2011 QCCQ 4227, 2011 QCCQ 4227

Azad c. 863650 Ontario inc. (Student Works Painting) 2011 QCCQ 4227 COURT OF QUEBEC Small Claims Division CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division No: 500-32-115035-091 DATE: April 27, 2011 ______________________________________________________________________ BY THE HONOURABLE SUZANNE HANDMAN, J.C.Q. ______________________________________________________________________ LEILA ZANOUZANI AZAD […] , Pierrefonds (Qc) […] Plaintiff v. 863650 ONTARIO INC. doing business under the name STUDENT WORKS PAINTING 144, Main Street North, suite 9A, Markham (ON) L3P 5T3 Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Plaintiff, Leila Zanouzani Azad, is suing Defendant, 863650 Ontario inc., doing business as Student Works Painters, for $7,000.

Plaintiff alleges Defendant misrepresented its program and failed to provide the training and support required and, as a result, she suffered various expenses, trouble and stress. [ 2 ] Defendant denies the action and presented a cross demand for $7,000, alleging Plaintiff terminated her contract, failed to pay various sums owed pursuant to her contract and damaged its reputation.

A) The Principal Action : The evidence: [ 3 ] Defendant operates a business, which involves recruiting and contracting with students, who become “owner operators” in a “Student Management Program” . [ 4 ] Plaintiff was recruited by Defendant in the fall of 2006. She was 19 years old and a first year student at McGill University. An incentive to enter the program was the lure of making a base revenue of $9,000 and as much as $16,000 during the summer.

There were no prerequisites and Plaintiff had no business experience. [ 5 ] After an information session and interviews, Plaintiff was told she would be running a painting business but others would be doing the actual work; Defendant would provide training and information. [ 6 ] At the final interview, she was given a contract, which she claims she signed under pressure, without the opportunity of reading it.

Defendant's Vice-President had gone over it quickly, glossing over certain sections, such as “penalties”. [ 7 ] Defendant provided two or three training seminars, which were theoretical in nature and focused on marketing and selling

techniques; the means of estimating the cost of a job was taught from photographs. No technical training was given. [ 8 ] Plaintiff admits to regular verbal contact with the district manager. However, she submits that given the lack of proper training, operators are unaware of problems until one arises, and then there is no concrete support to fix it. [ 9 ] Plaintiff was to conclude $40,000 worth of contracts, purchase equipment and paint, hire, train and pay her painters. Clients paid Defendant directly.

Defendant then forwarded, to Plaintiff, the revenue she produced, less expenses related to royalties, material, etc.. The remainder, after paying labour costs, was profit. [ 10 ] Plaintiff found it difficult to find painters at the low pay rate suggested. Without sufficient training, the cost of jobs was grossly underestimated. Clients were dissatisfied. There was constant pressure to bring in money but no assistance was provided. [ 11 ] One client, who was very unhappy with the staining of his deck, threatened to sue. Defendant's district manager was called in. He agreed the job was poorly done.

The stain was not right because of a mixing problem, an application error or an improperly prepped surface. Plaintiff was told it was her job to redo the work and fix the deck, but she received no help on how to stain it properly. [ 12 ] Plaintiff was not producing enough; Defendant pressured her to finish jobs in order to obtain its royalties. In July, Plaintiff only received $200 from Defendant to cover her material, labour costs and her revenue. [ 13 ] Defendant blocked Plaintiff's line of credit for a couple of weeks at the paint shop, alleging she was doing work without reporting revenue.

Since she was unable to buy paint, Plaintiff's work was delayed and she could not pay her painters. They quit; a couple of them instituted a lawsuit against her. [ 14 ] Plaintiff met with her district manager in August and following a heated discussion with him, Plaintiff was upset and suffered a car accident. [ 15 ] Plaintiff asked friends to help finish the work. She was ridiculed by friends and family and embarrassed by phone calls at home from Defendant and clients, harassing her to complete unfinished jobs. She had lost money while Defendant received its royalties.

She had to pay Defendant for the return of a number of deposits to customers. She was stressed and had trouble sleeping. Plaintiff estimates her loss at $35,000. ********** [ 16 ] Defendant's business consists primarily of painting home exteriors, decks, fences, etc.. It seeks individuals with a record of success and advises applicants the job is difficult, with challenges.

Defendant maintains it reviews the contract by phone and at the final meeting and discusses the fees, if a manager quits. [ 17 ] A three-day seminar is provided in January, dealing with recruiting, estimating costs, sales and marketing, profitability and paint technology. This is followed by an evening seminar in February, in advanced sales skills and marketing training. In April, production training is given during an evening session on how to organize the business and train painters. Preliminary techniques and the manner of estimating are taught by means of slides.

Paint training is provided on paper. [ 18 ] Defendant's district manager called Plaintiff every Monday. His goal was to help her book as many clients as possible and two field estimates were set. [ 19 ] Defendant explained that customers pay Defendant directly since it takes care of operators' financial statements and pays for paint, from the operator's account. Defendant maintained Plaintiff used an excessive amount of paint; it came to 32.2% of her jobs whereas the average is 12-15%. [ 20 ] During her first year, Plaintiff did not achieve her goals.

While it appeared that she had initially reached the target of selling $40,000 in contracts in May 2006, as summer advanced, there were high paint bills, unsupported by production. Her actual sales amounted to $25,000 but less than $13,000 was paid by clients. [ 21 ] Defendant called clients and discovered many were dissatisfied with the work; others complained the work had not begun or that it was incomplete. [ 22 ] Defendant's district manager claimed he carried out paint training with Plaintiff in May and worked with two painters in July. He contended he had difficulty ''in getting through to Plaintiff'' .

He set a production

schedule but the jobs were not being done. He claimed clients were paying Plaintiff cash, a fact she denied. [ 23 ] Finally, the district manager and Plaintiff had a discussion on August 9 th , since no money was coming in. He collected funds from Plaintiff to repay customers whose project had not been completed. According to the manager, he had done everything he could but was unable to manage or support Plaintiff. [ 24 ] Defendant disputed Plaintiff's claim. It maintains she is responsible for paying her painters as well as phone, gas and rentals under the contract.

Defendant denies responsibility for the cost of paint used for the training. It submits Plaintiff alone is responsible for her working hours, unpaid jobs and unpaid labour costs. Analyse:

[ 25 ] Plaintiff is seeking $7,000 in compensation. She was solicited by Defendant to begin a business and told she could anticipate earnings between $9,000 and $16,000, by the end of the summer of 2006, from her newly created painting business. Instead, she lost money and the venture turned into a nightmare. [ 26 ] While Defendant's statement shows that Plaintiff made a profit of $3,650, it does not include Plaintiff's costs to pay her painters or the cost of equipment. In reality, she suffered a loss. [ 27 ] Plaintiff claims she was misled by Defendant's promises and not properly trained.

a) The applicable principles : [ 28 ] A franchise contract was concluded. In such a situation, the franchisor has the obligation of good faith which must prevail both when the contract is concluded and throughout its execution. [ 29 ] The franchisor also has an obligation of information [1] . Before contracting, the franchisor must adequately inform the potential franchisee. The franchisor must not under estimate expenses and or exaggerate the profit attainable. [ 30 ] The franchisor also has an obligation of assistance, which is the most important component of the parties’ contractual relationship.

Assistance and support are an integral part of the exploitation of a franchise [2] . [ 31 ] The franchisor must respect its undertaking of assistance and support and provide the franchisee with all the available tools to allow for the opening and development of his business. In this regard, the experience of the franchisee is a determining factor in appreciating the help provided by the franchisor. [ 32 ] In addition, it is necessary for the franchisor to assure that the franchisee receives adequate training to assure a uniformity of the network and respect the method developed by the franchisor.

The burden of proof as to the lack of assistance on the part of the franchisor falls on the franchisee.

b) Analysis of the Principle Action :

i) False Representations : [ 33 ] Plaintiff claims she was misled as to the amount of money she would be making during the summer. However, an examination of the contract sets out the numerous expenses payable by the franchisee, before making a profit.

They include not only the 28% royalty payable to Defendant for each completed job but also the cost of operating the franchisee's own vehicle, the cost of equipment and material (ladders, paint and paint brushes), insurance, administration fees and the cost of subcontractors, namely the painters. [ 34 ] Although the evidence established that Plaintiff was told that she could earn up to $16,000, with the base revenue being $9,000, there is no proof that Defendant promised Plaintiff that her profits would reach these sums. [ 35 ] Plaintiff had undergone an information session and was attracted to the possibility of running her own business and making money but she did not consult anyone knowledgeable in the field.

A lawyer or an accountant would have pointed out to her that a franchisee is an independent contractor and assumes the commercial risks involved in a business [3] ; the franchisor does not assure that the franchisee will make money. [ 36 ] Given the list of expenses, Plaintiff should have realized that the estimated profits she could attain were not a guarantee. Because of the numerous costs involved, her profits could be considerably less. [ 37 ] Although Defendant painted a rosy picture of financial projections, it provided no guarantees as to the profits that would be made [4] .

In light of the foregoing, the Court cannot conclude that Defendant made false representations to Plaintiff. Finally, while Plaintiff had no experience in running a business, she also failed to obtain the information she required and/or obtain the advice of professionals. [ 38 ] Plaintiff also claims that she signed the contract under pressure.

Although she was asked to sign the contract after only a brief and cursory explanation, there is no evidence that she was forced to sign the contract nor is there any evidence she asked to take it home to review it before signing but was refused. ii) Support and Training : [ 39 ] The situation differs with respect to support and training. The contract concluded between the parties (which refers to Defendant as “Works” and to Plaintiff as “owner/operator”) provides the following with respect to training to be provided by Defendant: Owner/Operator Training

[ 40 ] In order to assist the Owner/Operator in the establishment of his/her business, Works shall: “

a) provide a Works Operation Manual;

b) provide a weekend training seminar; and

c) provide a basic technical seminar in the spring and monthly pre-summer and mid-summer training sessions.” [ 41 ] Defendant's responsibilities with respect to training are set out in the contract: “23. Training

(1) Manuals: Works will provide to the Operator the following manuals in consideration of royalties paid and a $250 deposit: Operations Manual (

b) Field Manual (

c) Client Manual and (

d) Training Manual Notes

e) Business cards

(2) Seminars: Works will provide in consideration for royalties paid intensive seminars covering, (

a) Recruiting; (

b) Paint or Deck or Window Technology; (

c) Estimating (

d) Marketing; (

e) Professional Selling Skills; (

f) Production Management; (

g) Training Employees , and (

h) Accounting for Small Business.

(3) Advice: Works agrees to make its staff available at its offices for consultation and advice in the operational aspects of the Owner/Operator [ 42 ] Defendant has an obligation for support.

Article 28 states: “ Field Support: In the case of an Owner/Operator commencing his/her first year of operation at a Works location, Works shall provide in consideration for royalties paid, a Support Manager to work with and advise the first year Owner/Operator . The Support Manager shall have been an Owner/Operator in a Works location in a previous year.” (the bold caracters are ours) [ 43 ] The training Defendant provided consisted of a three-day seminar and two evening seminars. Plaintiff was taught marketing and sales strategies, such that she was able to solicit and sign up new customers. However, her training in painting techniques was woefully inadequate. She received only a

summary lesson on painting the interior of part of a house and none with respect to exterior work until she was actually on the job site. As well, she was never taught how to stain. [ 44 ] While Plaintiff was not supposed to do the actual painting, she had to train her painters. Not having received proper or sufficient instruction in painting techniques and no training in staining, she was unable to properly train the people she had hired.

As a result, the work was poorly done; clients complained and work had to be redone. [ 45 ] Defendant maintains it was supportive and had provided advice and assistance through regular telephone contact and e-mails. Yet, when a customer's deck was erroneously stained fuchsia, the district manager simply told Plaintiff to redo the work. No course or instruction was offered on how to stain. [ 46 ] Defendant realized that Plaintiff was using too much paint and clients were dissatisfied.

Yet, it did nothing to assist Plaintiff in rectifying this problem; rather her manager set up a production schedule. [ 47 ] Plaintiff had no experience not only in painting, but she also had no experience in running a business. The evidence shows that she was not meeting the goals established and was unable to pay her painters.

Again, the evidence shows that Plaintiff received no support or help in turning the situation around. [ 48 ] The Court concludes that Plaintiff did not receive sufficient training to carry out her painting business nor did she receive sufficient support during the process to help her overcome the various problems that arose. In light of the foregoing, Plaintiff is entitled to compensation.

c) Damages : [ 49 ] Plaintiff alleged having lost $35,091.85, which she reduced to $7,000, namely the limit of the jurisdiction of the Court's Small claim's division. She is claiming $2,571.85, as the payment cost for her painters; $530 for paint purchased during training; $14,400 for working hours; $1,500 for damage to her car; $1,500, representing the funds she gave to Defendant to reimburse clients' deposits for unpaid jobs, $2,000 paid to friends to assist her in painting and $10,000 for stress, trouble and inconvenience.

i) Paint purchased during training : [ 50 ] Plaintiff seeks $530 for the paint she purchased to paint her house during one training session but provided no receipts. In the absence of proof as the amount paid, no compensation is granted. ii) Lawyer's fees : [ 51 ] The amount of $170 paid to attorneys is not granted.

Extrajudicial fees are granted only in the case of abuse of procedures, which is not the situation in the present instance [5] . iii) Damages to Plaintiff's car : [ 52 ] Plaintiff is claiming $1,500 for the damages suffered to her car, following an accident she had subsequent to a heated discussion with her manager. The Court does not consider Defendant responsible for the damages to Plaintiff's car. iv) Compensation for the hours worked : [ 53 ] Plaintiff seeks $14,400 for the hours she worked in the business.

However, Plaintiff did not have an employment contract nor did she conclude a service contract in virtue of which she would be paid by the hour. She contracted a franchise contract and is not entitled to recover the cost of hours during which she worked and for which she failed to make a profit.

v) Unpaid jobs : [ 54 ] Plaintiff seeks $1,500 for unpaid jobs. After the case ended, Plaintiff transmitted a list of three clients who allegedly had not paid for work done, with the amount of the unpaid work being $2,186. Plaintiff wishes to now add this amount to her claim. There is no evidence these clients did not pay for the work done. The list prepared by Plaintiff is insufficient to substantiate her claim. Therefore this aspect of her action is not retained. vi) The cost of painters : [ 55 ] Plaintiff is claiming $2,571.85 for the payment to her painters.

The evidence shows that Plaintiff and Defendant were sued by a couple of painters and by judgment rendered on August 28, 2008, Plaintiff and Defendant were solidarily condemned to pay $1,487.28 with interest to the Commission des normes du travail, which had represented the unpaid workers. [ 56 ] Plaintiff did not appear and the judgment was rendered by default.

Since both Plaintiff and Defendant were condemned solidarily to pay the said amount and given that Plaintiff has not paid any sum of money, the Court is not awarding compensation for this item. [ 57 ] Plaintiff also submitted evidence she paid Farid Medleg and Tanya Scarapicchia $1,000 and $270 respectively to finish the painting jobs that were to be completed by the end of the summer.

Given the lack of support by Defendant which resulted in Plaintiff incurring this additional and unforeseen expense, the Court grants the sum of $1,270. vii) Damages for the stress, trouble and inconvenience : [ 58 ] Plaintiff is seeking $10,000 for the stress, trouble and inconvenience she suffered. Given the absence of sufficient training and assistance from Defendant, contrary to its obligations as a franchisor, Plaintiff had to redo work, remit the deposits received from a number of clients and hire friends to finish work when all her painters had quit.

She was harassed by constant telephone calls from Defendant and clients, was anxious, stressed and had difficulty sleeping. [ 59 ] In light of the foregoing, the Court awards Plaintiff the sum of $1,000, as moral damages.

B) The Cross Demand : [ 60 ] Defendant submits that Plaintiff booked $25,000 in sales but brought in less and spent $4,000 in paint. Ultimately, she produced less than $13,000 worth of work. According to Defendant, one painter over a period of 10 weeks is required to produce $12,000 worth of business, while Plaintiff used 10 painters over 16 weeks.

[ 61 ] Defendant contends Plaintiff did work on a cash basis, a fact she denies, and did not finish contracts, forcing Defendant to return deposits. In addition, Plaintiff damaged its good will. According to Defendant, Plaintiff gave Defendant her last cheque on July 20 th but she was still buying paint in August, without producing any jobs or bringing in revenue for the paint she bought after July 20 th .

Analysis of the Cross Demand: [ 62 ] Defendant is claiming $10,000 for the defamatory statements on Plaintiff's face book site; $3,500 for terminating their agreement, $980 for loss of royalties as well as its legal expenses. [ 63 ] The claim for damages for defamation, based on allegations contained in Plaintiff's face book, are not granted. Defamation does not fall within the jurisdiction of the Small Claims Court. [ 64 ] The claim for legal fees is also not retained. In the absence of an abuse of procedure, our Courts do not grant extrajudicial costs [6] .

Furthermore, Defendant was not obliged to consult a lawyer to present its defense and cross demand. [ 65 ] Defendant seeks payment of a penalty, alleging Plaintiff terminated her contract. Plaintiff attempted to complete the remainder of her jobs. During the month of August, she purchased paint in her attempt to fix the problems that arose. She denied having terminated her contract and the evidence does not establish that she did so.

Therefore, the claim for the payment of a penalty is not retained. [ 66 ] Defendant is seeking compensation, alleging a loss of royalties, based on Plaintiff's purchase of paint at the end of July and August, without providing Defendant with cheques for any job completion. However, the royalty is based on the value of work sold and not on the amount of paint bought. Plaintiff testified she bought paint to try to fix or complete jobs but she did not generate new contracts or receive payment at the end of July or in August. Accordingly, no money is owed for royalties.

FOR THESE REASONS, THE COURT: GRANTS , in part, Plaintiff's action; CONDEMNS Defendant, 863650 Ontario inc., doing business as Student Works Painters, to pay Plaintiff, Leila Zanouzani Azad, the sum of $2,270 plus interest at the legal rate and the additional indemnity foreseen by

section 1619 of the Civil code of Quebec since June 24, 2008 plus judicial fees of $155; DISMISSES Defendant's cross demand, with costs. __________________________________ SUZANNE HANDMAN, J.C.Q. Date of hearing: February 14, 2011