchisor fails to give a prospective franchisee the disclosure document by the time referred to in

section 4, the prospective franchisee may rescind all the franchise agreements by giving a notice of cancellation to the franchisor or its associate, as the case may be, (

a) no later than 60 days after receiving the disclosure document, or (

b) no later than 2 years after the franchisee is granted the franchise, whichever occurs first. [ 21 ] I made a specific finding in my oral reasons of September 7, 2016, that the statutory rescission rights of Hanewich/121 expired 2 years after 2006 and I am not persuaded to change that ruling. As stated above, there is no need for an order for rectification, and even if there was, there is no logic or authority for the suggestion that this would result in a conclusion that the franchise had not been ‘granted’ within the meaning of

section 13(

b) when Hanewich/121 began operating the franchise business back in 2006.

Position taken by Hanewich/121 regarding damages due to the non-payment of advertising fees [ 22 ] The reasons for judgment based Franchising’s damages on the loss of benefit of the remaining 31 months of the franchise agreement and sub-lease. [ 23 ] Hanewich/121 paid monthly 4% of gross sales as a royalty and 4% of gross sales as an advertising fee. [ 24 ] Hanewich/121 say that, while there may have been damages from the loss of the royalty during the balance of the term (as provided in clause 14.7 of the franchise agreement), there was no loss to Franchising with respect to the advertising fee, because it was no longer necessary for local advertising to be conducted in the Medicine Hat area.

They say that the cost of local advertising in the Medicine Hat area had historically been equal to or greater than the advertising fees being collected from Hanewich/121. [ 25 ] The difficulty with this position is that the franchise agreement made it clear that the advertising was for the benefit of all franchisees, and no individual franchisee had the right to insist that local advertising be purchased in its area. [ 26 ] Sub-clauses 8.4(

f) of the franchise agreement provided: The advertising fund is intended to maximize general public recognition and patronage of the Budget System for the benefit of all franchisees of the franchisor [Franchising] and [Distributors]. The franchisor and [Distributors] undertake no obligation to ensure that any particular franchisee (including [Hanewich/121]) benefits directly or pro-rata from the placement or conduct of such advertising and promotion; [ 27 ] Given the provision quoted, I confirm my reasons which included lost advertising fees in the judgment granted against Hanewich/121.

Position taken by Hanewich/121 regarding the claim for interest at 24% per annum. [ 28 ] Hanewich/121 object to the formal judgment incorporating an award of interest against them at the rate of 24% per annum pursuant to clause 20.2 of the franchise agreement which states: all overdue payments of whatever kind required to be made by the franchisee to the franchisor hereunder shall bear interest from and after their respective due dates until paid in full at the rate of 24% per annum. [ 29 ] Hanewich/121 argue that “the damages awarded by the Court are not payments required to be made hereunder by a due date”.

I am not sure what this means. [ 30 ] Franchising terminated the franchise agreement and sublease in January of 2014 and thereupon became entitled to royalty payments and advertising fees for the 31 month balance of the term. The fact that the Court did not award judgment for those amounts

until now does not mean that they were not due in January of 2014. Accordingly Franchising is entitled to interest on those amounts calculated at 24% per annum. Position taken by Hanewich/121 regarding costs [ 31 ] Franchising was successful both in having the claim against it by Hanewich/121 dismissed, and in obtaining

summary judgment against Hanewich/121. [ 32 ] Hanewich/121 argue against costs being awarded against them as follows: The Court is invited to consider that an award of costs is not appropriate where there is a finding of mutual mistake. The Naber Seeds case [2003 SKQB 176, 2003 CarswellSask 263 ] ended with a finding that the matter was a suitable case to award no costs. To do otherwise would be to reward the defendant Franchising for its negligence in drafting, its delay in rectification, and creating the basis for this litigation.

The benefit of costs to Franchising comes at the expense of a burden of costs on Mr.

Hanewich, who is expected to pay for the expense to rectify the defendant Franchising’s mistake. [ 33 ] With respect, the reason that Hanewich/121 are being required to pay costs is not because there was a need to rectify the franchise agreement, but rather because Hanewich/121 wrongfully terminated the franchise agreement. [ 34 ] While Franchising sought indemnity costs in its counterclaim, and while clause 20.1 of the franchise agreement provides for solicitor and own client costs, Franchising only seeks party and party costs under column 3 of

Schedule C, and I am awarding those

Schedule C costs to it. Conclusion [ 35 ] For the reasons set out above I have signed and returned to counsel for Franchising the form of order which he prepared reflecting my decision of September 7, 2016. [ 36 ] In addition to the costs awarded on September 7, 2016, Franchising shall have costs of the contested application of December 7, 2016 under Column 3 of

Schedule ‘C’. Heard on the 7 th day of September 2016. Dated at the City of Calgary, Alberta this 21 st day of December , 2016. J.T. Prowse, Q.C. M.C.C.Q.B.A. Appearances: R. Barry Miskuski Niblock & Company LLP for the Plaintiffs Daniel B.R. Johnson Borden Ladner Gervais LLP for the Defendants