TDL Group Corp v MRMA Holdings Ltd, 2017 ABQB 713

Court of Queen’s Bench of Alberta Citation: TDL Group Corp v MRMA Holdings Ltd, 2017 ABQB 713 Date: 20171121 Docket: 1701 01786 Registry: Calgary Between: The TDL Group Corp. Plaintiff - and - MRMA Holdings Ltd., Alan Douglas Arsenault and Maria Ann Arsenault Defendants Corrected judgment: A corrigendum was issued on July 24, 2018; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of J.T.

Prowse , Q.C., Master in Chambers _______________________________________________________ [ 1 ] The defendant MRMA Holdings Ltd. (“MRMA”) operated a Tim Horton’s franchise store in Calgary for approximately 10 years until the relevant licence (franchise) agreement and sublease agreement (which I shall refer to collectively as the governing agreements) expired on February 2, 2016. The franchisor/sub-lessor was the plaintiff The TDL Group Corp. (“TDL”).

[2] MRMA overheld for approximately twelve weeks and continued to operate the store. It took in receipts of approximately$748,000 during those twelve weeks. [3] TDL sues for payment of rent and other charges during the overholding period and seeks

summary judgment in that regard. [4] MRMA concedes that TDL is entitled to compensation for that twelve week period for use and occupation of the premisesand for products supplied by TDL but contests the amount being claimed by TDL. The defendants assert that TDL’s only claim lies inunjust enrichment, and that insufficient evidence has been adduced in order to quantify TDL’s unjust enrichment claim. [5] In addition, the defendants assert equitable set-off against TDL’s claim. [6] TDL’s claim has three components: (

i) a portion of TDL’s claim, amounting to $39,563.32, consists of rent and other charges owing by MRMA to TDL for the period priorto expiry of the governing agreements. (ii) a claim for unpaid rent of for the twelve weeks totalling of $97,613.74. (iii) a claim for supplies and other services formerly provided under the license (franchise) agreement between the parties during thetwelve week period in the amount of $92,888.60. [7] For the reasons which follow, I conclude that TDL is entitled to

summary judgment for its claim in full. (

i) Amounts owing for the period prior to February 2, 2016 [8] MRMA concedes that $39,563.32 is owing pursuant to the license (franchise) agreement and sublease for the period priorthe expiry of the governing agreements. The defendants Alan Douglas Arsenault and Maria Ann Arsenault (the “Arsenaults”) arelikewise liable for this amount pursuant to the indemnities they provided in the governing agreements. (ii) Amounts owing for rent for the twelve week overholding period [9] I grant

summary judgment to TDL for rent, in the amount of $97,613.74 for the overholding period because one of the twogoverning agreements (namely, the sublease) expressly provided for a continuation of payments under the sublease during overholding. [10] Specifically,

section 8 of the sublease between TDL, MRMA (sub-tenant) and the Arsenaults states: The Sub-tenant [MRMA] acknowledges and confirms all of the provisions of the Head Lease [between TimWen as landlord and TDL assub-landlord] and agrees to be bound by the Head Lease as if all the covenants of the Sub-landlord [TDL] as tenant contained therein hadbeen fully incorporated into this Sublease as covenants of the Subtenant [MRMA], mutatis mutandis. [11] The Head Lease between TimWen Partnership and TDL, in

section 16.03, deals with overholding as follows: If the Tenant remains in possession of the Lease Premises after the end of the Term or any renewal or renewals thereof without havingexecuted and delivered a new lease or an agreement extending the term which has also been executed by the Landlord, there is no tacitstatutory provisions or legal presumption to the contrary, and the Tenant shall be deemed to be occupying the Leased Premises as atenant from month-to-month, upon the same terms, covenants and conditions as set forth in this Lease, so for as these are applicable to amonthly tenancy. [12] As a result of these provisions, I grant TDL

summary judgment in the amount of $97,613.74 for rent for the overholdingperiod. Again, the Arsenaults are liable for this amount pursuant to the indemnity they provided in the sublease. (iii) Amounts owing for supplies and other services during the twelve week overholding period [13] TDL claims $92,888.60 for product supplied, advertising and other amounts which would have been payable under the license(franchise) agreement if it were still in effect during the overholding period.

TDL says there is an implied contract obligating MRMAand the Arsenaults to pay on the same basis as in the prior 10 years. [14] As indicated earlier, MRMA has conceded that it is obligated to pay for certain components of this claim under the doctrine ofunjust enrichment.

It says further evidence is necessary to assign a dollar value to that concession. [15] In support of its claim of implied contract, TDL points to case law indicating that, when parties carry on after the end of afixed term contract, the court should imply a contract that the prior payment provisions continue to apply. [16] In Saint John Tug Boat Co. v Irving Refinery Ltd., (SCC), [1964] S.C.R. 614, 1964 CarswellNB 4, thedefendant Irving Refinery needed the services of tug boats in docking large tankers.

The parties agreed to a contract for one month, andextended that for another month, but then did not extend it further.

The plaintiff continued to supply tug boats on a standby basis andcontinued to invoice monthly. [17] The court held that the Irving Refinery, not having disavowed the terms of payment of the expired contract, by continuing touse the services, was bound to honour the payment provisions of the expired contract for standby services. [18] In Mitchell Energy Corp. v Canterra Energy Ltd., (AB KB), 1986 CarswellAlta 271, [1987] 2 W.W.R.636, the litigants were parties to unit operating and gas processing agreements which were not renewed beyond January 1, 1980.

Thedefendant Canterra continued to fulfill the terms of the agreements after expiry by gathering, processing and selling natural gas accordingto the terms of the contract, and remitted net sales proceeds to various participants in the unit, including the plaintiff Mitchell Energy

Corp. This carried on for some time until the plaintiff complained about various deductions made by Canterra. [ 19 ] The court held that the plaintiff Mitchell Energy Corp was bound by the payment terms of the expired contract, citing in support of its ruling both the Saint John Tugboat case and the following passage from Chitty on Contracts, 25th ed. (1983), vol. 1, p. 12: Contracts may be either express or implied. The difference is not one of legal effect but simply of the way in which the consent of the parties is manifested. Contracts are express when their terms are stated in words by the parties.

They are often said to be implied when their terms are not so stated, as, for example, when a passenger is permitted to board a bus: from the conduct of the parties the law implies a promise by the passenger to pay the fare, and a promise by the operator of the bus to carry him safely to his destination. There may also be an implied contract when the parties make an express contract to last for a fixed term, and continue to act as though the contract still bound them after the term has expired. In such a case the court may infer that the parties have agreed to renew the express contract for another term.

Express and implied contracts are both contracts in the true sense of the term, for they both arise from the agreement of the parties, though in one case the agreement is manifested in words and in the other case by conduct. Since, as we have seen, agreement is not a mental state but

an act, an inference from conduct, and since many of the terms of an express contract are often implied, it follows that the distinction between express and implied contracts has very little importance, even if it can be said to exist at all. [ 20 ] MRMA attempts to distinguish cases such as Saint John Tugboat and Mitchell Energy on the basis that the parties in those cases did not expressly discuss payment arrangements following the expiry of the fixed term, but merely carried on with the provision of, and acceptance of, services. [ 21 ] MRMA says that, in contrast, it expressly attempted to address the question of compensation during the overholding period in an exchange of correspondence during the overholding period.

It says that TDL ignored the request to discuss that topic, and instead attempted to settle the overall relationship concerning the subject store and another store which MRMA was operating under TDL. [ 22 ] I do not think MRMA’s purported distinction is sufficient.

MRMA was already contractually bound to pay rent as an overholding tenant, and MRMA never declared that it intended to order products in the fashion as it had done when it was franchisee, but this time without paying for same. [ 23 ] As stated in Saint John Tugboat , at para.27: In my view the respondent must be taken to have known that the “Ocean Rockswift” was being kept “standing by” for its use until the end of February, 1962, and to have known also that the appellant expected to be paid for this special service at the per diem rate specified in the monthly invoices which were furnished to it, but the matter drifted from day to day without any move being made on the respondent's behalf to either dispense with the service or complain about the charge.

I do not think it was unreasonable to draw the conclusion from this course of conduct that the respondent was accepting the continuing special services on the terms proposed in the March letters and the appellant is accordingly entitled to recover the sums charged in the invoices up to and including the month of February, 1962 (subject to the adjustment as to handling charges) as being money due pursuant to a contract which was concluded by the respondent's own acquiescence. [ 24 ] Given MRMA’s lack of a disclaimer regarding payment, I think an objective observer would draw conclude that MRMA was in agreement to pay ongoing charges in the manner it had paid during those 10 years. [ 25 ] To resist the implication that it is bound to make payments calculated as had been done for the past 10 years under the license (franchise) agreement, MRMA is put in the difficult position of arguing that, while the terms of the sublease mean that it is obligated to pay rent during the overholding period, it is only obliged to pay for products, advertising etc. (things which were normally provided under the license agreement) on a unjust enrichment basis, simply because there is no express ‘overholding’ provision in the license (franchise) agreement.

In my view, this is a very awkward construct. [ 26 ] The sublease agreement and the license (franchise) agreement are completely commercially intertwined. They refer to each other throughout. In my opinion it is a highly unlikely conclusion that the parties, bound by one agreement, were not also implicitly operating, during the overholding period, under the other intertwined agreement. [ 27 ] In my view TDL has met the evidentiary burden on it to show that the subject claim for $92,888.60 is highly likely to succeed based on an implied contract. [ 28 ] Are the Arsenaults likewise liable for this $92,888.60?

The governing agreements prior to expiry were between TDL on the one hand, and MRMA, Mr. Arsenault and Mrs. Arsenault on the other hand. There was nothing said or done during the overholding period to indicate that the Arsenaults were withdrawing as indemnitors. Accordingly they are likewise liable in implied contract. Lack of consideration [ 29 ] The Arsenaults argue that, if there was an implied contract, it was not enforceable against them as they were not paid separate consideration. [ 30 ] Consideration need not be paid to indemnitors, such as the Arsenaults, in order for an indemnity to be enforceable.

This was discussed in Bank of Montreal v Danial , 1983 CarswellAlta 388, 46 A.R. 64 at para’s 19 and 20 as follows: Apart from

section 55, the wife is still liable by virtue of section 53(1)(a). There was consideration given by the Plaintiff in response to the joint and several promises of the husband and wife. The law does not require that the consideration must flow from the promisee to the promisor, merely that there be consideration flowing from the promisee to someone. Viscount Haldane L.C. in Dunlop Pneumatic Tyre Compamy Limited v. Selfridge and Company Limited ,

(1915) A.C. 847 , at p. 853 : My Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it.

Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as, forexample, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam. A secondprinciple is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have beengiven by him to the promisor or to some other person at the promisor's request.... (emphasis mine) The point is discussed in any textbook on the law of contract.

It is discussed by Cote in an Introduction to the Law of Contract, at p. 49.He asks the question: “Why is it good consideration to promise to pay a dollar to the promisee, or to promise to pay it to the RedCross?”. He then proceeds to answer the question, and concludes: “Therefore the courts will not attempt to decide what is or is not abenefit to the promisor, and will instead look to the detriment to the promise”. [31] In my view the law is clear that, if one supplies goods or services to a corporation such as MRMA, that is sufficientconsideration for the indemnitors and principals of the corporation.

There is no need for separate consideration to go directly to theindemnitors. Equitable set-off [32] MRMA argues, in the alternative, that even if TDL would otherwise be entitled to judgment, judgment should not be grantedto TDL until MRMA’s related claim against TDL is concluded. [33] MRMA’s related claim was filed approximately three weeks before the hearing of this application as Action # 1701-13136(“the New Action”).

In the New Action MRMA alleges that: • MRMA and the Arsenaults became Tim Horton franchisees in 2000 with respect to a restaurant on Country Hills Blvd in Calgarypursuant to agreements with TDL. • MRMA and the Arsenaults became Tim Horton franchisees in 2006 with respect to the subject restaurant pursuant to agreementswith TDL. • Despite both stores being operated successfully, TDL has acted in bad faith to bring about a termination of MRMA’s franchise inorder to take over the stores for its own benefit. • Particulars of bad faith include TDL’s granting of two other franchises which had the effect of cannibalizing MRMA’s stores, andrefusing to allow MRMA to operate these two new stores, notwithstanding that they were the most logical candidate to do so. [34] The rules governing equitable set-off are contained in the Supreme Court of Canada decision in Telford v Holt, (1987), (SCC), 41 D.L.R. (4th) 385 (S.C.C.) as follows: 1.

The party relying on a set-off must show some equitable ground for being protected against his adversary's demands; 2. The equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed; 3. A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff toenforce payment without taking into consideration the cross claim; 4. The plaintiff's claim and the cross-claim need not arise out of the same contract; and 5.

Unliquidated claims are on the same footing as liquidated claims. [35] MRMA has a problem with rule # 3. [36] In my opinion, there is nothing manifestly unfair about requiring MRMA to pay for the space it occupied and the supplies itordered during the overholding period.

To the contrary, it would shock my conscience for MRMA to be allowed to keep the $748,000 inproceeds without paying for the space, supplies, advertising etc. used to achieve those proceeds. [37] To deny TDL’s claim on the basis of set-off would be effectively to give MRMA a pre-judgment attachment order to ensurepayment of any amounts for which MRMA might eventually obtain judgment in the New Action.

There has been no evidence to theeffect that TDL would be unable to pay any judgment which MRMA might ultimately recover in the New Action. [38] My conclusion is that the existence of the New Action is no reason to deny TDL

summary judgment against MRMA and theArsenaults in these proceedings. The Guarantees Acknowledgement Act defence. [39] The Arsenaults raise TDL’s failure to comply with the Guarantees Acknowledgement Act, even though it has not beenpleaded. Notwithstanding the failure to plead that defence, I will consider it on its merits. [40] In my view, the Guarantees Acknowledgement Act does not apply because here we are dealing with an indemnity, and not aguarantee. See Bryan & Co. v Enico Construction, (1994) (AB KB), 22 Alta.

L.R. (3d) 333,1994 CarswellAlta 198and Johnston-Steward v Bernard, (AB KB), 1998 CarswellAlta 1185, 236 A.R. 65. [41] The indemnity clauses in the governing agreements state that the Arsenaults are bound as primary obligors to perform all ofthe obligations contained in the agreements to the same extent and with the same effect as if each of them was named in the agreements.

[ 42 ] This language is the language of an indemnity, and not a guarantee. Accordingly the Guarantees Acknowledgement Act does not apply. Interest [ 43 ] During argument it was agreed that the question of interest could be addressed after issuance of this decision. TDL can obtain a formal judgment for the amounts set out in these reasons, reserving the interest question. Counsel may then

schedule a date for argument with respect to interest. Costs [ 44 ] If counsel cannot reach an agreement to costs they may be spoken to. Heard on the 17 th day and 27 th day of October, 2017 Dated at the City of Calgary, Alberta this 2 1 st day of November, 2017. J.T. Prowse, Q.C. M.C.C.Q.B.A. Appearances: Gloria Moore Stikeman Elliott LLP for the Plaintiff Peter Osadetz Thornborough Smeltz LLP for the Defendants _______________________________________________________ Corrigendum of the Reasons for Judgment of J.T. Prowse J.T.

Prowse, Q.C., Master in Chambers _______________________________________________________ The headings after paragraph 6 are all named with (i), and have been changed to actually be (i) (ii) (iii).