Underneath the Golden Boy - Robson Hall Faculty of Law

264 Underneath the Golden Boy
All Acts except Alberta’s provide that a party has a right of action for
damages against another party who breaches the duty of fair dealing, and that
the duty of fair dealing includes the duty to act in good faith and in accordance
with reasonable commercial standards. All Acts also provide that the duty of fair
dealing applies retroactively to franchise agreements entered into before the
legislation came into force.
The good faith requirement in the Acts has been considered by the courts.
The Ontario Supreme Court of Justice has held that a franchisor was entitled to
favour one feuding co-franchisee in a buyout of the other co-franchisee in the
interests of the overall franchise, 138 and that the duty of good faith applies to the
franchisee as well as to the franchisor. 139 In Personal Service Coffee Corp., the
Ontario Court of Appeal held that the statutory duty of fair dealing does not
apply once the franchisee has rescinded the agreement, since the duty only
applies to the performance and enforcement of an agreement that is still in effect
(however, remedies may be available at common law). 140 In Sobeys, 141 the
Ontario Supreme Court of Justice held that the duty under the Ontario Act
extended only to the performance and enforcement of existing agreements; it did
not require the franchisor to renew an expiring agreement that it considered to
be commercially unreasonable. Instead the franchisor was entitled to secure the
lease for itself. On the other hand, another franchisor breached its duty of good
faith when it failed to award a new competing franchise location to an existing
franchisee who was in good standing and whose location was no longer viable,
although the franchisor’s action was not barred by the franchise agreement. 142
There appears to be no duty to inform the other party of its obligations; a
(date accessed: May 9, 2007). According
to the ULCC Uniform Franchises Act Working Group, the addition of the words ‘including in
the exercise of a right’ was necessary “because the duty of fair dealing incorporating the duty of
good faith and commercial reasonable standards in the Ontario Act does not extend to express
contractual provisions granting the franchisor discretionary authority over rights to be
exercised during the term of the contract that may be carried out without regard to fair
dealing”: ULCC Uniform Franchises Act Working Group, supra note 4 at 9.
138
Country Style Food Services Inc. v. Hotoyan, [2001] O.J. No. 2889 (S.C.J.); see also Mr.
Submarine Limited. v. Sowdaey, [2002] O.J. No. 4401 (S.C.J.) (the duty of good faith does not
require a franchisor to put the franchisee’s interests ahead of its own).
139
See Gerami v. Double Double Pizza Chicken Ltd., [2005] O.J. No. 5252 (S.C.J.).
140
Personal Service Coffee Corp., supra note 18.
141
530888 Ontario Ltd. v. Sobeys Inc. (2001), 12 B.L.R. (3d) 267 (Ont. S.C.J.).
142
Katotikidis v. Mr. Submarine Ltd. (2002), 26 B.L.R. (3d) 140 and 29 B.L.R. (3d) 258 (Ont.
S.C.J.) the Court found that the Ontario Act duty did not apply to events that occurred before
the Act came into force, but awarded damages, including punitive damages, based on the
common law duty of good faith.