Get It In Writing: The Alberta Court Of Queen's Bench Provides Guidance On Oral Franchise Agreements And Franchise Rescission

• Published date: 18 September 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation, Franchising
• Law Firm: Cassels
• Author: Mr Derek Ronde

In 1384334 Alberta Ltd. v. Buster's Pizza Donair & Pasta Enterprises Ltd.,¹ the Alberta Court of Queen's Bench addressed a claim by a purported franchisee that it had entered into an oral franchise agreement and was entitled to take advantage of the statutory rescission provisions in Alberta's franchise legislation. The decision examines the nature of the franchise parties' agreement and is a helpful reminder that Alberta courts will not easily acknowledge the existence of a complex commercial agreement like a franchise agreement if the courts are unclear on the essential terms of the parties' arrangement.

The case involved a familial dispute about a quick service restaurant business. The plaintiffs, Sarah and Fred Salame, sought to open a Buster's Pizza restaurant in Edmonton, Ontario. Alex Salame, Fred's cousin, operated the Buster's Pizza brand and company. Alex (via Buster's) entered into a lease for a location and Fred renovated the location and installed restaurant equipment. The business opened in August 2008 and Fred and Sarah operated it until September 2009, when Fred and Sarah advised that they were vacating it. Alex changed the locks, purchased some of the leased equipment, and sold the restaurant to a third party.

Fred and Sarah then brought a claim against the purported franchisors Alex and Buster's Pizza, claiming that they never complied with the franchise disclosure requirements under Alberta Franchises Act and that Fred and Sarah were entitled to rescind the franchise agreement and claim statutory damages. Alex and Buster's Pizza denied that there was any franchise agreement, arguing that Fred opened and operated the restaurant without approval and refused to execute the agreements provided to him. The action was bitterly contested by the parties and eventually went to trial over a decade later.

All parties agreed that there was no written franchise agreement. However, the plaintiffs Fred and Sarah argued that there was a verbal agreement between the parties and that it was subject to the terms of the Franchises Act, and, as such, could be statutorily rescinded. Alex and Buster's Pizza pointed to Sarah and Fred refusing to sign any agreements regarding the restaurant and Fred not having permission to open without an agreement in place.

The parties gave conflicting evidence supporting their positions. The trial judge accepted Alex and Buster's Pizza's evidence that there was a refusal to sign the necessary agreements and that Fred opened...