Failed attempt to frustrate franchisee

2010-01-01

FAILEDATTEMPTTOFRUSTRATEFRANCHISEE

CATHERINEDAIGLE*
ROBIC,
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InarecentdeclaratoryjudgmentrenderedbytheCourtofBritishColumbia(Invicta
FoodsServicesLtd.v.CaféSuprêmeCanadaInc.,2010BCSC634),theplaintiff,
InvictaFoodsServicesLtd.,successfullysoughtadeclarationthatthedefendant,
C.S.CaféSuprêmeInc.(Company2),wasliabletowardsCaféSuprêmeInc.
(Company1).Company2hadarguedthatitwasnotboundbytheobligationsof
Company1,eventhoughithadreceivedrightsfromCompany1throughan
assignment.
InFebruary2004,Invicta,thefranchisee,andCompany1,thefranchisor,entered
intoanagreementenablingInvictatooperateabistrounderthe“CaféSuprême”
trade-mark.Afterthesubsequentfailureofthebusiness,Invictawasawarded
damagesinarbitrationagainstCompany1duetoamaterialbreachofthefranchise
agreement.ItwasonlywhentryingtoexecutethisjudgmentthatInvictalearnedthat
Company1hadbeenstrippedofallitsassets,whichinturnhadbeenassignedto
Company2.
InvirtueofthefranchiseagreementbetweenInvictaandCompany1,thelatterhad
therighttoassignitsinterestsintheagreementtoanyaffiliate,suchasCompany2.
Thisbeingsaid,theagreementalsostatedthatsuchassigneewouldthenhaveto
assumeandbeboundby,amongstothers,alloftheobligationsincludedinthe
franchiseagreement.
Attrial,Company2tookthepositionthatitwasonlythebenefitsensuingfromthe
agreementthatwereassignedtoCompany2,andnottheobligations.

Inrenderingitsdecision,theCourtfoundthattherewasanequitableassignmentof
Company1’sinterestsinthefranchiseagreementtoCompany2,andthatsuch
equitableassignmentincludedalltherightsandobligationsofCompany1.

©CIPS,2010.*WithROBIC,LLPamultidisciplinaryfirmofLawyers,andPatentandTrade-markAgents.Published
intheFall2010Newsletterofthefirm(Vol.14,No.3).Publication068.126E.

2
SincealloftheobligationsofCompany1werealsoassignedtoCompany2,the
latterwasthereforefoundliabletoInvictaonthejudgmentoriginallyissuedagainst
Company1andrelatingtothematerialbreachofthefranchiseagreement.

Thiscasemayserveasacautionarytaletofranchisorsoftherisksassociatedwith
theemploymentofdeviousmeans,suchasassignments,aswaystoescapefrom
theirobligationscontainedinthefranchiseagreement.TheCourtwasclearinits
positionwhenstatingthatifequitypermittedanassignmentoftherightsundera
franchiseagreementwhileretainingtheobligations,“unscrupulousfranchisorscould
thencausehavocinthisimportantsegmentoftheeconomy”.

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