In a case between four New York Fries franchisees and their franchisor, C.M. Takacs Holdings, the Ontario Superior Court of Justice declared termination notices are not automatically required under the duty of good faith in the Arthur Wishart (Franchise Disclosure, 2000) Act.
The franchisees sued the franchisor after it terminated their franchise agreements and subleases without notice. According to Stefanie Holland, an associate in Cassels Brock and Blackwell LLP’s litigation group, the franchisees had been in default across their four franchises and owed approximately $500,000.
C.M. Takacs Holdings argued the franchise agreements permitted termination without notice as long as the franchisees committed an act of bankruptcy. The court regarded the franchisees’ significant unpaid taxes and large amounts of money owed to suppliers as acts of bankruptcy.
The franchisees claimed they had a right to notice because it was the franchisor’s duty to treat them with good faith. Holland says the court recognized the duty of good faith under the act, but did not accept the notion the franchisees deserved notice in this circumstance.
According to the court, there was no evidence a notice would have made any difference to the situation. It found the franchisees incurred damages in the form of lost profits and could not produce evidence of profitability.
“The act does not automatically mandate either the deduction or addition of contractual terms, which years’ worth of hindsight indicate the franchises might now find convenient,” the court said. “Context is important.”