2015 POONA CITATION: Charters v. M&M Meat Shops Ltd., 2015 ONSC 3187 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: ) ) Peter Charters, Donna Charters, Robert +) Bentley and Carla Bentley }) George Limberis, for the Plaintiffs, 5) Responding Pasty Plaintifts } nA ) ‘M&M Meat Shops Ltd. } Evan Thomas, for the Defendant, Moving Defendants : Party ) 3 HEARD: March 31, 2015 THE HONOURABLE MR. P.J. FLYNN: REASONS FOR JUDGMENT OVERVIEW {1] This is a motion in the midst of a franchise fight. [2] The Charters Plaintiffs are spouses of one another residing in Cambridge, Ontario. So too the Bentley Plaintiffs are spouses of one another residing in Cambridge, Ontario. The Plaintiff Donna Charters is the sister of the Plaintiff Carla Bentley. [B] Together, they incorporated Suntree Developments Limited which operates their two fianchise shops at 250 Dundas Street and 480 Hespeler Road in Cambridge. [4] The Plaintiffs’ involvement started with the Plaintiff Donna Charters who worked for about ten years in one of the Defendant's shops in Orillia, Ontario.2015 p Page: 2 [5] After a period of investigation, the Plaintiffs purchased the two M&M Cambridge stores for $850,000 and entered into the Franchise Agreement(s). There are actually two Agreements — ‘one for each shop. But they are identical and I will simply refer to them as the Franchise ‘Agreement (FA). [6] While the Plaintiffs are indeed the franchisees pursuant to the FA entered into between the partics on April 30, 2001, the shops at the franchise locations in Cambridge are actually operated by the corporation which must be added as a party Plaintiff to the title of procecdings in due course. [7] The Defendant moves under Rules 21 and 25.11 to dismiss and/or strike out certain claims by the Plaintiffs [8] Under Rule 21, the Defendant seeks i. A determination that, as a matter of law, it has the right to sell gift cards online pursuant to the FA: ‘A determination that the Plaintifis have no legal or contractual right no “an accounting” of the Marketing Fund (ME); [9] Under Rule 21 or 25.11 the Defendant secks an order striking; i. the Plaintiffs’ claim that the Defendant is unfairly competing with them by selling sift cards online (Paragraphs 70-73 of the Statement of Claim); ii, all claims to an accounting of the MF (Paragraphs 1(1) and 53-57 of the Statement of Claim);2015 Pai Page: 3 iii, paragraphs 34-40 and 68(c) of the Statement of Claim to the extent that they contain allegations regarding franchisees other than the Plaintiffs, iv. paragraphs 63-65 of the Statement of Claim to the extent that they contain allegations regarding a former franchisee and previous litigation between the former franchisee and the Defendant; ¥. paragraph 68(b) of the Statement of Claim; vi, _ the reference to the Competition Act, in paragraph 86 of the Claim; and vii. ‘The reference to breach of fiduciary duty in the same paragraph. [10] No evidence is admissible on a Rule 21 motion, under clause 1(a) for the determination of a question of law, except with leave of the judge or on consent of the parties; and under clause 1(b) in any case, to strike a pleading because it discloses no reasonable canse of action. [11] While the Defendant's motion materials sought leave to have some evidence introduced, this position was abandoned on argument, so the motion proveeded solely as an examination of the Statement of Claim and the FA. Needless to say, the Plaintiffs did not agree that the evidence sought to be admitted by the Defendant be admitted. [12] Although the franchise was granted for a term of ten years from the opening of the shops (in Spring 2001) and there have been, to date, no renewals, the Plaintiffs are still operating the shops and the parties argued this motion as if the FA still governed in some form or another.2015 p Page: 4 [13] On or about July 19, 2013, the Pisintiff’s commenced this action, among other things, seeking to declare subsection 11.,2(d) of the FA void and unenforceable, alleging bad faith and a declaration that the Defendant is in breach of its fair dealing duty under the Artin Wishart Act. [14] They also seek an accounting of the MF and repayment of excess charges along with an order enjoining the Defendant from terminating the FA or from interfering with the Plaintif®s" opezation of the franchises. [15] As well, the Plaintiffs sue for breach of contract, negligence, breach of the Arthur Wishart Act, breach of fiduciary duty, lack of disclosure, tortuous economical inference, interference with contractual relations and negligence misrepresentation. [16] In the altemetive, the Plaintiffs claim compensation for unjust enrichment. {17] Finally, they seek punitive, exemplary and aggravated damages. [18] In spite of the above grounds raised in the Defendant’s motion record and Factum, the pith and substance of the Defendant's argument on this motion can be boiled down to four issues, The Defendant's motion parties four distinct thrusts contained in the Plaintiffs’ Statement of Claim. In short, the Defendant says: ‘The Defendant can sell gift cards online without breaching the FA; ii, There can be no claim by the Plaintiffs for an accounting of the MF; iii, All references in the Statement of Claim to breaches of the Competition Act must be struck; and iv, The Court must strike all references to the Defendant’s relationship with and dealings with other franchisees.2015 p Page: 5 [19] The Plaintiffs respond to this motion mainly by arguing that this case is about the interpretation of a contract, namely the FA, and they rely on the holding of Lane, J in ‘TransCanada Pipeline Ltd v. Potter Station Limited (2002] O.J. No. 429 (S.C.J.) for the proposition that it is inappropriate to deal with the interpretation of a contract within the context of aRule 21 motion. Of note, Lane J. went on to refuse leave to admit evidence for that purpose. [20] Under Rule 21, leave of the court is required to admit any evidence when the issue is,the determination of a question of law raised by the Pleadings. Lane J said this: Lam doubtful of the wisdom of attempting to construe a contact in the absence of ‘whatever evidence of context and surrounding circumstances the parties may be able to bring. [21] But in making this Ruling, Lane J was relying on the words of Borins J, in Montreal Trust Company of Canada v. Toronto- Dominion Bank (1992) 40 CPC (3") 389 at 400 where he was specifically referring to the construction of a contract with unclear terms capable of more ‘than one meaning (emphasis mine). Issue #1: Is it plain and obvious that the Defendant has, as a matter of law, the right to sell gift cards online pursuant to the terms of the FA? [22] The Defendant’s position is that it is plain and obvious that the Plaintiffs have no reasonable cause of action arising fiom the Defendant's gift card program. The Defendant argues that express terms of the FA permitted the alleged online gift card program. [23] agree with the Plaintiffs when they argue that the FA does not expressly say this.2015 BOW Page: 6 [24] _ Part of the controversy lies in the definition of “other channels.” [25] Inarticle 2.3 of the FA the Defendant retained enumerated rights, including; “@ the right to distribute, sell or license other persons to distribute or sell non- System products and System products whether within the exclusive Territory or otherwise...” [26] But it seems to me that the simple answer here is to say that the court is being asked to interpret the definition of “other channels” and “products” and to place its interpretation of these terms into a commercially reasonably construction. [27] I must agree with the Plaintiffs to say that it is not appropriate for this court to engage in such an interpretation exercise, [28] In the context of the development of the Gift Card issue, the words of the FA do not provide a plain and obvious answer (emphasis mine). As such, it is not plain and obvious that the Plaintiffs have no reasonably cause of action arising from the Gift Card program. [29] So on this issue, I am with the Plaintiffs and this aspect of the Defendant’s motion must fail. Issue #2: Is it plain and obvious that the Plaintiffs’ claim for an accounting of the MF must fail? [30] The Defendant says that the claim for an accounting of the MF should be struck.2015 p Page: 7 [31] Ry Article 7.1 of the FA, the Plaintiffs apree to contribute to the MF established by the Defendant for the purpose of commercials, advertisements and promotions and generally to assist in the marketing and promotion of the marketing system. [32] Article 7.2 of the FA sets out the amount of such required contributions and lays out that ‘an annual, unaudited statement dealing only with this find must be provided to the franchisee, ‘upon request, and goes on in my view, in clear language as follows: Except as expressly provided in this Section 7.2, the franchisor assumes no direct or indirect liability or obligation to the franchisee with respect to the maintenance, direction, or administration of the MF. The franchisee acknowledges that the franchisee may not receive any direct or pro rate benefit from the administration of the MF...” [33] The Defendant argues that the Plaintififs arc on a fishing expedition with respect to the ‘MF, because they seek more information than would be disclosed by the unaudited statements, [34] The Defendant concedes that specific claims by the Plaintiff of improper use of the MF by the Defendant can certainly disclose a reasonable cause of action. [35] The Statement of Claim alleges breach of the FA by the Defendant because of the way the MF was administered. The Plaintiffs also allege that the Defendant did not manage the fund pursuant to its Arthur Wishart Act obligation to act in good faith and with fair dealing. As a result of this breach, the Plaintiff’ claim damages. [36] The Plaintiffs have claimed misuse and mismanagement of the MF and have even pleaded the Whistler Ski trip as an example. ‘They have the right to answers for these alleged improptieties. And they will have an opportunity to obtain those answers on discovery.2015 P91 Page: 8 [37] 1 agree with the Plaintiffs in saying that the language of Article 7.2 of the FA does not expressly limit the Plaintiffs right to information. But, it seems to me, that at this stage, there is ‘no contractual right or right under the Arthur Wishart Act to a full accounting, {38] 1 must therefore conclude that that demand is premature and that the Defendant's motion should succeed in this regard. It is plain and obvious to me that the Plaintiffs’ claim for an accounting of the MF must fail and should be struck. ‘Issue #3: Should all reference in the statement of claim to the Competition Act be struck? [39] This question in really formulated by the consideration of two separate questions; is it plain and obvious that the Plaintiffs have no standing to allege breach of 8.74.01 of the Competition Act? and is it plain and obvious that the claim based on s. $2(1) of the Competition Act must fail? {40] Section 74.08 of the Competition Act specifically preserves the right of “any person” to invoke a civil remedy, [41] While it relied upon former s. 61 of the Competition Act, 2308724 Ontario Lid. v. Quizno's Canada Restaurant Corp. (2010] OF No. 268 3(CA) makes it clear that it is open to franchisees to rely on breaches of the Competition Act in their claims against the franchisor Former s. 62 specifically preserves civil remedies for any person, using the same language found in the present s. 74,08.p Page: 9 [42] So T would answer both questions (i) and (ii) above in the negative and conclude that the Defendants motion must fail in so far as it seeks to have all references in the Statement of Claim to the Competition Act struck, Issue #4: Is it plain and obvious that references in the Statement of Claim to other franchisees are irrelevant and must be struck? [43] Paragraphs 34-40 and 68(c) of the Statement of Claim contain various allegations about the income, expenses, profit margins, losses and workload of M&M Meat Shops franchisces other than the Plaintifis’; allegations about the circumstances in which other franchisces have allegedly closed their stores; and difficulties that other franchisees have allegedly had when attempting to sell their stores. [44] As well, paragraphs 63-65 of the Statement of Claim contain allegations regarding a former M&M Meat Shops’ franchisee who commenced litigation against the Defendant. [45] Under Rule 25.11, relevance is the central consideration. Before striking out the impuned portions of the Statement of Claim, I must consider whether they ave necessary for the Plaintiffs to prove their case. It is not for me to weigh the evidence at this stage. (46] ‘The Plaintiffs argue that they are not asking the Defendant to answer in this action for ‘matters that relate to parties other than the Plaintiffs. They argue that the references to other franchisees are only included to allow the Plaintiffs to “set out the complete story of the Defendant's conduct” and that those references are necessary because the conduet which the Plaintiffs are attempting to highlight was not directed at the Plaintiffs alone but was “global” in nature and “it will ultimately be important that the trial judge understand this.” W/13No, 5582. W1/13 Page: 10 [47] I seems to me that these references and that story, as set out in the claim, probably violate Rule 25.06(1) by pleading evidence and not material facts. Moreover, where a Statement of Claim refers to alleged dealings and wrongdoings by a Defendant in respect of patties other than the Plaintiffs, those references should be struck because they are not relevant and could result in unnecessary delay in the proceedings. Consider in this case the string of witnesses ‘which might be necessary to prove this background story. ‘They are also potentially prejudicial. [48] These references are not material facts. They are inserted more for atmosphere ~ and seen from the Defendant’s perspective, they are meant to create a prejudicial atmosphere. As was set out by Cumming J in Cratk v. Aetna Life Insurance Co. of Canada [1995] OF No. 3286 (GD) aff'd OF No 2377 (CA): [30] These references are not relevant to the pleading. ‘The pleading should be confined to the alleged relationship between the Plaintifs and the Defendants and not bring in other persons and what their purported relationships with the Defendants might be. [31] ...the Defendants do not have to answer in this action for matters that relate to anyone other than the Plaintiffs. [49] Like Cummings J did, I must conclude that all references to other franchisees and their dealings with their Defendants should be struck from the pleadings. SUMMARY i. It isnot plain and obvious that the defendant has, as a matter of law, the right to sell gift cards online pursuant to the terms of FA and references to that issueNo, 5582 P. 12/13 Page: 11 (particularly in paragraphs 70-73) in the Statement of Claim must be allowed to stand; i. Itisnot plain and obvious that there is a contractual or other legal right to an accounting of the MF and reference to all such, particularly in paragraphs 1(1) and 53-57 of the Statement of Claim should be struck, without leave to amend; iii, It is not plain and obvious that the Plaintiffs may not pursue claims pursuant to the Competition Act, so the Defendants request to strike all references to that Act must be dismissed; and iv. References to franchisees other than the Plaintiffs are not relevant and those portions of paragraphs 34-40, 63-65, and 68(c) must be struck, costs 150] It appears to me that success was fairly evenly split on this motion. At first blush, I am not inclined to award costs, However, if either party insists on pursuing costs that party may serve and deliver to me at my Kitchener Chambers on or before June 12, 2015 a Costs Outline hot exceeding three pages, together with a Bill of Costs and any relevant Offer to Settle, The other party may then do the same by June 26, 2015. PJ. Flynn, 5. Released: May 19, 2015No, 5582 P. 13/13 CITATION: Charters v. M&M Meat Shops Ltd., 2015 ONSC 3187 DATE: 2015-05-19 ONTARIO SUPERIOR COURT OF JUSTICE Peter Charters, Donna Charters, Robert Bentley and Carla Bentley Plaintifi’s nd M&M Meat Shops Ltd. Defendant REASONS FOR JUDGMENT P.J. Flynn, J. Released: May 19, 2015