) ) 1201059 ONTARIO INC. Plaintiff – v. –, 2013 ONSC 5200

CITATION : 1201059 Ontario Inc. vs. Pizza Pizza Limited, 2013 ONSC 5200 COURT FILE NO.: 11-24641 DATE: 2013/08/14 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: ) ) 1201059 ONTARIO INC.

Plaintiff – and – PIZZA PIZZA LIMITED Defendant ) ) ) ) ) ) ) ) ) Michele Ballagh, for the Plaintiff Michael Kestenberg, for the Defendant ) ) ) HEARD: May 21, 22 and 23, 2013 The honourable mr. justice r. j. nightingale REASONS FOR JUDGMENT [ 1 ] This action involves the obligations of disclosure, if any, of a franchisor under the Arthur Wishart Act (the Act) on a renewal of a franchise agreement when it proposes to subsequently require the franchisee to incur substantial renovation costs to its business property. [ 2 ] The Plaintiff franchisee’s position is that the Defendant franchisor at that time failed to adequately disclose in writing, as required under the Act, the details of the franchisor’s plans and proposed renovation costs.

It did not want to incur those substantial costs for renovations and alleges it suffered significant damages when the Defendant attempted to go ahead with those renovations and allegedly terminated the agreement before its completion date. [ 3 ] The Defendant’s position is that firstly, the Act has no application to the renewal of this franchise agreement. Secondly, both its original and renewed franchise agreements clearly outline the Plaintiff’s obligation to conduct the extensive renovations at its own cost when required by the franchisor.

Thirdly, the franchisor committed no breach of the franchise agreements or its duties of good faith and fair dealing. Fourthly, the Plaintiff suffered no damages for which the Defendant is responsible and failed to mitigate its damages.

Background [ 4 ] The evidence in this action included a written statement of agreed facts, the oral evidence of Adel Aghazadeh-Dibavar (Adel), the Affidavit of the Plaintiff’s financial record keeper Golab Ahmadzadeh and the oral evidence of the Defendant’s witnesses Sebastian Fuschini and Galeeb Mehdi. [ 5 ] Adel and his former partner, Omid Sharifi, incorporated the Plaintiff company for the purpose of entering into a franchise agreement in November 1996 with Pizza Pizza Limited to operate the franchise store at 833 Upper James Street Hamilton.

They paid the Defendant $130,000 to purchase that store including a $20,000 franchise fee. Adel, after buying out his partner’s 50% interest in 1999, became the sole shareholder, officer and director of the Plaintiff. [ 6 ] In or about November 1994, two years prior to Adel obtained his franchise, Pizza Pizza had adopted a new retail marketing plan to renovate all of its franchise stores to shift from delivery and take out locations to a sit down restaurant facility with delivery.

The franchise agreements, including the one signed by the Plaintiff, allowed the Defendant to require the franchisees to complete those renovation costs at the Plaintiff’s expense. [ 7 ] The Defendant’s vice president Mr. Fuschini advised Adel of that new retail marketing plan when they purchased the

franchise in 1996 and Adel had independent legal advice when he signed the agreement. A large number of franchise restaurants were extensively renovated at significant costs (approximately $400,000) to those franchisees from 1994 to 2001 under this plan to the knowledge of Adel.

Adel also knew prior to 2001 that these extensive renovations at these costs were going to be done to all of the Pizza Pizza stores including his own and that it was just a matter of when those renovations would take place to his own. [ 8 ] Adel then signed a franchise renewal agreement with Pizza Pizza on August 22, 2001 for a further five year term to run from November 5, 2001 until November 4, 2006.

Pizza Pizza did not then provide any documents regarding the proposed renovations specific to Adel’s store. [ 9 ] Pizza Pizza again advised Adel in January 2004 of its plan to proceed with the renovations to his store within the next 18 months.

Adel had decided he did not want to proceed with the renovations but did not notify it of that until several months later. [ 10 ] Pizza Pizza made numerous offers to Adel on December 29, 2004 which included options of purchasing Adel’s assets, offering him employment, relocating his store or assisting with the renovations which were all declined. [ 11 ] Pizza Pizza advised Adel on July 20, 2005 of its intention to begin the required renovations advising that the store would be closed for at least four days for which he would be compensated.

Its workers on August 2, 2005 removed the signage when they were confronted by Adel. Construction stopped and on August 3, Pizza Pizza agreed to put off the proposed renovations to Adel’s restaurant until his renewal agreement expired in November 2006 so that he could continue with his business until then. [ 12 ] Adel refused that proposal and never returned to operate the franchise for the 15 month balance of the renewal agreement and brings this action for damages allegedly sustained by the Plaintiff company.

The Issues [ 13 ] Did the franchise renewal agreement require the Plaintiff franchisee to complete the renovations to a sit-down restaurant requested by the Defendant franchisor at its cost? [ 14 ] Was the Defendant exempt from the written disclosure requirements of the Arthur Wishart Act? i.e. were Pizza Pizza’s proposed renovations to the Plaintiff’s restaurant a material change since the franchise agreement was entered into in 1996? [ 15 ] Did Pizza Pizza breach its duty of good faith and fair dealing with the Plaintiff? [ 16 ] Did the Plaintiff suffer any damages and if so, has it proven its damages? [ 17 ] Did the Plaintiff fail to mitigate its damages?

Franchise Renewal Agreement and Renovations [ 18 ] The original Franchise agreement in 1996 defined the franchisor’s “business” as meaning the business of operating restaurants featuring pizza and other food items for takeout, delivery and on premises consumption. [ 19 ] The agreement required the Plaintiff to operate the franchise in accordance with the Defendant’s retail marketing scheme as may be modified by the Defendant from time to time.

The Plaintiff acknowledged in the agreement that all standards of operation and services could be added to or modified from time to time and must be adhered to by the Plaintiff. [ 20 ] The “Retail Marketing Scheme” was essentially defined as a method formulated and developed by Pizza Pizza from time to time for the establishment and ongoing operation of restaurant outlets for takeout, delivery and on-premises consumption of the Pizza Pizza’s food items. [ 21 ] The agreement required the Plaintiff to perform renovations to the premises as Pizza Pizza from time to time shall determine are necessary or desirable to make the franchised outlet conform to the retail marketing scheme. [ 22 ] The franchise renewal agreement in 2001 did not change the definition of the Defendant’s “business” and did not significantly change the wording of Pizza Pizza’s retail marketing scheme which was now referred to as a” Retail Marketing Plan”. [ 23 ] The renewal agreement confirmed that Pizza Pizza could from time to time change the Retail Marketing Plan which may include renovations which the Plaintiff agreed to promptly accept and implement in the conduct of the business at its sole cost. [ 24 ] The Plaintiff, during argument, conceded that the original franchise renewal agreement specifically allowed Pizza Pizza to make changes to its Retail Marketing Plan which would include the renovations of the Plaintiff’s restaurant to a sit down restaurant at the Plaintiff’s cost. [ 25 ] The only

interpretation of the franchise renewal agreement was that it also provided the same entitlement of Pizza Pizza to require and the obligations of the Plaintiff to complete those renovation costs at the Plaintiff’s sole cost.

Arthur Wishart Act and Material Change [ 26 ] On review of the original franchise and renewal agreements, there were no material changes in the wording in the renewal agreement that were fundamental to the Plaintiff’s business operations and the Plaintiff did not suggest that there were. [ 27 ] In my view, the statutory obligation of Pizza Pizza to provide a disclosure document and statement of any material change to the Plaintiff in 2001 when the franchise renewal agreement was signed does not apply as there was no material change since the original franchise agreement was entered into.

My reasons are as follows.

[ 28 ] Sebastian Fuschini has been Pizza Pizza’s vice president of franchising operations since 1991. His evidence was given in a frank and forthright manner. He did not appear to exaggerate his evidence in any way and he readily conceded the obvious regarding his inability to specifically recall all of the details of his conversations with Adel.

He was very precise and consistent with respect to the usual method he used to explain to all potential and existing franchisees the nature of the business and the expectations of them by Pizza Pizza which he insisted was used with every franchisee including Adel. [ 29 ] After providing his evidence in an extensive and detailed examination in chief, he was not even challenged on any significant point of his evidence in a brief cross examination by Plaintiff’s counsel.

I found his evidence to be fair to his position but also to the Plaintiff throughout and that he was in fact sympathetic to Adel especially as he was trying to help him and his family become financially successful along with the other franchisees. [ 30 ] The same cannot be said of the evidence of the Plaintiff’s witness Adel, details of which are noted below. For these reasons, I accept the evidence of the Defendant’s witnesses as being factually correct and especially whenever it contradicts the evidence of the Plaintiff’s witness Adel. [ 31 ] Mr.

Fuschini confirmed that in 1981, when he first started with the company, Pizza Pizza consisted of only 37 stores providing takeout services for 95% of its business and delivery with only a very small amount of people coming into the store. [ 32 ] Over the past 32 years Pizza Pizza has evolved out of necessity because of significant competition. In order to protect its franchisees and its brand, it had to keep current and give the best product available.

Part of that plan from 1994 to 2008 was to increase its number of stores (now 388) and carry out significant renovations to the stores to sit down restaurants with various menu items so they could compete in the market. They also expanded their products and name brand so as to financially benefit all of their franchisees and retain and increase their market share. [ 33 ] Mr. Fuschini made it clear that Pizza Pizza had to remain current because of stiff competition in southern Ontario and pointed to the example of the Mr.

Donut franchise which failed because it did not upgrade or expand and reacted too late to renovate losing their doughnut business to TDL. The whole purpose of remaining current and changing with the times including renovating the stores to sit- down restaurants was to ensure the success of their franchisees. [ 34 ] Mr. Fuschini met every proposed franchise owner and explained to them at length when they first approached him to buy a franchise this retail marketing scheme for these renovations which were in effect since 1994.

Included in that usual explanation was the information that the retail marketing scheme was always changing so that they understood they had to change in the future as well. The plan was not put in writing but the whole plan was discussed with them as well as at training sessions and conferences. [ 35 ] Mr. Fuschini has no specific recollection of speaking to Adel in 1996 when he was purchasing the franchise but made it clear that he would have told him, as he did others, that Pizza Pizza was renovating all of its stores, which would include Adel’s, to sit-down restaurants.

He would have explained how the company first started, the changes that were made since, how it was then and the proposed changes for the future. [ 36 ] No evidence was provided by Adel to contradict or explain that evidence. In fact, Adel admitted in cross-examination that he knew in 1996 when he signed the original franchise agreement that Pizza Pizza was going to renovate his store as a sit-down restaurant and that he was aware of its retail marketing plan of 1994 to do so.

Accordingly, I find that Adel knew when he signed the franchise agreement in November 1996 that Pizza Pizza had adopted a new retail marketing plan (which included his store) in November 1994 to renovate its stores to shift from delivery and takeout locations to a sit down restaurant with delivery which he would be required to pay for at his cost. In fact in 1997, shortly after the Plaintiff bought the franchise, Pizza Pizza arranged for some initial renovations to Adel’s store costing the Plaintiff $18,000 to which the Plaintiff and Adel did not object. Independent Legal Advice [ 37 ] Mr. Adel said that Mr.

Fuschini referred him to his own lawyer, a Jason Smith, for the purpose of Adel and his partner signing the franchise agreement. That evidence was flatly denied by Fuschini who stated that Mr. Smith had never been his or the Defendant’s lawyer. Moreover, the Independent Legal Advice Certificate signed by James Smith confirms that he acted as solicitor for Adel only and that he had not acted for Pizza Pizza or any other party in connection to that matter. The Plaintiff did not call Mr. Smith as a witness to contradict the certificate or support Adel’s assertion and I infer that if called, he would not.

Moreover, it makes no logical sense that Mr. Fuschini would have said that to Adel. I reject Adel’s evidence to that effect and question his motive to make such a statement under oath. Adel clearly understood with the benefit of independent legal advice all of the terms of the original franchise agreement. Change in Territory [ 38 ] Adel stated that in 1999 Pizza Pizza changed his territory which he said was a very significant change resulting in loss of income. The implication was that he was blaming Pizza Pizza for that loss. [ 39 ] Mr.

Fuschini explained that each franchise owner’s territory services a minimum of 10,000 people and that the territories change for all franchise owners from time to time so as to better serve its customers. There was nothing unusual about this change in territory but more importantly, no evidence was called by Adel to prove there was any income loss including what amount, if any, was lost.

Moreover, at about the same time, Adel bought out his partner’s interest in the franchise in a shotgun buy-sell arrangement paying him $60,000 which was approximately one half of what the original purchase price was for the franchise. This evidence suggests that nothing had changed with respect to the sales of the franchise and was exaggerated. Adel’s Reuse of Boxes [ 40 ] Adel also suggested Pizza Pizza had improperly tried to terminate his franchise in February 2001 for no valid reason. At that time, he was caught committing a “cardinal sin” (according to Mr.

Fuschini) of reusing boxes for pizza he was supplying to schools and a

local bingo hall. Pizza Pizza was obviously very concerned about these hygiene and health safety violations because of this practice which it specifically forbade as well as its inability to properly count the supply of boxes to Adel which was used to calculate Adel’s fees payable to it. [ 41 ] Even though Mr. Fuschini terminated Adel’s franchise in February 2001 because of this serious franchise breach, he graciously agreed to give him a second chance, feeling sorry for his family, when Adel, who came to him very upset and apologetic for what he had done, asked for it.

Adel promised not to do it again and acknowledged in writing that what he had done was a material breach of the Franchise agreement. [ 42 ] Adel, on the other hand, in his evidence at trial suggested he was not at all apologetic at the time and, was surprised at Pizza Pizza’s actions which “accused” him of reusing boxes. He clearly implied that he thought there was nothing wrong with what he was doing in that practice. He even implied that Pizza Pizza’s actions insisting that he use new boxes at all times resulted in his losing business from the schools which makes no sense at all.

Adel was less than frank in his evidence and I reject it and accept that of Mr. Fuschini in that regard. Diversion of Telephone Orders [ 43 ] Adel in his evidence accused Pizza Pizza of deliberately and improperly referring telephone orders away from his store to others when he refused to go along with the proposed renovations suggesting he lost significant funds and implying that he couldn’t trust Pizza Pizza after that. However, he provided no supporting evidence or documents. [ 44 ] The evidence from Mr.

Fuschini was that there was an instance of one order on November 11, 2004 of $32.45 inadvertently referred to another store in error by the ordering operator which happened periodically. The lost profit would only have been $3.70. Another mistake made was immediately rectified by Pizza Pizza and the order was returned to Adel store with no financial loss. There was no evidence that these incidents were anything other than inadvertent errors on their part.

In fact, Adel admitted he was told that Pizza Pizza would immediately fix the problem, which they did, and that he had received similar orders inadvertently intended for other stores in the past. In general, they would balance out but Adel’s initial evidence was clearly exaggerated and of no substance. Franchise Renewal Agreement 2001 [ 45 ] The agreed statement of facts included the fact that prior to entering into the franchise renewal agreement, the Plaintiff was aware of its obligation to renovate or expand its store. That is clear from all the evidence including the evidence of Mr.

Fuschini who said he believes he did discuss renovations with him in 2001. He estimated that sales would increase 30% to 50% on average upon those renovations, and estimating that Adel’s sales would increase from $700,000 by $300,000. [ 46 ] However, Adel stated that when he met with Mr. Fuschini on August 22, 2001 when he signed the franchise renewal agreement, he didn’t know his store was scheduled to be converted to a sit-down restaurant within five years. Adel indicated he wasn’t aware of his having to convert his store to a sit-down restaurant until after he signed the renewal agreement. However, Mr.

Fuschini’s uncontradicted and unchallenged evidence was that since 1997 all franchise owners including Adel contributed to a renovation fund to assist them to pay for these renovations. A percentage of sales were deducted and placed into this savings plan and as of 2004 Adel had $45,000 in that renovation fund.

Adel did not volunteer that evidence himself and I do not accept his evidence as being factual, especially as he had known of the renovation plan and his obligation to pay those costs since 1996 when he signed the original agreement. [ 47 ] Adel then contradicted himself when in cross-examination he admitted that he had seen other franchise owners carry out their extensive renovations and restaurants prior to that date and that he had seen full details, models and diagrams of those proposed renovations for all the franchise owners at a fall conference of all franchise owners in the fall of 2000 in Niagara Falls.

They were all told by Pizza Pizza then and he knew that the conversions were going to be happening. His answer, given rather indignantly in cross examination, was that “of course I knew Pizza Pizza were going to do the renovations” which was at that conference and before he signed the renewal agreement in August 2001. [ 48 ] When asked about his knowledge of the renovations actually costing approximately $400,000, he said that Pizza Pizza did not tell him about those costs, which I find was highly unlikely.

He said he knew that from three other franchise owners as they talked to each other and said they couldn’t survive after the renovations. However, Adel called none of them as witnesses to say that the extensive renovations did not work out for them financially. [ 49 ] He also stated that he never discussed the potential sales he would have after the renovations with Mr. Fuschini. This evidence was contrary to the evidence provided by Mr. Fuschini but is also contrary to the evidence of Adel on his examination for discovery on May 15, 2007. He admitted then he had talked to Mr.

Fuschini about what the sales were likely going to be if he had tables and chairs and additional revenue for lunches and other times other than delivery only. [ 50 ] He stated that Mr. Fuschini had actually showed him the proposed drawings before he signed the renewal agreement but he did not look at them stating he wasn’t interested in the renovations. He said he told Mr. Fuschini he couldn’t do it which in fact contradicts his earlier evidence and is contradictory to Mr. Fuschini’s evidence which latter evidence I accept. Adel’s statement that Mr.

Fuschini told him at that time that “it is my way or the highway” is simply not believable and in my view, was never said by him. [ 51 ] Adel said that he attended at the Pizza Pizza office on August 22, 2001 not to sign a franchise renewal agreement but because he had a problem with a representative. He said while he was there, Fuschini did not offer to let him take the franchise renewal agreement home or see a lawyer and that he had no time to review the renewal agreement.

However, he then admitted that he read every page and signed everything at the office and in cross-examination admitted he did not ask to take the agreement home first or to show his children. He admitted he asked Pizza Pizza to pay for his $7000 renewal fee and was allowed to sign a promissory note for that rather than pay it immediately. [ 52 ] Mr. Fuschini, again in fairness, could not recall the details of the actual meeting he had with Adel when the new agreement was signed. He was adamant that he would have told him again that his restaurant was going to be renovated that he would let him know

when he had the details. [ 53 ] It was definitely not his practice with any of the franchise owners to suggest they could not take the renewal agreement to their own lawyer for review. In fact, it was his practice as Pizza Pizza was heavily into the renovations of stores, to suggest they review it with their own lawyer and there is no reason not to have done it with Adel.

His understanding was that Adel simply refused or declined to take the agreement to his lawyer before he signed it and simply signed it there. [ 54 ] Adel on behalf of the Plaintiff company signed a waiver of independent legal advice which he acknowledged he had read and understood confirming that despite strong encouragement from Pizza Pizza and the opportunity to do so, he was freely electing not to obtain further legal advice as he had when he signed the original Franchise agreement.

He acknowledged that he had taken the time to carefully read the new franchising agreement and fully understood the nature and effect of it. That evidence of Mr. Fuschini and the documents make total sense and I accept it in its entirety. [ 55 ] This franchise renewal agreement was for a further five year term to run from November 5, 2001 until November 4, 2006. The Plaintiff knew under the terms of this agreement that Pizza Pizza was not obligated to renew that franchise for a further term upon expiry of the franchise renewal agreement.

That term was also included in the original franchise agreement. [ 56 ] The franchise renewal agreement provided that the Plaintiff would be required to renovate or expand the store to comply with Pizza Pizza’s Retail Marketing Plan if necessary. [ 57 ] The franchise renewal agreement defined “Retail Marketing Plan” as the method developed by the franchisor and which is amended by the franchisor from time to time for the establishment and the ongoing operation of restaurant outlets for takeout, delivery and on-premises consumption of pizza, pasta dishes, chicken, sandwiches, salads and other foods prepared on-site or elsewhere. [ 58 ] The franchise renewal agreement provides:

Article 2.3: Franchise owner recognizes that variations and additions to the Retail Marketing Plan will be required from time to time to preserve and enhance the public image of the Retail Marketing Plan, to accommodate changing consumer trends and to ensure the continued efficiency of the franchised outlet generally; the franchise owner acknowledges and agrees that the franchisor may from time to time, upon written notice, add to or subtract from or otherwise change the Retail Marketing Plan.

These changes may include, without limitation, the adoption of new or modified trademarks or trade names, new products, services, renovations, equipment, textures, furnishings and signs and additional leased space or relocation of the premises, and new techniques relating to the sale promotion and marketing of goods and services. The franchise owner agrees to promptly accept, implement use and display all such changes to the retail marketing plan and the conduct of the business, at its sole cost.

Article 3.2 (d): The franchise owner will at least 30 days prior to the renewal date have made all capital expenses required by the franchisor to renovate, refurbish, remodel, redecorate and modernize the franchised outlet so as to reflect the then current image of the Retail Marketing Plan which capital expenditures the franchise owner acknowledges may be substantial.

Article 5.4 : …the requirement for renovations, expansions or relocation is in the sole discretion of the franchisor. The franchise owner will be responsible for the amount that the renovations, expansion or relocation costs exceed the amount of the Renovation Fund Contribution and will pay this difference at the time of the renovation, expansion or relocation.

Article 9.2: The franchise owner will operate and maintain the franchised outlet in accordance with the Retail Marketing Plan (whether in the manual or otherwise) as it may be modified by the franchisor from time to time.

Article 9.11: The franchise owner will perform such repairs and replacements (including expansions, renovations, refurbishing, remodelling, refactoring and redecorating) to the franchised outlet including the fixtures as the franchisor from time to time may, in its sole discretion, determine are necessary or desirable to make the franchise outlet conform to the then current Retail Marketing Plan. [ 59 ] The admitted facts were that prior to January 2004, Adel had visited other Pizza Pizza franchises that had been renovated. Another store located a number of blocks away from his was newly constructed in 1999.

He would go there periodically and saw that it was constructed as a sit-down restaurant with delivery. Renovations after Renewal Agreement [ 60 ] By January, 2004, 78% of Pizza Pizza stores had been renovated into sit-down restaurants (270 since 1994). By letter of January 6, 2004, Pizza Pizza advised Adel that it would be proceeding with renovations to his store within 18 months to change it to a sit-down restaurant with delivery. [ 61 ] Adel’s evidence was that he was in Iran at the time for two months and that when he came back and saw it was a surprise to him.

He then became rather flippant during cross-examination in his responses conceding eventually that it was no surprise as he knew it was going to be done. He admitted he did not call Mr. Fuschini to discuss it stating it was because he was not going to go along with the renovations under any circumstances. One would have expected him to at least make the call to Mr. Fuschini to tell him that but he did not. [ 62 ] Adel admitted rather reluctantly he had a meeting with Mr.

Fuschini on June 15, 2004 at his store and discussed the renovations to the restaurant stating however, that he told him to “please let me know” when they were going to do the renovations. He now said that “I was going to do it maybe” but admitted he was aware of the $400,000 cost. He stated he didn’t want to work for 10 years to pay it off but didn’t ask any expert or his own accountant about his chances of recovering that because of increased sales stating that he knew how his customers worked.

Pizza Pizza then secured rental space adjoining the store to create the sit-down restaurant at a monthly cost of $2000 per month which it absorbed.

[ 63 ] Adele admits he had a meeting with Pizza Pizza’s representative Mr. Mehdi on September 17, 2004. Mr. Mehdi, the District Sales Manager for 10 years, stated that when he attended at the store, Adel appeared very disturbed and said he would not let anybody renovate his restaurant and if anybody attempted to do so he would kill him. He said he would run the business as he saw fit and not to come to the store to harass him.

He appeared highly irrational and objected to having to toss out pizza slices which weren’t consumed within an hour stating he would keep the slices for as long as he saw fit. [ 64 ] Adel admitted that he asked Mehdi if he was coming to take his store and said he would not let anybody renovate the restaurant but denied the balance of the conversation. I do not accept his evidence and accept the evidence of Mr. Mehdi who documented the exact details of the conversation in a memo shortly after that. [ 65 ] On September 22, 2004 Mr.

Fuschini advised the Plaintiff by letter that 80% of its stores had now been renovated and as one of 3 Hamilton stores, it was required to complete the renovation in accordance with the terms of the franchise renewal agreement. He offered to provide alternative financing options to address the Plaintiff’s financial concerns regarding funding of those renovations. He was trying to help Adel. [ 66 ] Adel, in cross examination, admitted he did receive the letter but he never called Mr. Fuschini to say he wasn’t going to do the renovations. He said he just wanted to finish his term of the Franchise agreement.

Rather, he responded with his lawyer’s letter of September 29 suggesting he received no information when he signed his franchise agreement that the proposed renovations were contemplated or that the massive financial obligation now demanded of him would be required and that he was not obligated to proceed with those changes. That position was simply not true as indicated above. [ 67 ] On December 29, 2004 Mr.

Fuschini met with Adel and presented six different options to him regarding his future with Pizza Pizza specifically pertaining to the proposed renovation of his store. [ 68 ] As a first alternative, he offered to buy the assets of the Adel store for $30,000 and refund the value of his renovation fund of $35,000 to $40,000 at the time. Mr. Fuschini indicated all the equipment was old and had to be thrown out.

Adel stated in court he rejected that as he had worked in the store for nine years. [ 69 ] As a second alternative, he offered to buy the assets of the Adel store for $30,000 plus the renovation funds and offered him a job as a corporate manager with a starting salary of $40,000 per year plus benefits.

Adel rejected that stating he thought it was worth more than $30,000 and he didn’t trust Pizza Pizza. [ 70 ] As a third alternative, he offered to buy the assets of the Adel store for $30,000 plus the renovation funds and allow him to take it over as an Associate Program operator who pays a fee to run the store and pays the food and labour costs with Pizza Pizza paying the remaining bills. He would be paid whatever profits are generated by the store of $1000 per week.

Adel would earn at least $52,000 annually if he worked over 50 hours a week The renovations would go ahead as planned at Pizza Pizza’s cost and Adel or the Plaintiff would have the right of first refusal to buy the store after the renovations were completed. Adel at trial rejected that simply stating it wasn’t going to work and he didn’t think he should sell it for $30,000. [ 71 ] As a fourth alternative, he offered the Plaintiff a straight trade for its store for another store in St. Catharines located in the Fairview Mall food court that had already been renovated. Mr.

Fuschini’s evidence is that Adel told him he wanted to work less hours which would be the case in this new mall store which store generated the same profit as his. Adel rejected that stating it was too far and he didn’t like working in a mall and it would be a big change in his life. [ 72 ] As a fifth alternative, he offered the Plaintiff a straight trade of its store for another store in Hamilton that had not yet been renovated. Fuschini stated he could operate it until his term was over. Adel said he rejected that as he said Pizza Pizza was going to renovate it as well and it would be the same problem for him.

That was not the evidence of Mr. Fuschini whose evidence I accept. [ 73 ] As a sixth alternative, he offered to pay the cost to renovate Adel’s store and would work with him to reduce royalty payments and help with the mortgage payments to ensure the viability of the business as it had done with another franchise store. Adel’s response was that he simply didn’t know what was going on with that store but he rejected it. [ 74 ] Mr.

Fuschini’s evidence was that throughout the meeting Adel simply listened quietly to the proposals, but at the end, he hoped Adel would take one of the options but he never received a response from him. Adel admitted at trial that he made no counteroffer and did not ask Pizza Pizza in that meeting to pay him $52,000 a year to run the store as an employee. He suggested that Mr. Fuschini warned him that they were a multimillion dollar company and could ruin his life and he better take one of the options.

I reject that evidence in its entirety which was obviously stated as a further unjustified slur against Pizza Pizza by Adel. [ 75 ] On February 17, 2005, Pizza Pizza again offered in a letter essentially option number six to complete the renovations to the Plaintiff’s store without requiring it to make any payment for the renovations for a period of six months. At the expiration of those six months, Pizza Pizza offered to meet with Adel to discuss the results of franchise operations in particular the sales and to attempt to reach a resolution of the renovation issue. Mr.

Fuschini received no response and Adel in his evidence did not contradict that and confirmed he had no evidence of a response to that letter. He stated Pizza Pizza did not offer to extend his franchise agreement after November 2006 or share in the cost of the renovation or offer to buy it as a going concern. However there is no evidence that Adel even mentioned those matters as discussion points or something he wanted at anytime in response. [ 76 ] Although the franchise agreement did not give Adel the right of renewal after November 2006, Mr.

Fuschini confirmed it was common for his company to extend the term of the franchise agreement during renovations for other franchisees. Adel never asked for an extension of time and Pizza Pizza did not offer that only because it never got that far in the discussions with Adel. He confirmed that in the past he has assisted franchise owners requiring bank financing to conduct the renovations by giving undertakings to renew the franchise if the agreement was not in default.

The logical inference is that Adel would similarly have been accommodated if he proceeded with the renovations and asked for an extension to the agreement. [ 77 ] On July 20, 2005, Pizza Pizza advised the Plaintiff’s lawyer that it would begin renovations on August 2, 2005 and that it

estimated the store would be closed as a result of construction for approximately 4 days. Pizza Pizza offered to fully compensate Adel for the lost sales for the time period it would be closed for renovations. [ 78 ] On August 2, 2005 its workers attended at the Plaintiff’s store to begin the renovations and removed the sign so as to replace it with a new one the same day. Adel attended the store with his two daughters and wife and interfered with the construction and tried to move the ladder when a construction worker was on it.

Work then stopped. [ 79 ] Immediate discussions followed with Adel’s lawyer who advised Pizza Pizza’s lawyer that Adel just wished to be left alone without the renovations to the end of the franchise term. Pizza Pizza’s lawyer provided a letter the next day, August 3, confirming that in the interest of avoiding any further conflict, Pizza Pizza was prepared to put off the renovation of Adel’s store until such time as the franchise agreement between the Plaintiff and Pizza Pizza came to an end on November 4, 2006.

In exchange, the Plaintiff would sign an acknowledgment in writing providing that upon termination of the franchise agreement on November 4, 2006 it would not seek a renewal of the franchise agreement (which the Plaintiff was not entitled to anyway under the agreement), would not seek any compensation from Pizza Pizza and would simply vacate the store on that date. [ 80 ] Mr.

Fuschini explained in his evidence that Pizza Pizza would continue to pay the $2000 monthly rent on the space next door at its expense and that the Plaintiff could sell its franchise store in the meantime if it wanted to. [ 81 ] Adel did not come back to the store but he could have at which time Pizza Pizza would have put the sign up and supplied them with product and orders. [ 82 ] Adel’s version is that when he attended on-site, he told Pizza Pizza’s representatives that he wanted them to give him the money he had given them for nine years before but they refused.

He said he valued the franchise at $250,000 which evidence only confirmed the total lack of reality in the Plaintiff’s evidence in its entirety. The financial statements he provided confirmed that after expenses, the Plaintiff’s profit was only approximately $6000 and $10,000 for 2003 and 2004 respectively. He said he told them to leave or he would call the police and they did. He said he had a video of the entire incident at his home but never produced that video before or at the trial even though he had undertaken to do so on his examination for discovery.

His children or his wife were not called as witnesses at trial to confirm his evidence although his wife was in the courtroom throughout. The obvious inference was that their evidence would not have supported his version of the events that day. [ 83 ] He acknowledged receiving Pizza Pizza’s lawyer’s letter of August 3, 2005 and even thought it would have been a simple matter of Pizza Pizza putting the sign back up and supplying him with product so that he could continue in his store for the balance of his agreement, he did not accept that proposal.

His only explanation was that he, his wife and children were upset; he didn’t think he could work with them and didn’t trust Pizza Pizza stating they “could make my life miserable for the next few months”. There was no evidence at trial that Pizza Pizza had ever done any such thing to Adel prior to that date or threatened to do so after that date.

Rather, all of the evidence suggests they were very accommodating to Adel and his operations trying to help him and his family despite Adel’s violations of the Franchise agreement and his past poor performance in the operation of the store. [ 84 ] Adel stated at trial that he simply wanted to carry out his franchise agreement to the end of the term. He had his lawyer relay that same message to Pizza Pizza’s lawyer on August 2 or 3 and he could easily have done so on or shortly after August 3 by going back into the store when there was no reason for not doing so.

Despite that evidence, he had his lawyer on August 5, 2005 advise Pizza Pizza by letter that it considered Pizza Pizza in material breach of its obligations under the franchise renewal agreement and that the Plaintiff was treating that agreement at an end.

I agree with the comments of the Defendant’s lawyer in his letter of August 5, 2005 to Adel’s lawyer that Adel’s actions in those past few days were likely nothing more than a game on his part and he probably had no intentions of remaining in the store whether Pizza Pizza proceeded with the renovations or not. [ 85 ] Pizza Pizza completed the renovations to Adel’s store in September 2005 at a cost of approximate $405,000. There was in fact a 40% sales increase after the renovations and the store is now earning over $1 million in sales compared to the $700,000 it was generating under Adel which Mr.

Fuschini noted that, unfortunately, Adel missed out on. The Law [ 86 ] Section 5(7) of the Arthur Wishart Act in

summary states that the franchise owner’s obligation to provide written disclosure does not apply to the renewal of a franchise agreement where there has been no interruption in the operation of the business operated by the franchisee under the franchise agreement and there has been no material change since the franchise agreement was entered into. [ 87 ] The Defendant has the burden under s.12 of the Act of proving an exception from a requirement and the exception to disclose as set out in s. 5(7) are to be narrowly construed. [ 88 ] On the evidence, there never was any interruption of the operation of the franchisee’s business. [ 89 ] The relevant definition provisions of “material change” in the legislation means a change in the business or operations of the franchisor that would reasonably be expected to have a significant adverse affect on the value or price of the franchise to be granted or on the decision to acquire the franchise. [ 90 ] The Plaintiff and Adel were fully informed even prior to their entering the original franchise agreement in 1996 that its franchise, along with all of the other franchise operations of Pizza Pizza, were in the process of being renovated into sit-down restaurants, the cost of which was going to be borne by the franchisees under the terms of the franchise agreement.

Adel knew even before he started the franchise that eventually his store would be so renovated at his cost. Nothing changed from 1996 forward and in fact Adel acquired full information from not just Pizza Pizza but also from other franchise owners who had renovations completed at their operations before he did regarding the extent of the renovations required including the approximate $400,000 cost. [ 91 ] He attended conferences wherein details were provided to him and the other franchise operators and he had conversations and discussions with Mr.

Fuschini with respect to those renovations and its effect on his sales before the renewal agreement was signed in

2001. [92] At no time before 2001 did he ever object or voice his concerns to Pizza Pizza about the extent of the renovations or the coststhat he would have to bear just as the other franchise operators had done. Contrary to his evidence at trial which I rejected, he had noreason to distrust Pizza Pizza and in hindsight, had he followed and implemented their renovation plans, he would have been financiallysuccessful. [93] The common-law and Arthur Wishart Act test for materiality is an objective one. Trillium Motor World Ltd.v. General Motorsof Canada Ltd. 2012 ONSC 463.

Was there a substantial likelihood in this case that the proposed renovations to a sit down restaurant,which were known to all Pizza Pizza franchisees since 1996, would have assumed actual significance in a reasonable investor’sdeliberations? [94] The point is that there were no material changes that were to take place in the renewal agreement as the intention to proceedwith the renovations to the Plaintiff’s store and its cost was already disclosed to and well known to the Plaintiff and included in theoriginal Franchise agreement.

The Plaintiff accordingly simply continued to be aware, as it always was, before signing the renewalagreement that the renovations would take place within the five-year term of it. A reasonable investor, in that context of the Plaintiff atrenewal, would not have attached significance in something that was already accepted and known by him before he signed the originalfranchise agreement. The significant renovations, known to Adel when he signed the original agreement in 1996, would not havereasonably been expected to have an effect on his decision to continue it in 2001 when it was renewed, MDC Kingston Inc v.

MDComputers Canada Inc. 2007 Carswell Ont 9543; overruled at 2008 ONCA 656. [95] Even it could be said that the renovations were a material change within the definition of the legislation, which in my viewthey were not, that material change was not since the franchise agreement. It was clearly known, understood and agreed to by thePlaintiff and Adel not just prior to the actual signing of the renewal agreement in August 2001 but even before the original franchiseagreement signed in 1996.

Breach of Duty of Good Faith [96] A duty of good faith exists at common law in the context of a franchisor-franchisee relationship regardless of whether thatduty also exists under the Arthur Wishart Act. Shelana Inc v. Print Three Financing Corp. 2003 Carswell Ont 2008. [97] The Plaintiff has led no evidence to establish that Pizza Pizza acted at any time in bad faith towards the Plaintiff or Adel. [98] As indicated above, there is simply no substance whatsoever to the allegation that Pizza Pizza intentionally redirected ordersfrom the Plaintiff’s store when the Plaintiff refused to proceed with the renovations.

The inadvertent error of Pizza Pizza wasimmediately corrected and the trivial income loss was in all likelihood recovered by the Plaintiff who also received the benefit ofinadvertent redirected orders to his store. [99] When Adel did not respond in early 2004 to Pizza Pizza’s plans to proceed soon with the renovations, Pizza Pizza still kepthim apprised of its plans. Adel’s personal opinion that he did not think the renovations would lead to increased sales was not supportedby any evidence at the trial including those of other franchisees who he said had told him that.

In fact, the only evidence was that theother franchise owners after the renovations have reaped the financial rewards of the increased sales generated by the renovations to asit-down restaurant and that he would have been one of them had he proceeded with them. [100] Pizza Pizza accommodated Adel throughout the franchise agreement including assisting him when he was not performingadequately. They had sympathy for him and his family even though he seriously breached the franchise agreement by reusing boxes andreinstated him after they had terminated his franchise in 2001.

This clearly confirms the good faith exercised by Pizza Pizza towards him. [101] Pizza Pizza provided six alternative proposals to Adel in December 2004 most of which included making provision for him toremain as a franchisee with Pizza Pizza. What is significant is that Adel simply kept quiet in that meeting, not rejecting the proposalsthen but not asking any questions either or making reasonable counterproposals which in all likelihood would have been considered byMr. Fuschini to keep him on with the organization.

He never mentioned any concerns that he had to complete the renovations withoutthe benefit of an extension to the renewal agreement. The evidence is uncontradicted that Mr. Fuschini extended franchise agreementsfor other franchisees conducting the renovations with the logical inference that Adel would also have been so accommodated had heasked. [102] When Pizza Pizza started the renovations on August 3, they immediately stopped to avoid a further conflict with Adel who wasupset.

When it learned that all he wanted was to be left alone and finish out the term of his franchise agreement of 15 months, theyimmediately responded and essentially accepted that proposal to accommodate him confirming that the renovations would wait until theend of the franchise agreement. Adel would be at liberty to sell his franchise to a third-party in the meantime or at the end of theagreement.

Adel for no valid reason changed his mind and declined to return to the store alleging that Pizza Pizza had breached theagreement which allegation in my view was without any basis in fact. [103] Strathy J., as he then was, in Fairview Donut Inc. et al. v. The TDL Group Corp. 2012 ONSC 1 , 2012 ONSC1 252 atp. 502 delineated the content of the duty of good faith and fair dealing by a franchisor.

Pizza Pizza in this case may have acted self-interestedly but it was also done so in good faith and with due regard to the legitimate interests of the Plaintiff. [104] Its actions did not defeat the objectives of the franchise agreement or destroy the rights of the Plaintiff to enjoy the fruits of thecontract nor did they cause significant harm to the Plaintiff.

Rather, its actions were meant to benefit the Plaintiff and it fact would havedone so but for the actions of the Plaintiff. [105] There is simply no evidence of any bad faith or lack of good faith on the part of Pizza Pizza towards the Plaintiff at any timeduring their relationship.

[106] In addition for all the reasons and findings of fact noted above, the Plaintiff has provided no evidence that the defendantbreached any of its common law or statutory obligations towards the Plaintiff. Accordingly, the action is dismissed.

Failure to Mitigate Damages [107] Even if Pizza Pizza had breached any of its obligations to the Plaintiff by not providing proper disclosure of the proposedrenovations on the signing of the renewal agreement in 2001, it acted totally reasonably and promptly in acceding to the Plaintiff’swishes on August 3, 2005 by permitting the Plaintiff to simply complete the 15 month balance of the franchise agreement term withouthaving to carry out or incur the costs of the extensive renovations to a sit-down restaurant. [108] Adel’s evidence that he didn’t go back in because his family was upset and he didn’t trust Pizza Pizza was without anyfoundation.

The evidence was totally to the contrary at trial that Pizza Pizza went out of its way to try and accommodate Adel and thePlaintiff in the past.

Understandably Adel was upset on August 2, 2005 when the sign came down but Pizza Pizza immediately had itsworkers removed from the site and shortly after that, given Adel’s stated desire to simply move back in and complete his franchiseagreement, agreed to it. [109] Adel would be free to sell his franchise to a third-party and he could not ask for a renewal which was clearly the case anywayand known to him from the franchise agreement. [110] His income and working conditions would remain the same and there is no evidence that the personal relationship between Adeland Mr. Fuschini was acrimonious.

There was no loss of dignity, stigma or work atmosphere and no reason to believe that therelationship between the Plaintiff and Pizza Pizza for the balance of the 15 month term would be intolerable especially as Adel operatedhis own store. [111] Given the prior working relationship and willingness of Mr. Fuschini to accommodate Adel in the past, as well as hiswillingness to accept Adel’s proposal to simply come back and carry on his franchise without doing the renovations, a reasonableperson, objectively speaking, would have returned to complete the franchise agreement term. Evans v.

Teamsters Local 31, 2008 SCC20; Michaels v. Red Deer College (SCC), [1976] 2 S.C. R. 324. [112] This was not a case where Pizza Pizza had insulted or demeaned him or where the relationship had irretrievably broken down.There is no reason why Adel could not have returned after settling down in a day or two to carry on with his business in the usual fashionwithout any fear of retribution from Pizza Pizza for the balance of the term of his agreement. Had he done so, he would have had nofinancial loss at all.

His refusal to return without any basis to complete the agreement confirms a complete failure to mitigate hisdamages and for that reason as well, the Plaintiff’s action is dismissed. Damages Assessment [113] I will assess the Plaintiff’s damages even though its action has been dismissed.

a) Interest on Trust Funds [114] Pizza Pizza returned the sum of $45,112.96 held in trust by it for the Plaintiff as its contribution to the renovation fund inOctober 2006, more than one year after the Plaintiff left the premises. It did not pay interest on that sum.

The franchise renewalAgreement allowed Pizza Pizza to retain only $10,000 for up to one year of that fund after termination of the franchise to ensure paymentof its costs incurred prior to termination. [115] The Plaintiff accordingly asks for interest at prime plus 8% per year which is the interest rate payable by the Plaintiff to theDefendant for overdue sums owing under the agreement. [116] I accept the Defendant’s position that the applicable interest rate on the sum of $35,113 should be as stipulated under the Courtsof Justice Act for one year @ 4% per year totalling $1405.00 [117]

Section 20.5 of the Franchise agreement refers to the obligation to pay interest at prime plus 8% on overdue payments by thefranchisee only and not the franchisor. I am not persuaded that I should exercise my discretion to award this higher amount under theCourts of Justice Act when there is no contractual basis for it.

b) Equipment and Inventory [118] Pizza Pizza obtained two appraisals regarding the value of the equipment in the Plaintiff’s store when the Plaintiff declined toreturn it. One appraisal from Pro Line Financial Services assessed the market value of the equipment at between $17,255 and $18,510.Another appraiser assessed the fair market value of that equipment at between $11,200 and $12,050. [119] Pizza Pizza provided a credit of $11,200 to the Plaintiff for the equipment.

The Plaintiff suggests that the average value of theequipment was approximately $14,855 and accordingly, Pizza Pizza ought to have paid $3655 more. It also suggests the Defendantshould have used the first appraiser’s values and given credit to the Plaintiff of $6682 more. [120] The uncontradicted evidence was that the Plaintiff was entitled to return to the premises at any time to come and take out itsequipment and that most of the equipment it left there was of no use at all because of its age and was simply thrown out.

[ 121 ] The Plaintiff by simply abandoning the premises and business making no effort itself to assist in the retrieval or disposal of its items cannot expect a higher payment from the Defendant other than the $11,200 credit received and is entitled to no further award.

c) Value of Franchise as Going Concern [ 122 ] The Plaintiff called no experts at trial or provided no appraisals respecting the value of that franchise as a going concern as of August 2005. [ 123 ] The Plaintiff did purchase it for $110,000 in 1996 plus a franchise fee. There was evidence at trial from Mr. Fuschini that the store was not being run properly at times by Adel although weekly sales did double from 1996 to 2005.

The Plaintiff suggests without the benefit of any expert evidence at all that the court should infer an increase in that value to $220,000 in 2005. [ 124 ] Firstly, although weekly sales did increase in that nine-year period, the financial statements also confirm that the Plaintiffs costs also were increasing since 2001 and by inference likely since 1996.

The financial statements confirm the following information: 2001 - $6150 net loss 2002 - $1864 net loss 2003 - $6052 net income 2004 - $10,110 net income [ 125 ] However, it is clear that this was the type of business that could only generate an income for any owner if he and perhaps his family were prepared to spend long hours up to seven days a week in the store running it.

If they weren’t, they would have to pay significant wages to others which would result in very little net income for the company. [ 126 ] One would have thought as a matter of common sense that if the Plaintiff and Adel actually thought the business was worth that much in 2005 when he left, they would have taken the appropriate steps to either return to it so they could sell it as a going concern or try to sell it anyway when he did not.

The Defendant did nothing to hinder or prevent the Plaintiff from selling its franchise; the Plaintiff simply abandoned it and the Defendant caused no loss of the value of business to the Plaintiff.

The Plaintiff and Adel did nothing at all which in my view by inference confirms that they knew the franchise may have had little value at that time, and that Adel could work elsewhere and earn an equivalent income without the long hours and headache of running the pizza franchise. [ 127 ] The Plaintiff has had ample time and opportunity to provide the court with even a bare-bones expert opinion as to the value of the business but chose not to for whatever reasons known to it.

It is not for the court to speculate as to what the value of that business might be especially given the abandonment of the business by the Plaintiff and the complete lack of information and expert testimony that one would expect in a case like this if the Plaintiff was serious about making that kind of claim. [ 128 ] Pizza Pizza offered Adel $30,000 for the business including the old equipment in December, 2009 which is some evidence of its value then. The original price of $110,000 in 1996 included the value of the equipment and small wares on which the Plaintiff paid $1246.42 for chattel taxes.

This suggests that the equipment value was approximately $20,000 then leaving a net value of approximately $90,000 for the business. A rough average of Pizza Pizza’s offer and this $90,000 amount is in the area of $50,000 to $60,000. [ 129 ] Based on the limited evidence before me, I assess the value of the Plaintiff’s franchise, excluding the equipment and small wares, at $50,000 in August, 2005.

However, because of the Plaintiff’s complete failure to mitigate its alleged damages by not even attempting to sell the franchise business and in fact abandoning it through no fault of the Defendant, I am not satisfied that the Plaintiff has suffered any damages on that part of its claim.

d) Loss of Profits [ 130 ] The Plaintiff at trial filed an Affidavit of Golab Ahmadzadeh which simply stated that from 2001 until 2005, he maintained the financial records for the Plaintiff used to prepare its annual financial statements as well as the T4 slips and income tax returns for the Plaintiff, his wife and two daughters. [ 131 ] He simply attached to his Affidavit as exhibits true copies of the financial statements for the Plaintiff for the years 2002, 2003 and 2004.

He deposed that these financial statements were prepared by Kasra Lotfi, a certified management accountant based on these financial records that he maintained for the Plaintiff. [ 132 ] He deposed the financial documentation accurately reflected the income and expenses of the Plaintiff and for Adel and his family from 2001 to 2005. [ 133 ] He stated that the Plaintiff and his wife both collected a regular salary from the Plaintiff company which was shown in their income tax returns as employment income and was recorded on the financial statements of the Plaintiff company under the heading of salaries and wages lumped together as salaries paid to other employees. [ 134 ] His evidence was that Adel withdrew a sum from surplus revenue each year recorded on the financial statements of the Plaintiff under the heading Management Fees.

For tax purposes, this sum was split between Adel and his two children, recorded in Adel’s tax returns as professional income and in the children’s tax returns is either employment or other income. [ 135 ] The financial statements as indicated above show only minimal net income for the company for 2003 and 2004 and a financial loss for 2001 and 2002 before that. [ 136 ] The financial statements confirm management fees of $40,500 in 2003 and $32,000 in 2004 were paid to Adel.

[ 137 ] The Plaintiff suggests that by adding the income drawn by Adel’s family back into the Plaintiffs income, the company’s loss of income by not operating was approximately $5363 per month and that for the last 15 months of the agreement, the company’s lost income would be approximately $80,000.

Plaintiff’s counsel suggested that the management fees of approximately $48,000 because it overlapped the profits, should be deducted, leaving an income loss claim of approximately $32,000. [ 138 ] It is clear that this argument suggests the Plaintiff company is actually making a claim for lost wages on behalf of the individual Adel family members. None of them are named Plaintiffs in the action and no personal claim for those lost wages or lost personal income was pleaded in the Statement of Claim.

The Plaintiff’s motion brought in April 2010 to add these individuals as parties to the claim was dismissed as their individual claims were barred by the statutory limitation period. The Plaintiff should not now be able to attempt to re-litigate that issue and seek damages through the back door for the individual Adel family members. [ 139 ] The facts of this case are different than those of Salah v Timothy’s Coffee of the World Inc. 2009 Carswell Ont 6470 ; upheld 2010 ONCA 673 . In Salah, Mr.

Salah was obligated by the franchisor from the outset to sign the franchise agreement as an individual in his personal capacity. The franchisor made it clear stating in writing that its relationship with Mr. Salah was as an individual and not with the company he might set up that would be assigned the franchise agreement. [ 140 ] Mr. Salah was a co-plaintiff in that action as the original franchisee.

Adel was never a Plaintiff in this action nor was he individually ever an original franchisor or a party to the asset sale agreement or franchise agreement with Pizza Pizza even though he did sign documents confirming he was jointly and severally liable with the Plaintiff corporation for the performance of its obligations. [ 141 ] Salah involved a case of Mr.

Salah enforcing as a Plaintiff his own actual individual franchisee rights; Adel never had any such individual rights and even if he did, his motion before this trial to have himself and his individual family members added as parties to this action was dismissed on the basis that those claims had been extinguished because of the application of the Limitations Act. That decision has not been appealed. [ 142 ] I agree with Kershman J. in 1117304 Ontario Inc. v.

Cara Operations Ltd. 2008 Carswell Ont 6444 that the only claims this court should deal with are claims by the corporate Plaintiff which is not entitled to make a claim that is in effect personal to the individual Adel family members when the only Plaintiff is the Plaintiff company. [ 143 ] By using the net income figure as of the November 30, 2004 year-end of $10,110, allowing for some increase in income from that date until August 2005 and extrapolating that over the 15 month balance of the Franchise agreement, a net income loss figure of $15,000 for the Plaintiff company would be reasonable and fair in the circumstances.

e) Breach of good faith damages [142] For reasons indicated above, there was no lack of good faith on the part of the Defendant and the Plaintiff is not entitled to any damages under this category. Conclusion [143] The Plaintiff’s action is accordingly dismissed. The Defendant would normally be entitled to its costs on a partial indemnity basis. If the parties cannot agree on those costs, the Defendant can provide its written submissions no longer than three pages in length and its Bill of Costs within 10 days of this decision with the Plaintiff to provide its similar response within seven days after that.

The Honourable Mr. Justice R. J. Nightingale Released: August 14, 2013 CITATION : 1201059 Ontario Inc. vs. Pizza Pizza Limited, 2013 ONSC 5200 COURT FILE NO.: 11-24641

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 1201059 ONTARIO INC. Plaintiff – and – PIZZA PIZZA LIMITED Defendant REASONS FOR JUDGMENT The Honourable Mr. Justice R. J. Nightingale Released: August 14, 2013