Franchise Case Law Highlights And Noteworthy Decisions During 2023

• Published date: 12 January 2024
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Franchising
• Law Firm: MLT Aikins LLP
• Author: Melissa Cattini and Ashley Bains

In this article, we highlight and discuss some of the noteworthy decisions in the Canadian franchise law sphere over this past year.

With the range of subject matter and highly fact-specific nature of the cases (and franchise case law in general!) it can be challenging to parse with precision for broader themes and meaningful takeaways. However, even across the range of topics and circumstances considered by Canadian Courts and regulatory bodies in 2023, certain key patterns emerge.

What is illustrated, in our view, is the best practice for contracts relating to franchise operations, business, dealings with franchisees and dispute resolution to be drafted robustly and to err on the side of inclusion and greater clarity. The theme of strict interpretation for statutory requirements on franchisors and narrow interpretation to exceptions to those requirements remains prevalent at all levels of 2023 Canadian franchise law decision-making.

Aroma Franchise Company Inc. et al. v. Aroma Espresso Bar Canada Inc. et al., 2023 ONSC 1827

Aroma Franchise Company Inc. et al. v. Aroma Espresso Bar Canada Inc. concerned a dispute between a master Canadian franchisee and master franchisor and the interpretation of an arbitration clause in their master franchise agreement.

In accordance with the master franchise agreement, the parties in this case went to arbitration to resolve a dispute. The arbitration clause in this particular master franchise agreement explicitly stated that the arbitrator, among other things "must either be a retired judge, or a lawyer experienced in the practice of franchise law, who has no prior social, business or professional relationship with either party."

Approximately 17 months into the arbitration, the master franchisee had retained the same arbitrator selected for the ongoing dispute between master franchisor and master franchisee for a separate, unrelated matter. This was not disclosed to the franchisor, and was discovered only as a result of an accidental email from the arbitrator including a different lawyer (from the same firm) that had been representing the master franchisee.

Subsequently, this arbitrator made two costs awards against the franchisor. The franchisor applied to set aside the final awards including on the basis of reasonable apprehension of bias. After a survey of the master franchise agreement, the IBA Guidelines on Conflicts of Interest in International Arbitration and relevant case law, the Court determined that there was a reasonable apprehension of bias in the circumstances. The awards were set aside and a new hearing was ordered.

2355305 Ontario Inc. (c.o.b. Jayasena Management Corp.) v. Savannah Wells Holdings Inc. et al., 2023 ONSC 100 ("Jayasena")

This case concerned, among other factual issues, the application of statutory exemptions to the requirement on a franchisor to provide a franchise disclosure document and the corresponding availability to the franchisee of the statutory rescission remedy.

The plaintiff franchisees sought a declaration under the Arthur Wishart Act (Franchise Disclosure) (Ontario) ("Act") that they had rescinded agreements related to their franchise and seeking related damages to the franchisor and alleged associates due to the lack of adequate disclosure.

The plaintiff 2355305 Ontario Inc. purchased an existing franchise from its original franchisee and this was approved by the defendant franchisor. The issue in dispute was whether or not the grant of the franchise was effected by or through the franchisor, or whether it was merely a passive consent to the transfer of an existing franchise.

The Act states that if the grant of a franchise was effected by or through a franchisor, there is an obligation on...