The Alberta Court of Appeal Discusses Franchises in Alberta

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THEALBERTACOURTOFAPPEALDISCUSSESFRANCHISESINALBERTA

Marie-ÈveCôté*
LEGERROBICRICHARD,Lawyers
ROBIC,Patent&TrademarkAgents
CentreCDPCapital
1001Square-Victoria-BlocE–8
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Montreal,Quebec,CanadaH2Z2B7
Tel.(514)9876242-Fax(514)8457874
www.robic.ca-info@robic.com
OnApril28,2004,in475878AlbertaLtd.v.Help-U-Sell,Inc.
[2004]A.J.No.478,
DocketNo.:0203-0383-AC(Berger,CostiganandRitterJ.J.A.),theAlberta
CourtofAppealrenderedadecisiononajudgmentbyJ.Wilsonofthe
AlbertaCourtofQueen’sBenchwhichdiscussestheinterpretationand
damagesrelatingtoabreachofafranchiseagreement.
Theinterestofthiscasegoesbeyondusualfranchiseagreementssincecertain
typesoflicencesmayfallunderthedefinitionofa”Franchise”underthe
FranchisesAct,R.J.A.,1980,chap.F-17(the”Act”).Suchdefinitionreadsas
follows:

“”Franchise”meansarighttoengageinabusiness(i)inwhichgoods
orservicesaresoldorofferedforsaleoraredistributedundera
marketingorbusinessplanprescribedinsubstantialpartbythe
franchisororitsassociate,(ii)thatissubstantiallyassociatedwitha
trademark,servicemark,tradename,logotypeoradvertisingofthe
franchisororitsassociateordesignatingthefranchisororits
associate,and(iii)thatinvolves(A)acontinuingfinancialobligation
tothefranchisororitsassociateontheoperationsofthefranchised
business,or(B)thepaymentofafranchisefee,andincludesa
masterfranchiseandasubfranchise.”
Forexample,atrademarklicenceagreementunderwhichthelicenseewould
havetosellproductssubstantiallyassociatedwithatrademarkofthelicensor
inaccordancewithabusinessplantobeapprovedbythelicensorin
considerationofalicensefeecouldbeconsideredasa”Franchise”underthe
applicationofsuchAct.



















































LEGERROBICRICHARD,2004*Lawyer,Marie-ÈveCôtéisamemberofthelawfirmLEGERROBICRICHARD,g.p.andofthe
patentandtrade-markagencyfirmROBIC,g.p.Publishedat(2004),6WorldLicensingLaw
Report.Publication238.11

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Thefacts

OnOctober18,1990,Help-U-Sell,Inc.,afranchisingcompanylicensingtwo
typesoffranchises(i)”RealEstateFranchises”and(ii)”MasterRegional
Franchises”,registeredaprospectuswiththeAlbertaSecuritiesCommissionto
sellrealestatefranchiseagreementsinAlbertawhichregistrationwasvalidfor
aperiodofone(1)yearunlessrenewedasrequiredundertheAct.
AMasterRegionalFranchiseAgreementwasenteredintoonDecember6,
1990betweenWayneM.Cholak,asfranchiseeandHelp-U-Sell,Inc.,as
franchisor(the”FranchiseAgreement”),providingthefranchiseewiththeright
tosellthefranchisesinAlbertaforaninitialtermoffive(5)yearsin
considerationofafranchisefee.OnJanuary16,1991,Mr.Cholak’srights
undertheFranchiseAgreementwereassignedto475878AlbertaLtd.withthe
consentofHelp-U-Sell,Inc.TheFranchiseAgreementprovidedthat:”the
franchisefeeisdeemedtohavebeenfullyearnedbythefranchisorandcan
notberefundedtothefranchiseeexceptifthefranchisorterminatesthe
FranchiseAgreementpriortotheInitialTrainingProgram”.Theprogramwas
indeedcompletedbythefranchiseewhichbegantomarketfranchisesin
Albertathereafter.
OnJuly16,1991,theparentcompanyofHelp-U-Sell,Inc.enteredintoa
rehabilitationconservatorshipunderthedirectionoftheNewJerseyInsurance
Commission,duetofinancialdifficulties.Help-U-Sell,Inc.appliedforrenewal
ofthefranchiseregistration,whichregistrationoftheprospectuswasnot
renewedbytheAlbertaSecuritiesCommissionbecauseofconcernsoverthe
financialviabilityofthefranchisor’sparentcorporation.
475878AlbertaLtd.andWayneM.Cholak(plaintiffs)soughtrecissionofthe
FranchiseAgreementbasedonthebreachofsuchagreement,andclaimed
therefundofthefranchisefeeanddamagesforlossofprofitbyfilinga
statementofclaimagainstHelp-U-Sell,Inc.,MBLHoldingCorporationandS&S
AcquisitionCorp(defendants).
Judgement

ThetrialjudgeconcludedthatHelp-U-Sell,Inc.didnotbreachtheFranchise
AgreementsincetherewasnoobligationforHelp-U-Sell,Inc.tomaintainor
renewtheregistrationoftheprospectus.Attrial,thefranchisee’sevidenceon
damageswasdirectedtowardsestablishinglossofprofitdemonstratedbythe
testimonyofanexpertandthejudgedecidedthatthelossofprofitdamages
hadnotbeenestablishedandfoundtheevidencewastoospeculative.

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475878AlbertaLtd.andWayneM.Cholak(theappellants)appealedthe
dismissaloftheiractionfordamagesforbreachoftheFranchiseAgreement.
TheAlbertaCourtofAppealhadtoruleastowhethertheFranchise
AgreementprovidedanobligationforHelp-U-Sell,Inc.andals(the
respondents)torenewtheregistrationofaprospectusandifso,ifthe
appellantsincurreddamagesduestosuchnon-renewal.Anargumentwas
madebytheappellantstotheeffectthatthetrialjudgeerredinhis
interpretationoftheFranchiseAgreementandclaimedreliancedamages,
whichwerenotpleadedinthestatementofclaim.TheCourtmentionedthat,
attrial,theappellantsprovidednoevidencetosupportreliancedamages
andtherefore,therespondentslednoevidencetomeetareliancedamages
claim.
SincetheFranchiseAgreementspecificallyprovidesthatthefranchisefeewas
“fullyearnedandnon-refundable”,theAppealCourtstatedthatitwas
doubtfulthatthefranchisefeewouldberecoverableinanyevent.
Thecourtfinallydecidedthatitwastoolatetoconsideraclaimforreliance
damages.Assumingthatnoargumentwasmadeattrial,theappeal
providednobasisandtheriskofprejudicetotherespondentswasmarked.
Sincedamagescouldnotbeestablished,theCourtruledthatitwas
unnecessarytoconsidertheliabilityoftherespondentsissueandtheappeal
wasdismissed.
Conclusion

Thisjudgementisagoodexampleofadecisionrelatingtotheinterpretation
ofcontractsandtheimportancetoclearlydraftagreementsbyindicatingin
writingtheexactintentionsandobligationsofeachparty.
Inordertoprotectafranchiseeagainstsuchsituation,consideringthatthe
registrationofprospectusisessentialforfranchiseestooperateinAlberta,itis
recommendedthatfranchiseagreementsprovideanobligationforthe
franchisor,andalsoarightforthefranchiseeincaseoffailurebythe
franchisor,tomaintainsuchregistration.Also,sincetherenewalofthe
registrationmaybeatthediscretionoftheDirectoroftheAlbertaSecurities
Commissionandrepresentsariskforfranchisees,franchiseagreementscould
providethatthefranchiseebeindemnifiedintheeventthattheregistrationis
notrenewedforanyreason,forgreaterprotectionofthefranchisee.
Moreover,thedecisionisareminderthatallevidencefordamagesshouldbe
demonstratedandpleadedattrial,sincenoadditionalevidenceorbasisof
argumentmaybemadeinappeal.

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