A Hard Muffin to Swallow!

2014-05-12

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AHARDMUFFINTOSWALLOW!

M
ARIE-ÈVECOTEANDJEAN-SEBASTIENRODRIGUEZ_PAQUETTE*
ROBIC,
LLP
L
AWYERS,PATENTANDTRADE-MARKAGENTS

Whatisthelevelofresponsibilityofeachpartyinafranchisingmatter?Whatarethe
obligationsofthelessorwithrespecttothesublesseeintheabsenceofacontractual
linkbetweenthem?
LastJanuary,in2855-0523Québecinc.c.IvanhoéCambridgeinc.,2014QCCA124,
theCourtofAppealruledonthesesubjectsanddiscussed,amongothers,the
questionoftheobligationofgoodfaithofalessor.Thefulljudgementisavailableby
followingthislink
.

Inthismatter,afranchisee(the“Franchisee”)ofthechainMMMuffinsCanadaInc.
(the“Franchisor”)hadbeenoperatingafoodkioskasasublesseeinthefoodcourt
oftheRocklandmallinMontrealsince1993.In2004,theownerofthemall,Ivanhoé
CambridgeInc.(the“Lessor”),decidedtorelocatethefoodcourtfollowing
renovations.TheLessorstartednegotiationswiththeFranchisorandtheFranchisee
whobothfinallyacceptedtheproposedrelocation,withoutknowingthattheLessor
hadjustrentedakiosktooneoftheirdirectcompetitors,CoffeeDepot.TheLessor
hadnotprovidedthisinformation.

Afterrelocation,theFranchiseenoticedasignificantreductioninearnings,claiming
thiswasduetothepresenceoftheCoffeeDepotkiosk.TheFranchiseearguedthat
thiskioskwasinterceptingitspotentialcustomersbecauseofthefactthattheCoffee
Depotkioskwaslocateddirectlyattheentranceofthefoodcourt.

TheFranchiseethereforedecidedtotakelegalactionagainsttheLessorforlossof
profitsanddepreciationofitsbusiness.

Initsjudgement,theSuperiorCourtrecognizedthebadfaithoftheLessor,butdidn’t
awardcompensationtoFranchisorforlostprofitsanddepreciationofthebusiness,
statingthatasufficientcausallinkwasnotdemonstrated[2855-0523Québecinc.v.
IvanhoeCambridgeinc.,2011QCCS6624].

©CIPS,2014.*FromROBIC,LLP,amultidisciplinaryfirmofLawyers,andPatentandTrade-markAgents.Published
intheSpring2014(Vol.17,no.4)Newsletterofthefirm.Publication068.173E.

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TheCourtofAppealconfirmedtheinitialjudgementandtooktheopportunityto
clarifycertainimportantnotions,notablytheobligationofgoodfaith[2855-0523
Québecinc.v.IvanhoeCambridgeinc.,2014QCCA124].

DuetotheabsenceofacontractbindingtheFranchiseeandtheLessor,theLessor
allegedthatithadnoobligationofgoodfaithtowardstheFranchisee.

TheCourtofAppealrejectedthisargumentandstatedthat,evenintheabsenceof
anexclusivityclauseoracontractuallink,theLessormustexerciseitsrightswhile
respectingitsobligationofgoodfaith.

However,thecourtrejectedFranchisee’sargumentthatthelocationofCoffee
Depot’skioskconstitutedunfaircompetition.Indeed,thecourtremindedtheparties
thattheLessorhastherighttouseitsspaceasitwishes,aslongasitdoesnot
abuseofitsright.Therefore,theLessorhadtheobligationtoinformtheFranchisee
ofthefactthatadirectcompetitorwouldoccupythekiosklocatedattheentranceof
thefoodcourt.ThiswouldnothoweverpreventtheLessorfromactuallyrentingthe
locationtothecompetitor.
Welearnfromthiscasethat,inafranchisingmatter,alessorhasseveralobligations
towardsasublessee,evenifnocontractbindsthem.Thelessorhastoprovegood
faithandcanbefoundliableofdamagescausedtoasublesseebyitsfault,even
withoutadirectcontractualobligation.Itisalsoprudentforafranchisortoensurethe
welfareofitsfranchisees.Thisisamatterthatourcourtsarebeingaskedtoconsider
morefrequently.

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