1738937 Alberta Ltd, Tammy Kerr, Glenn Kerr v. Christian Kaiser, 2017 ABQB 714

Court of Queen’s Bench of Alberta Citation: 1738937 Alberta Ltd v Fair Waves Coffee Inc ( Waves Coffee House), 2017 ABQB 714 Date: 20171121 Docket: 1303 15576 Registry: Edmonton Between: 1738937 Alberta Ltd, Tammy Kerr, Glenn Kerr and Christian Kaiser Plaintiffs - and - Fair Waves Coffee Inc doing business as Waves Coffee House, Waves Coffee House Headquarters, M&M Alberta Coffee Ltd doing business as Waves Coffee Alberta, Waves Alberta Head Office and Abrahim Alhusin also known as Abrahim Husin Defendants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.E.

Topolniski _______________________________________________________ I. Introduction [ 1 ] This case is about which of two innocent litigants must bear the loss caused by a fraudulent third party. It raises issues concerning the concept of apparent or ostensible agency that underlies the imposition of vicarious liability. [ 2 ] In the early fall of 2013, the Defendant, Abrahim Alhusin (Mr.

Alhusin), left Alberta without a trace, taking the Plaintiffs’ almost $250,000 they paid to his company, the Defendant, M&M Alberta Coffee Ltd (M&M), for a “Waves Coffee House” (Waves) franchise to be constructed for the corporate Plaintiff (173) in Sherwood Park, Alberta. With only hollow judgments against Mr.

Alhusin and M&M, the Plaintiffs now seek recourse against the British Columbia parent franchisor, Fair Waves Coffee Inc (Fair Waves), which had a contract with M&M giving it the exclusive right to sell “Waves Coffee House” franchises in Alberta. [ 3 ] The Plaintiffs’ view is that despite 173’s franchise contract being with M&M, Fair Waves should be held to be vicariously liable because of:

1. the language of the Fair Waves’ website concerning franchise opportunities; 2. Fair Waves’ receipt of the Plaintiffs’ application for a Waves franchise; and 3. the supervisory powers and financial benefits detailed in Fair Waves’ contract with M&M. Together these factors allegedly create a sufficient nexus to ground vicarious liability. [ 4 ] In contrast, Fair Waves relies on M&M and Mr. Alhusin being neither employees nor express agents as strong evidence that the Fair Waves to M&M/Alhusin relationship was simply one of independent parties acting on their own account within the same franchising system.

Further, Fair Waves argues that even if the Plaintiffs could establish that M&M and/or Mr. Alhusin had ostensible authority to act on Fair Waves behalf, the Plaintiffs’ loss is not attributable to a reasonable reliance on representations made by either M&M or Mr. Alhusin. [ 5 ] For the reasons that follow, I find that no relationship that could establish vicarious liability existed between Fair Waves and M&M and Mr. Alhusin. I therefore must dismiss the Plaintiffs’ lawsuit against Fair Waves. II.

Background [ 6 ] As the parties’ relationships are central to this case, it is helpful to provide some detail as to who they are and how they came together at the outset. [ 7 ] The Plaintiff, Christian Kaiser, is an investor who lost the $34,000 he gave the Plaintiffs, Glen and Tammy Kerr. Mr. and Ms. Kerr are the principals of 173. Mr. Kaiser did not participate in the trial. [ 8 ] After 15 years as franchisees of a Husky gas bar, convenience store, and car wash, the Kerrs searched the internet in the spring of 2013 looking for a new business.

There they saw information about Fair Waves franchises posted by Upper Top Shelf Franchising. The principal of that business, Tony Kereluk, directed the Kerrs to the www.waves.ca website for an application. [ 9 ] Following that webpage’s instructions, Mr. Kerr faxed an application to Fair Waves’ British Columbia head office. An unidentified person phoned and said someone would be in touch. That person turned out to be Mr. Alhusin, who introduced himself as “the master builder for Waves in Alberta” who was “getting people into Alberta”. [ 10 ] Later, Mr.

Alhusin invited the Kerrs to attend the opening of a new Edmonton Waves: the Hamptons. Mr. Kerr went to that event. He spoke to Mr. Alhusin, the Hamptons franchisees, and two people who identified themselves as part of the Fair Waves training team. Mr. Kerr was told one of these trainers was from British Columbia. Later, Mr. Alhusin met Mr. Kerr at the proposed premises, a mall in Sherwood Park. [ 11 ] After paying M&M a $5,250.00 deposit, Mr. Alhusin provided the Kerrs with a franchise disclosure package (Disclosure), which they gave to their corporate lawyer for review.

The lawyer conducted a corporate registry and personal property registry search on M&M, advised the Kerrs that M&M and Fair Waves were separate companies, and “everything looked fine”. [ 12 ] Having decided to proceed: 1. the Kerrs paid M&M: a) $14,791.00 for the first and last months’ rent on the mall space, and b) $225,000.00 for a construction deposit; and 2. 173 entered into a sub-lease for premises (Sub-Lease).

On June 21, 2013, the franchise agreement was signed in the presence of the Kerrs’ corporate lawyer (Franchise Agreement). [ 13 ] After some delays that did not concern the Kerrs, the store opening was set for October 22, 2013. That never happened. Mr. Alhusin and the money were gone, and the Kerrs were unprepared to invest any more money to salvage matters. [ 14 ] Fair Waves is provincially registered in British Columbia, and registered extra-provincially in Alberta. Its head office is in New Westminister. Fair Waves founder and president, Karim Rahmati (Mr.

Rahmati) operated a number of other franchises, before he opened an independent business, Waves Coffee House. With that store’s success, he decided to become a franchisor. By March 2013, there were 24 Waves franchises operating in Vancouver and the British Columbia Lower Mainland and nine in Alberta. [ 15 ] Mr. Alhusin was a trusted Vancouver Waves franchisee for several years when he approached Mr. Rahmati to secure the rights to franchise Waves in Alberta. Mr.

Rahmati agreed and instructed counsel to prepare a contract, the “Master Franchise Agreement”, executed by Fair Waves and M&M on December 9, 2009 (Master Agreement). [ 16 ] Fair Waves had two contacts with the Kerrs throughout their quest to secure a Waves franchise: 1. the receipt and response to the Kerrs’ faxed application, which Fair Waves passed on to M&M; and 2. a phone call from the Kerrs enquiring about Mr. Alhusin’s and their money’s whereabouts in the fall of 2013. [ 17 ] Ultimately, Fair Waves terminated the Master Agreement and obtained a Court Order assigning the nine Alberta franchisees’

contracts to it. 173’s contract was not part of that package. [18] As the “master franchisor” of Fair Waves, Mr. Alhusin operated in Alberta without incident for four years during which timeM&M signed up nine Alberta franchisees, excluding the Kerrs. That changed in mid-late October 2013 when the Kerrs were unable toconnect with Mr. Alhusin. By then, Fair Waves had heard from two unpaid suppliers. Rumours were swirling that Mr. Alhusin might bein Jordan, and after numerous attempts to contact him, Mr. Rahmati heard from Mr.

Alhusin who said he wanted to return but could not.There has been no word from him since. [19] I begin the analysis with an overview of the law of vicarious liability. III. Analysis A. The Doctrine of Vicarious Liability [20] The doctrine of vicarious liability identifies scenarios where the law holds one person responsible for the misconduct ofanother because of their relationship: 671122 Ontario Ltd v Sagaz Industries Canada Inc, 2001 SCC 59 at para 2, [2001] 2 SCR 983[Sagaz Industries].

The most common form of vicarious liability is that an employer is responsible for the tort misconduct of anemployee. [21] In principle, vicarious liability is fair because the hazards of the business should be borne by the business itself: SagazIndustries at para 35. Further, vicarious liability attempts to ensure that injured parties are compensated.

This objective is accomplishedbest by spreading the loss “through mechanisms like insurance and higher prices, thus minimizing the dislocative effect of the tort withinsociety”: Bazley v Curry, (SCC), [1999] 2 SCR 534 at para 31, 174 DLR (4th) 45 [Bazley]. [22] This is sometimes called a “deep pockets” approach: Sagaz Industries at para 31. [23] The liability is strict. [24] The classes of relationships that attract vicarious liability are neither exhaustively defined nor closed, however, the mostcommon are those of employer/employee and principal/agent.

Although there are limited exceptions, based on policy reasons, theowner/independent contractor relationship is not typically a basis for vicarious liability. [25] Bazley at para 15 directs that the current approach to the analysis of vicarious liability engages a two-stage process: 1.

Determine whether there are unambiguous precedents which determine in this case whether there should be vicarious liability or noliability, but if not, 2. the analysis turns to whether vicarious liability should be imposed in light of the broader policy rationales behind strict liability:Bazley at paras 26-36; Sagaz Industries at para 30. [26] The key policy concerns for imposing vicarious liability are to provide a just and practical remedy for the plaintiff's harm andto encourage the deterrence of future harm: Sagaz Industries at para 35; Bazley at paras 29, 31, and 34.

In this vein, McLachlin J (as shethen was) in Bazley at para 38 explains that the cost of risks introduced by a business that are closely associated with a (tortious) wrongshould be borne by the business as a cost of doing business because the business: 1. profits by the risk; and 2. is better able to absorb the risk and distribute the associated costs.

Put another way, once engaged in a particular business, it is fair that the business pays the generally foreseeable costs of that business:Bazley at para 41. [27] However, this policy does not apply to an independent contractor scenario because the independent contractor is in businesson his or her own account: Sagaz Industries at paras 25, 33; Straus Estate v Decaire, 2011 ONSC 1157 at para 58, 84 CCLT (3d) 141,aff’d 2012 ONCA 918 [Straus Estate]. [28] That said, in Thiessen v Clarica Life Insurance Co, 2002 BCCA 501, 219 DLR (4th) 98, leave to appeal to SCC denied,29451 (8 November 2002) [Thiessen] the British Columbia Court of Appeal said that Sagaz Industries does not limit vicarious liabilityfor the misconduct of an independent contractor to cases falling within the accepted exceptions of “non-delegable” duties and inherentlydangerous work, explaining at para 30: We do not agree Sagaz, supra, requires the narrow view the appellant would have us take.

Nothing Justice Major wrote precludes thetraditional agency basis for vicarious liability discussed in Keddie, supra. For us the fundamental issue in this case is whether MadamJustice Ross correctly understood the concept of agency that underlies the imposition of vicarious liability on a principal.

It matters notwhether the agent is characterized as an employee or independent contractor for the purposes of contract law, work-related statutes, orthe Income Tax Act. [29] Similarly, the Court in Straus Estate said at para 80: ... should the facts of the case meet the requirements for vicarious liability, there will be either an employer/employee or an agency

relationship. The Court is to focus on the true nature of the relationship per Bazley v Curry . B. What were the Relationships between Fair Waves, Mr. Alhusin and M&M, and the Plaintiffs? [ 30 ] Without precisely specifying the nature of the relationship grounding vicarious liability, the Plaintiffs contend that the language of Fair Waves website, the Disclosure, and the Master Agreement must lead to the conclusion that Fair Waves is liable for Mr. Alhusin’s fraud.

To support their assertion, the Plaintiffs point primarily to the Supreme Court’s direction on the assessment of vicarious liability in Bazley and the British Columbia Court of Appeal’s reasoning in Thiessen . [ 31 ] As Mr. Alhusin and M&M were not defined as employees or actual agents of Fair Waves, the two possible ways that Fair Waves might be liable are if M&M or Mr. Alhusin were not truly independent contractors, or they were agents acting within the scope of their apparent authority. 1. Were M&M or Mr.

Alhusin Independent Contractors? [ 32 ] There is no universal and definitive criterion which determines whether a person is an employee or an independent contractor. The overall strategic question is whether the worker is directed and controlled by the employer as part of the employer’s business, or instead the worker is performing tasks as a person in business on their own account. [ 33 ] In general this is an ‘integration test’. One asks “Whose business is it?” An employee is an integrated and controlled cog in the employer’s business.

An independent contractor is engaged in their own separate business, but that business involves tasks performed under contract for the employer. [ 34 ] The non-exhaustive list of factors relevant to determine employee vs independent contractor status always includes the level of control the employer has over the person’s activities. Other factors, the weight of which is case-specific, include who provides the equipment, who hires helpers, the degree of responsibility and financial risk undertaken, and the opportunity for profit: Sagaz Industries paras 47-48 . [ 35 ] Mr.

Alhusin’s arrangement with Fair Waves was through a corporate vehicle, and as such, he cannot be seen as an independent contractor. He is simply not a party to the Fair Waves/M&M Master Agreement. [ 36 ] The Master Agreement between Fair Waves and M&M states that M&M is neither an employee nor agent of Fair Waves, but that it is an independent contractor. I agree with Fair Waves that the mere labelling of M&M as the latter does not make it so in law. [ 37 ] The evidence supports that M&M conducted its business on its own account. Fair Waves’ control over M&M was not significant given the nature of the operation.

Essentially, M&M was responsible for Alberta and Fair Waves left activities in that jurisdiction to M&M, subject to retaining control of matters that aimed at “protecting the brand” (i.e. marketing and recipes), the point of sale system, and the Fair Waves website. [ 38 ] Fair Waves’ powers included things like the ability to require M&M’s personnel to complete a training program, specified record and communication processes, and the production and audit of certain financial information. Fair Waves had no control over how Mr.

Alhusin marketed, sold, or monitored his franchisees, who he hired, and in certain circumstances, how he priced product. Subject to the payment of new store and transfer fees, and royalties, Fair Waves did not bear any financial responsibility for or assume risks concerning M&M’s operations. [ 39 ] In other words, Fair Waves and M&M are separate businesses. They lack the kind of inter-relationship and control that is found in an employment structure. [ 40 ] Having found neither Mr. Alhusin nor M&M were employees, I turn to whether they were ostensible or apparent agents. 2. Were Mr.

Alhusin or M&M Fair Waves’ Apparent or Ostensible Agents? [ 41 ] Apparent or, as it is otherwise called, ostensible authority, is defined in the leading case of Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd , [1964] 2 QB 480 at p 503, [1964] 2 All ER 630 (UK CA) as: ... a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed on him by such contract. [ 42 ] The Alberta Court of appeal recently restated the general principles governing apparent or ostensible authority in Toronto- Dominion Bank (TD Canada Trust) v Currie , 2017 ABCA 45 at para 7 , 407 DLR (4th) 640 [ Currie ]: (

a) Representations about the authority of the agent must come from the principal; an agent cannot clothe himself or herself with authority; (

b) The onus is on the person who is relying on the act of the agent to prove ostensible authority; (

c) However, when the agent has actual authority, but that authority is subject to limitations, the onus is on the principal to prove that the limitations were conveyed to the third party who relied on the agent; ...

(Citations omitted.) [43] In Thiessen at para 31, the British Columbia Court of Appeal applied a definition of apparent authority from Fridman, Law ofAgency, 7th ed (Toronto: Buttersworth, 1996) at 115: Sometimes the fact that an agent is entrusted with certain duties in the normal course of his work may amount to an impliedrepresentation of authority to act in a certain way. ...

A common, general example of the kind of representation that will give rise to anestoppel by creating ostensible or apparent authority is by permitting the agent to act in some way in the conduct of the principal'sbusiness with other persons thereby representing that the agent has the authority which an agent so acting in the conduct of theprincipal's business usually has. 'In the commonly encountered case,' said Lord Keith, 'the ostensible authority is general in character,arising when the principal has placed the agent in a position which in the outside world is generally regarded as carrying authority toenter into transactions of the kind in question. ...

A solicitor's managing clerk dealt with a client's property, and fraudulently persuaded her to sign documents which gave him all herestate. It was held that the solicitors were liable to the client, because, by allowing the clerk to deal with matters of this kind, they hadrepresented that he had authority to get clients to agree to transfers of their property. The fact that the agent was acting in his own interests does not affect this question.

For 'the principal … cannot escape from liabilitymerely because the agent may have abused the authority or betrayed his trust.' But the agent must appear to be acting in a way in which a person in his position would normally act: otherwise it will not be possible toassert that to the outside world he quite reasonably appeared to have the necessary authority. … If a contracting party has a mere beliefthat he or she is contracting with the principal, absent some representation to that effect, express or implied, cannot support a claim ofostensible authority so as to bind a principal ... (Emphasis added, citations omitted.) [44] Accordingly, to find that Mr.

Alhusin or M&M were agents acting with apparent authority, the Plaintiffs must establish thatthey relied on an express or implied unequivocal representation by Fair Waves that it authorized Mr. Alhusin or M&M to act on itsbehalf. They must also establish that their reliance on the representation was reasonable: Bowne of Canada, Ltd v First MutualInvestments of Canada Ltd (1997), (BC CA), 46 BCLR (3d) 343, 36 BLR (2d) 131 (BCCA) [Bowne]. Finally, theymust show that their loss was attributable to the representation.

Given the circumstances, if the first two features are established, it is aforegone conclusion that their loss flowed from the representation. [45] There are a number of reported cases involving misappropriating persons sued in the capacity of apparent or actual agents,typically involving insurance agents or brokers. None concern a defalcating ‘sub-franchisor’ as in this case, but they still offer someguidance. 3.

The Authorities [46] Not surprisingly, the facts in each case bear significantly on the outcome. [47] The plaintiff in Keddie v Canada Life Assurance Co, 1999 BCCA 541, 179 DLR (4th) 1 [Keddie] failed to establish thenecessary conduct to establish agency by estoppel or apparent authority where a defalcating authorized broker of Canada Life ‘took in’the plaintiff personally, and not because she relied on his association with Canada Life.

A Canada Life folder that the broker gave theplaintiff containing a fraudulent insurance policy was the clearest representation made, but there was no evidence about how the brokeracquired it. In addition, evidence about the internal relationship between Canada Life and the broker was not public information. [48] The Court observed that Canada Life’s deal with the broker effectively “... created an arrangement whereby it can freelypromote and sell its product in the market while at the same time carefully avoiding responsibility for any misconduct that accompaniesthat activity ...”: para 39.

Nevertheless, the nature of the broker’s business required loyalty to his client, which precluded agencyrelationships with any insurer and the loyalty that implies. [49] Monachino v Liberty Mutual Fire Insurance Co (2000), (ON CA), 47 OR (3d) 481, 183 DLR (4th) 577(Ont CA), leave to appeal to SCC denied, 27902 (9 May 2000) [Monachino] and LeRuyet v Stenner, 2001 BCSC 1129; 93 BCLR (3d)163 [LeRuyet] involve defalcations by insurance company representatives.

Both apply Keddie. [50] The dispute in Monachino was between two insurers in a personal injury action: Liberty Mutual, the insurer of the at-faultdefendant, and Axa Home Insurance, the purported insurer of the innocent vehicle owner, who was the plaintiff’s father. Before theaccident, the father saw his regular (independent) insurance broker to get insurance. His existing policy was soon expiring. The broker,who was a fraudster, only had authority to write applications for coverage and then submit them to Axa for approval.

The broker got thefather to complete generic application forms addressed to Axa and issued a generic temporary 30-day pink card, which he later replacedwith a normal pink card bearing a non-existent policy number.

Axa never issued a policy and the broker pocketed the father’s money. [51] Referencing Keddie as the most recent authority on apparent authority and noting that the facts in Keddie were morefavourable to the victim, the Court rejected finding against Axa, saying this at para 38: [38] The authority of [the broker] was limited by his agency's contract with the respondent Axa Home to writing up applications forcoverage and submitting them to the respondent Axa Home for approval.

Any suggestion that [the broker] had authority to issue a policyor binder, even on a temporary basis, on the motor vehicle involved in this accident, emanated from [the broker] or was implicit in hisactions in writing the name Axa Home Insurance Company on the blank forms used for both the applications and the temporary and finalbinders.

There is no record of any representation of any kind having been made by the respondent Axa Home to anyone, much less to thefather of the appellant, that there was any relationship between [the broker] and the respondent Axa Home, even the limited one that didexist. [The broker] might just as well have written in the name of Lloyd's London, England as insurer for all the legal effect his actions

had in binding whomever he represented as his principal. [ 52 ] The misappropriating broker in LeRuyet took money paid for the purchase of a Great West Life annuity.

As in Monachino , the broker only had authority to take applications and submit them to Great West Life for approval. [ 53 ] In rejecting vicarious liability based on apparent authority, the Court considered a number of facts, including (para 42): • the broker did not work out of Great West Life premises; • the broker’s office did not display any outward connection with Great West Life; • the broker did not have Great West Life business cards or stationery; • the plaintiff sought out the broker on a friend’s recommendation, not because of a perceived connection with Great West Life; • the plaintiff did not receive anything reputed to be from Great West Life (i.e. the fake annuity) until several weeks after his money was misappropriated; and • the plaintiff knew that the broker could sell the products of a number of companies. [ 54 ] The wrongdoer in Thiessen was a representative under contract with Clarica to sell only its life insurance and other authorized “non-competing financial products”, which in practise were annuities.

The broker-to-Clarica contract precluded other business and career involvement, and the representative earned his commission-only income from the sale of financial products authorized by Clarica. [ 55 ] The plaintiffs were investment clients of Clarica (formerly, the Mutual Life Assurance Company of Canada), who met the defendant at a Clarica office, which was one of several businesses in the building, to discuss investing the proceeds of their home sale. There were Mutual Group signs on the outside of the building, on the front door, and on the office door.

There were also Mutual Group logos on the door and on the wall inside the reception area. The representative’s business card said he was licensed by the Mutual Group and bore the Mutual Group logo and firm name. In the end, the plaintiffs thought they were buying an annuity from the representative, but he stole their money and they had nothing. [ 56 ] The trial judge found the representative to be an independent contractor for which Clarica was vicariously liable on the policy analysis in Bazley .

She distinguished Keddie , noting that, except for limited products not offered by Mutual Group, the representative sold only Mutual Group products.

Finally, Mutual Group was involved in the broker’s employment by selecting him, assisting in his training, and reviewing his performance. [ 57 ] On appeal, the Court described the issue at trial and on appeal as determining “... how the law distributes the risks inherent in the way the insurance industry carries on business and then to apply that rule to the facts of this case. ...” (para 7), which it described in problematic terms (paras 2 and 5-7). [ 58 ] Agreeing with the imposition of vicarious liability, the Court of Appeal nevertheless ruled that the trial judge erred by failing to consider the authority “the outside world” would reasonably infer that the misappropriating representative had, were they in the plaintiff’s shoes.

At para 33, the Court said the trial judge had taken too narrow a view of the apparent authority required to impose liability vicariously by looking only to the principal’s perspective, and “... not to that of the vulnerable customer of that principal in the context of the business being done. ...”, noting these features going to vulnerability: • Clarica’s distribution for the sale of its annuities; • the powers in practice given to Clarica’s authorized representative concerning those annuities; • the trust Clarica’s referral policy and approved advertising encouraged its customers to repose in its authorized representatives; and • the lack of any effort to supervise the performance of those representatives, and lack of notice to customers of any limitation on their authority to bind Clarica. [ 59 ] Further, the Court found that the evidence supported finding apparent authority to invest monies in Clarica Life annuities as the representative had the agency power to receive monies for that purpose.

All that stopped Clarica from delivering a document evidencing the investment was the representative’s misappropriation. As to the underlying policy at play, the Court noted that Keddie involved a truly independent broker with no loyalty to anyone but the client. This was different. [ 60 ] Straus Estate and Shetty v Gill , 2004 BCSC 451 , 129 ACWS (3d) 1248 involved negligence claims arising from failed “off- book” or unauthorized investments.

In both, the Court followed the approach in Thiessen to find the companies for whom the tortious securities brokers sold product vicariously liable. [ 61 ] Doiron v Manufacturers Life Insurance Company, 2003 ABCA 336 , 232 DLR (4th) 732 is another bad investment case. There, the broker had a non-exclusive agency agreement with Manulife that precluded his binding Manulife without written authorization. [ 62 ] The broker offered the plaintiffs, who were existing clients that previously purchased Manulife investments from him, two Manulife products to fulfill their request for low risk investments.

When they declined, he offered them a different higher return investment vehicle, which, unbeknownst to them, was not a Manulife product. They accepted, and it turned to be a sham. The trial judge found the plaintiffs were entitled to infer that the investment was a Manulife product, and imposed liability on Manulife based on apparent authority, but did not find it vicariously liable. [ 63 ] On appeal, the Court found that Manulife created a situation in which it was reasonable for the plaintiffs to infer and rely upon

the broker’s apparent authority. Noting at para 17 that: ... a mere belief on the part of a third party that he or she is contracting with the principal, absent some representation to that effect,express or implied, cannot support a claim of ostensible authority so as to bind a principal.” the Court upheld the trial ruling, saying at para 18: ... The evidence demonstrates that Demmers provided little oral and no written information regarding the investment before accepting theDoirons' money. The Doirons did not ask whether the investment was with Manulife.

They assumed, wrongly, that Demmers, as aManulife employee, would follow their instructions and invest their money in accordance therewith. Demmers did not tell the Doironsthat Devon was a Manulife product. More importantly, however, he did not tell them that it was not connected to Manulife. Given theirprevious dealings, the Doirons’ apparent lack of sophistication, and the circumstances surrounding the transaction, the failure ofDemmers to inform them that they were not investing with Manulife constitutes a misrepresentation that Demmers was purporting tocontract on behalf of Manulife.

The trial judge found their belief that they were dealing with Manulife reasonable. The Court declined to comment on the question of vicarious liability, per se, as it was the subject of a cross-appeal in the event theappeal was successful: para 20. [64] Gregory v Paragon Steel Structures Ltd (1993), (NS SC), 123 NSR (2d) 293, 11 CLR (2d) 88(NSSC(TD)) concerned allegations that a “building consultant” who undertook and abandoned a construction project acted with theapparent authority of a prefabricated building manufacturer.

The plaintiff’s case essentially hinged on his assuming that his contract waswith the purported principal, Paragon, because he had a phone call from someone at Paragon advising that its building consultant wouldbe in touch. A follow up letter repeated that advice and indicated that the consultant would help with planning and pricing theprefabricated structure. [65] Paragon’s knowledge that the consultant was also contracting to construct the building did not constitute a representation thatit was acting as Paragon’s agent for that purpose.

Further, the interactions between the plaintiff and Paragon were insufficient to groundapparent authority. In this vein, the Court observed that Paragon’s follow-up letter did not say anything about constructing or assemblingthe structure, which was the job of the consultant, which he partly and poorly performed. The Court also pointed to the plaintiff’sproblems with the consultant’s work and fact that he never contacted Paragon to complain. 4. Applying the Law to the Facts [66] The Plaintiffs argue that Bazley governs the analysis in this case.

They are correct in that the underlying policy at play mustbe considered: Sagaz Industries. However, unlike Bazley, which is an employment case that could move directly to assessing the nexusbetween the tortious conduct and the risk created by the employer, this case concerns a purported agent’s apparent authority.Accordingly, the assessment must begin with whether that legal relationship existed. In turn, it starts with what can be reasonablyinferred from the alleged representations. a.

The Representations [67] The enquiry focuses not on the alleged principal’s perspective, but rather the authority “the outside world” would reasonablyinfer Mr. Alhusin and M&M had, if they were in the Plaintiffs’ shoes: Thiessen at para 33. [68] The Plaintiffs point to certain evidence to show that it was reasonable for them to infer that Mr. Alhusin acted on Fair Waves’behalf: 1. Fair Waves’ website directing applications to the British Columbia head office; 2.

Fair Waves’ promotional material speaking of a “team” and offering a form of business loan application; 3. the Disclosure mentioning Fair Waves and scheduling a list of British Columbia and Alberta Waves shops; and 4. Mr. Alhusin’s comments that “it [the organization] was a big family”, and no one saying that he did not have authority to speak forFair Waves. While each category of purported representation is discussed separately, the Plaintiffs argue it is their cumulative effect and the Kerrs’reliance on these items that matters in the end. b. The Application [69] Mr.

Kerr obtained a franchise information package that was sent under cover of letter from Cindy Christiansen, Director ofNew Development. The letter bears the “Waves Coffee House” logo and address for Fair Waves’ head office in British Columbia. Itdirects the recipient to return the completed package to Ms. Christiansen’s attention, after which: ... we will begin our due-diligence and we will be in touch to arrange a meeting and subsequent discussions to investigate thisopportunity fully. [70] As instructed, Mr.

Kerr faxed the application to the British Columbia head office on March 8, 2013. [71] I readily find that this communication would lead potential franchisees like the Kerrs to reasonably infer that they weredealing with the British Columbia entity or, at the very least, that it was directly involved in the franchise business they wereconsidering.

c. The Promotional Materials [ 72 ] The franchise information package sets out answers to frequently asked questions (FAQ) about a Waves franchise, including these statements expressly or implicitly referencing a “team”: • Mr.

Rahmati [described as the president and owner] has assembled a team of qualified people to assist with the development of the Waves franchising company. • The Waves franchise team manages the entire process of building a new location. • You can fulfill your dream AND have the support of a reputable team with unrivalled experience and enthusiasm. • We really care about our customers and the experience they have when they make a purchase from us.

As a successful business you will need them to come back time and time again, and we can show you how to make sure they do. [ 73 ] The Kerrs testified that these statements had significant influence on them as they created the impression that they were buying into one organization or “one big family”, which presumably meant that that Fair Waves was one entity, irrespective of locale. Ms. Kerr added that the information influenced her because her husband told her it was for a franchise they were starting to bring into Alberta. She did not say whether that conversation occurred before or after he spoke to Mr.

Alhusin, but the former is unlikely given the language used in the information package, and as such I cannot give that evidence any weight. [ 74 ] The Kerrs also point to this statement in the FAQ answers, which they contend further exemplifies the implicit representation of the “team”-based operation, and which necessarily references Alberta in speaking of “other markets”: Waves has a very active and expert real estate team that identifies top coffee shop locations throughout the greater Vancouver area and other markets. [ 75 ] Mr.

Rahmati’s initial evidence was that the information package was intended for prospective franchisees in Vancouver, but he then resiled saying it could mean other places in British Columbia and elsewhere, but for Alberta, because Mr. Alhusin had the Alberta territory. [ 76 ] The inference that could be drawn from these statements is less clear than that which would be drawn from the instruction on delivery of the application form. Read in isolation, these statements could nevertheless give rise to an inference that Mr. Alhusin and M&M were acting on Fair Waves’ behalf.

In finding as I do, I am mindful that there is separate contact information for Alberta and British Columbia found in another part of the promotional materials that the Kerrs should have seen. However, that is a reasonable reliance concern. [ 77 ] Finally, the Kerr’s point to the answer to a FAQ concerning financing loans, which references a generic business plan, which they say was a British Columbia plan. It part, it reads: Franchisees deal directly with their bank to secure financing.

Waves can provide a generic business plan for you to complete, along with guidance and assistance throughout the loan process. [ 78 ] This representation does not substantially assist the Kerrs. There is no reference to British Columbia. The information that the Kerrs ultimately received was for a federal small business program. The fact the business plan is “generic” also indicates a distance or separation between Fair Waves and a prospective franchisee. This is not a ‘hand in hand’ process, but rather a more distant interrelationship. In contrast, all of the actual financial dealings by the Kerrs was with Mr.

Alhusin and M&M. d. The Disclosure [ 79 ] Mr. Kerr testified that he interpreted this

preamble to the Disclosure to mean that “M&M fell under Waves and [in turn] we fell under M&M”: M&M Alberta Coffee Ltd., is the licensed master franchisee in Alberta (the “Franchisor”) under license from the parent Franchisor, Fair Waves Coffee Inc. based in British Columbia, is offering franchises and licenses in Alberta to own and operate "Waves Coffee" franchise businesses to be located in Alberta (each a "Franchise"). [ 80 ] This representation would not lead to the reasonable inference that M&M and Mr. Alhusin were Fair Waves’ agents. Indeed, a plain reading indicates the opposite, and should have sounded alarm bells. [ 81 ] A

schedule to the Disclosure listed the existing franchises in British Columbia and Alberta. Information on the British Columbia locations was provided at Mr. Alhusin’s counsel’s request, presumably to comply with Alberta’s franchising laws. [ 82 ] The Plaintiffs urge that inclusion of the British Columbia locations is another indication that they were dealing with one organization. Irrespective of whether this was an unintended consequence of Fair Waves complying with what would seem to be a reasonable request from M&M, there is merit to what they say.

That said, the representation should not be viewed in isolation, but in the context of the Disclosure read as a whole – a point that goes to the reasonableness of the Kerrs’ reliance. e. One Big Family and No Disclaimer [ 83 ] Mr. Kerr knew that they were dealing with a separate company in M&M, but believed that “everything funnelled through BC”, speaking of Mr. Alhusin’s favourite saying: “one big family”. He also testified that Mr. Alhusin always spoke of Waves Coffee. In this same vein, he said Mr. Alhusin talked about having approached the owner, how “they decided to branch out into Alberta”, and that

“he was getting people into Alberta”. Mr. Alhusin told Ms. Kerr about gift cards being accepted in British Columbia stores, and said that “we all work together as one”. The Kerrs urge that these statements led them to reasonably believe they were dealing with just one organization. [ 84 ] These representations may have lulled an unsophisticated, “vulnerable customer” into believing that Fair Waves had authorized Mr. Alhusin and M&M to speak on its behalf. However, the same cannot necessarily be said of the Kerrs. As long-term franchisees, the Kerrs were not unsophisticated in the language of franchises.

Indeed, Mr. Kerr knew that “Waves Coffee” and “Waves Coffee House” were trade names or marks, and understood the significance of that. He also knew that he was dealing with a separate company, M&M vs Fair Waves. [ 85 ] The Kerrs also point to that at the grand opening of the Hamptons franchise they met one, and maybe two, but certainly one person who self-identified as being from British Columbia. The Kerrs presumed that meant the Fair Waves head office. Mr. Rahmati’s clear evidence, which I accept, is that no trainers from the British Columbia office were ever sent to Alberta. f.

The Cumulative Effect and the Reasonableness of the Reliance [ 86 ] Mindful that the indicia of apparent authority in this case are significantly less than in most cases detailed above, the Fair Waves’ website’s direction that applications are to be sent to the British Columbia head office, coupled with the repeated reference to the “team” in the promotional materials, could lead a vulnerable customer to infer that their dealings with M&M and Mr. Alhusin were as Fair Waves agents acting with apparent authority.

That said, I cannot find that the Plaintiffs’ reliance on those representations was reasonable. [ 87 ] When a party asserting apparent authority has actual or constructive notice of want of authority, the principal is not bound. Constructive notice will be found if there is opportunity of discovering that the agent had no authority to contract.

The test for constructive notice is an objective one: Feuer Leather Corp v Frank Johnston & Sons , [1983] Com L Rep 251 at 304, cited in Bowne at para 10 ; Fridman, Law of Agency at 196. [ 88 ] Bowne is helpful to understand when constructive knowledge exists in a vicarious liability scenario. This case is about vicarious liability for a printing contract negotiated by Mr. Bartch (B), who was personally known to the plaintiff’s representative as a salesperson for First Mutual, a real estate firm.

The job was actually for a separate entity, a promoter for a limited partnership. [ 89 ] The trial judge found First Mutual vicariously liable on these facts: 1. before the promoter came into existence, B gave the plaintiff’s representative, Mr. McCallum (M), a First Mutual business card; 2. B sought quotations for the proposed printing work, and accepted quotations made out to First Mutual; 3.

B invited M to the First Mutual office to discuss the job and update the previous quote; 4. the updated quote was directed to First Mutual; 5. a number of invoices were sent by the plaintiff to First Mutual that were paid by a numbered company connected to the promoter’s project; M had no reason to know to whom the numbered company was connected; and 6. the limited partnership sent a credit application (given by M to

B) under a First Mutual cover sheet. Later, M inserted the name "First Mutual Investments of Canada" next to the limited partnership’s name on the credit application because that was who he assumed he was dealing with. [ 90 ] The Court of Appeal overturned the decision, finding the treatment of the significance of the credit application problematic. That “cried out for inquiry to be made”, and was “the clearest possible notice that First Mutual was not the entity for which credit was being established”: para 8.

The appeal court also rejected the notion that feature alone was inconclusive given the parties’ dealings, saying at para 10 that to do so would: ... ignore the fact that the application for credit stood on quite a different footing from all the other dealings which were casual in the extreme and not directed to the question of who were the contracting parties. ... [ 91 ] While Currie does not expressly address reasonable reliance, the Court of Appeal’s findings inferentially speak to the issue.

The Court found there was nothing to cause the plaintiff to question what had transpired in the transaction that resulted in a misappropriation by the agent. It also found that the plaintiff had no way of knowing what the prior dealings were between the principal, agent and the defrauded party. [ 92 ] Apart from their unique experience as former franchisees (which must be considered as part of this reasonableness assessment), the Kerrs encountered multiple events which, in the language of Bowne , cried out for inquiry to be made.

This is particularly true when one evaluates the interaction history in a global, cumulative manner. [ 93 ] It begins with the payment of the deposit to M&M, which is, by its name, clearly an Alberta entity. Alone, that might be excusable, as Mr. Alhusin explained that he could not take cheques in his personal capacity. But next, and more important, is the Disclosure.

These materials very clearly spelt out that the franchise is offered by M&M, an Alberta incorporation with a head office in Calgary, that: ... has un der license from t h e parent Franchisor, Fair Waves Coffee Inc. based in B r i tish Columbia, is offering franch i ses and licenses in Alberta to own and operate " Waves Coffee " franchise businesses to be located in Alberta (each a " Franchise " ) . [ 94 ] The Disclosure also states who an aggrieved franchisee can sue for misrepresentation in the Disclosure - the Franchisor and

every person who signed the Disclosure. Fair Waves was neither. Similarly, all references to obligations are about M&M to the franchisee and vice versa. [ 95 ] The only reference to British Columbia in the Disclosure is in connection to the existing locations in both provinces. Read generously and in isolation, that might possibly suggest that M&M was Fair Waves’ apparent agent.

However, if that was the inference drawn, the overwhelming language of the document as a whole ought to have put the Kerrs on notice that they needed to investigate exactly who it was they were dealing with. [ 96 ] This pattern continues in the contractual documents received by the Kerrs: the franchise agreement and sublease.

Again, these are made between and reference only M&M and the franchisee. [ 97 ] The relevance of the Kerr’s corporate counsel reviewing all of the documentation, conducting corporate and personal property registry searches on M&M, and advising the Kerrs on the proposed transaction is not to be understated. [ 98 ] Kemaldean v Edmonton (1984), 52 AR 97, 25 ACWS (2d) 9 (Alta QB) , a negligent misrepresentation case, is instructive.

There, the alleged misrepresentation arose from a statement made in the context of a development appeal, but Stratton J (as he then was) conducted the alleged misrepresentation in the context of the broader and more general reasonableness of the plaintiff’s reliance. After finding that the plaintiff was an experienced businessperson, he said this at para 43: ... In addition Mr. Kemaldean was, during all of the events, represented by and accompanied by his lawyer.

Thus, the reasonableness of Kemaldean's reliance on Chumer's statement must be judged in the light of the fact that he was acting under the advice of a solicitor presumed to be fully competent in planning matters. [ 99 ] Despite the harsh ending for these victimized Plaintiffs, viewed contextually, I must find that they had opportunities to discover that M&M and Mr. Alhusin were not, in any fashion, agents of Fair Waves. The Kerrs were experienced business people who were also assisted by corporate counsel.

Regrettably, when presented with multiple signals and opportunities to discover the true nature of the relationship between Fair Waves and Mr. Alhusin, they chose to rest on their assumptions. [ 100 ] As the Plaintiffs have not discharged their onus of establishing that Mr. Alhusin and/or M&M were Fair Waves’ apparent or ostensible agents, the analysis need go no further. IV. Conclusion [ 101 ] The Plaintiffs’ claim fails. If the parties cannot agree on costs, they may speak to me within 30 days. Heard on October 23 rd to 26 th , 2017. Dated at the City of Edmonton, Alberta this 21 st day of November, 2017. J.E.

Topolniski J.C.Q.B.A. Appearances: James Thorlakson for the Plaintiffs Robert Dean Muller for the Defendant s