Invicta Food Services Ltd. Plaintiff v. Caf, 2010 BCSC 634

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Invicta Food Services Ltd. v. Café Suprême Canada Inc., 2010 BCSC 634 Date: 20100506 Docket: 08-5271 Registry: Victoria Between: Invicta Food Services Ltd. Plaintiff And Caf é Supr ême Canada Inc. and C.S. Caf é Supr ê me Inc. Defendants Corrected Judgment: The front page of the judgment was changed on May 6, 2010 Before: The Honourable Mr. Justice Josephson Reasons for Judgment Counsel for Plaintiff: G. N. Harney D. Madani Counsel for Defendant: D. A. Garner R. J. Beatch Place and Date of Trial: Victoria, B.C.

April 19 - 23, 2010 Place and Date of Judgment: Victoria, B.C. May 6, 2010 [ 1 ] Mr. Essaris owns and operates the “Café Suprême” brand franchise in Canada through a number of companies for which he is the sole director and operating mind. The names of these companies contain that brand name. Two of those companies, Café Suprême Canada Inc. and C.S. Café Suprême Inc., are the defendants in this action and are referred to in these reasons as “company 1” and “company 2” respectively.

The defendants are federal companies extra-provincially registered in this province. [ 2 ] The plaintiff, Invicta Food Services Ltd., entered into a franchise agreement with company 1 in February 2004. After the failure of the business, the plaintiff was awarded $544,182.45 in arbitration against company 1 for a material breach of the franchise agreement.

After that award was registered as a judgment of this court, it was discovered at an examination in aid of execution that company 1 had been stripped of all assets and income by transfer to company 2 in 2004. [ 3 ] The plaintiff seeks a declaration that company 2 is liable for the judgment against company 1. Company 2 defends the action primarily on the basis that it accepted an assignment of the benefits accruing under the franchise agreement from company 1, but not the obligations.

Background [ 4 ] The plaintiff and company 1 entered into a franchise agreement on February 20, 2004 enabling the plaintiff to operate a bistro under the “Cafe Supreme” brand name in the Mayfair Mall in Victoria, B.C. In the associated disclosure statement, company 1 claimed that it had dozens of similar franchise agreements in Canada. In fact, at that time, company 1 had no other franchisees as they had all been transferred to company 2 as part of a corporate reorganization of the franchise. [ 5 ] In the fall of 2004, the plaintiff received a letter from Mr.

Essaris, as President and CEO of “Cafe Supreme”, stating:

Please advise [sic] that Cafe Supreme Canada Inc. [company 1] has transferred all its rights under the Cafe Supreme franchise agreements to C.S. Cafe Supreme Inc. [company 2] Please make all future payments due by you under the Cafe Supreme franchise agreements as follows: [ 6 ] The letter then provided the name and address of company 2. The plaintiff, as a result, redirected automatic bank payments under the franchise agreement as instructed in the letter. He did not appreciate the legal significance of the notice. [ 7 ] The franchise agreement, at paragraph 16.1, states: Assignment by Franchisor.

Franchisor shall have the right at any time to assign, transfer or sell its interest in this Agreement to any affiliate or Franchisor as a part of a corporate reorganization involving Franchisor or to any third party.

Any such assignee, transferee or purchase shall, as a part of any such assignment, transfer or purchase, covenant and agree in writing to assume and be bound by and perform all of the terms, provisions, covenants, conditions and obligations of this Franchise Agreement for the balance of the term hereof and for any renewal term hereof, and Franchisee and Guarantor shall accept any such assignment and continue to be bound by and perform under this Agreement without interruption or diminishment of obligation, such consent not to be unreasonably withheld. [Emphasis added] [ 8 ] It appears that the paragraph may have been patched together from different precedents as the words after the last comma are inconsistent with what precedes it.

According to paragraph 16.1, no consent from the franchisee is required to an assignment, therefore consent could not be withheld. [ 9 ] Thus, pursuant to paragraph 16.1 of the franchise agreement, company 1 agreed not to assign benefits under the agreement unless the assignee expressly agreed to assume the obligations imposed on the franchisor under the agreement. Company 2 is an affiliate of and has the same operating mind, Mr. Essaris, as company 1.

Thus, company 2 was well aware that it could only accept assignment of benefits under the agreement unless it accepted the obligations imposed as well. [ 10 ] Furthermore, the conduct of the parties thereafter is consistent only with an assignment of both benefits and obligations as required by the franchise agreement. The services that were provided to the plaintiff in his efforts to make the franchise a success were funded by company 2. Company 2 funded the litigation and the lengthy arbitration after the plaintiff’s business failed.

The witnesses at the arbitration called by the defendant company 1 were employed by or under contract to company 2. At no time did either company 1 or company 2 disclose the assignment, apart from the letter to the plaintiff from Mr. Essaris in the fall of 2004. [ 11 ] The defence being advanced in this trial should have been advanced from the outset of legal action and arbitration.

Instead, both companies remained silent on the issue, knowing that the plaintiff was pursuing an empty shell, company 1, which had no ability to pay any amount of money that might be awarded against it. [ 12 ] For all other franchises, company 2 took an assignment of the franchise agreement as required by that agreement. It is only this one franchise for which company 2 takes the position that it took an assignment of the benefits only, not the obligations imposed on the franchisor under the agreement.

The first document which purports to corroborate that defence was created after this lawsuit appeared on the horizon. That document, I am satisfied, was created after the fact for the sole purpose of attempting to render company 2 judgment-proof. [ 13 ] I do not believe Mr. Essaris’ testimony that he had always intended to leave the obligations under the franchise agreement with company 1. Mr.

Essaris endeavours to sidestep the obvious by stating that company 1 assigned only the benefits to company 2 and retained the obligations, and then had company 2 undertake those obligations on behalf of or as agent for company 1, without apparent consideration and contrary to the franchise agreement. There is no evidence to support such a convoluted and unwieldy arrangement, other than Mr. Essaris’ testimony, which I do not accept. His was a shell game employing his affiliated companies in an attempt to frustrate the plaintiff’s efforts to enforce a judgment obtained after a full and fair arbitration.

Legal Assignment [ 14 ] The assignment of the franchise agreement from company 1 to company 2, in my view, complied with s. 36 (1) of the Law and Equity Act , R.S.B.C. 1996, c. 253 . While the plaintiff did not appreciate the legal implications of the notice he received from company 1 in the fall of 2004, it did provide express notice to the plaintiff of the assignment. In the alternative, receipt of the writ of summons and statement of claim pleading the assignment constitutes the required notice and does not result in any prejudice: see Canadian Imperial Bank of Commerce v.

Dunne , 2003 BCSC 1594 , 125 A.C.W.S. (3d) 995 at paras. 14-15 . Equitable Assignment [ 15 ] In any event, I find that there was an equitable assignment of company 1’s interest in the franchise agreement to company 2. [ 16 ] In Pantages Estate v. Bank of Nova Scotia , 1976 CanLII 1556 (BC SC) , [1977] 1 W.W.R. 282, [1976] B.C.J. No. 1129 (S.C.), it was held at para. 9: [9] The general rule regarding equitable assignments of choses in action is that no particular form is required to constitute a valid equitable assignment.

An agreement amounting to an equitable assignment may be express and written, or may be made out from a course of dealing between the parties. All that is required is clear intention of the assignor that the contractual right shall become the property of the assignee.

[ 17 ] The course of the dealings between the parties is consistent only with an equitable assignment of the franchise agreement, including all the rights of and obligations on the franchisor that arise under that agreement. [ 18 ] If equity permitted an assignment of the rights under a franchise agreement while retaining the obligations, contrary to the express provisions in that agreement, unscrupulous franchisors could cause havoc in this important segment of the economy. [ 19 ] There is no basis to order a new arbitration with company 2 as a party, as sought by the defendants.

The arbitration was fully and vigorously defended and the result would necessarily be the same. Had the defendants been forthright as they should have been from the outset, both defendants would have been parties to the action and arbitration. Conclusion [ 20 ] There will be a declaration that the defendant C.S.

Café Suprême Inc. is liable to the plaintiff on the judgment presently registered against the defendant Café Suprême Canada Inc., together with prejudgment interest at 6% and costs, with leave to apply. “Josephson J.” MEMORANDUM TO: The Parties and Legal Counsel CC: All Legal Publishers FROM: Superior Courts Judgment Office DATE: May 6, 2010 RE: Case Name: Invicta Food Services Ltd. v. Café Suprême Canada Inc. and C.S. Café Suprême Inc. Neutral Citation: 2010 BCSC 634 Docket: 08 5271 Registry: Victoria Please be advised that the attached Reasons for Judgment of Mr.

Justice Josephson dated May 6, 2010 have been amended as follows: 1. On the front page. G. N. Harney’s name is now shown before D. Madani’s name. 2. On the front page R. J. Beatch has been added as counsel for the Defendant. A copy of this memorandum and attached Reasons for Judgment will be placed in the court file. The original Reasons for Judgment which were previously distributed will be retained in the court file. Please direct any enquires to the Superior Courts Judgment Office at: scpublishing@courts.gov.bc.ca.