Underneath the Golden Boy - Robson Hall Faculty of Law

Response to Consultation Paper on Franchise Law 329
Manitoba’s franchise legislation should allow a franchisor wishing to terminate
the franchise agreement without good cause to do so, only after paying a penalty.
Upon termination, a franchisor would have to pay the pro rata value of the
franchise plus a portion of the cost of the business as assessed by an independent
business advisor. For instance, if the franchisee had originally paid a $250 000
franchise fee for a five year period and the contract is cancelled on year four,
then the franchisor should pay the franchisee $50 000, which is the amount the
franchisee had paid per year under the agreement. Introducing such a clause
would not only ensure that franchisors exercise caution in terminating
agreements, but also ensure that franchisees who had counted on the franchise’s
income still manage to receive it.
By adopting such legislation, Manitoba would become the first Canadian
jurisdiction to protect franchisees from contract termination while providing
franchisors with a guideline as to what steps to take in order to terminate a
franchise contract adequately.
2. Renewal of Contract
The franchise agreement may include a right of renewal for the franchisee,
which right is exercisable only if the franchisee has complied with certain
conditions. Typical conditions precedent to the exercise of a renewal option are
that the franchisee (i) is in good standing under the franchise agreement and all
other agreements with the franchisor; (ii) provides to the franchisor written
notice of its intent to renew; (iii) agrees to execute the then current standard
franchise agreement used by the franchisor for the grant of new franchises; and
(iv) agrees to pay the franchisor a renewal fee. 116 In the absence of renewal, the
franchisor will be free to retain, re-license, close, or re-organize the business for
its own account. 117
Since Manitoba courts have yet to hear a franchise renewal case, it is
necessary to look to other jurisdictions to determine if the common law already
provides sufficient protection upon renewal. In Sultani v. Blenz The Canadian
Coffee Co., 118 the British Columbia Supreme Court held that a duty of fair
dealing imposed on a franchisor does not go so far as to compel a party to renew
an expiring relationship when it is not commercially reasonable to do so, and
where there is no express right of renewal contained in the agreement. In
116
Frank Zaid, supra note 65 at 14.
117
Paul J. Bates and R. David House, “Canadian Franchise Disputes,” (Paper presented to the 6 th
Annual Franchise Conference: The Domino Effect, November 2006) [Toronto: Ontario Bar
Association Continuing Legal Education] at 10.
118
[2005] B.C.J. No. 846.