Manitoba Court Finds That Distribution Arrangement Is Not A Franchise

In Diduck v. Simpson, 2018 MBQB 76 ("Diduck"), the Manitoba Court of Queen's Bench reviewed a distribution agreement and found that it failed to meet the test for a "franchise" under Manitoba's Franchises Act, C.C.S.M. c. F156.

In Diduck, the plaintiff signed a distribution agreement with a master distributor, thereby becoming the exclusive distributor for certain products in a particular sales territory. The distribution agreement required the plaintiff to attend training, aggressively market the sales territory and operate the business in accordance with directives issued from time to time by the master distributer. The plaintiff paid an up-front fee to acquire the distribution rights of approximately $25,000.

The plaintiff became dissatisfied with the relationship and purported to rescind the distribution agreement under the Franchises Act, claiming that in substance it was a "franchise agreement".

Under the first element of the definition of "franchise," a franchisee must be required "by contract or otherwise to make a payment or continuing payments (whether direct or indirect) or a commitment to make that payment or those payments to the franchisor ... in the course of operating the business or as a condition of acquiring the franchise or commencing operations".

The Court found that this element was satisfied. First, the franchisee was required to make an up-front payment as noted above. Second, the franchisee was required on an annual basis to purchase $2,400 worth of inventory or to make a payment of $2,400.

The second element of the definition of "franchise" was met, since the franchisee was granted the right to sell or distribute goods that were substantially associated with the franchisor's, or the franchisor's associate's, trademark, trade name, logo or advertising.

It was in relation to the third element of the definition that the Court focused. Under this element, the franchisor must exercise significant control over, or offer significant assistance in, the franchisee's method of operation, including building design and furnishings, locations, business organization, marketing strategies or training. Moreover, unlike in Ontario's legislation, the Manitoba statute...