Tamara Ramsey, Partner, Dale & Lessmann LLP

This is a summary of recent cases of interest to members of the franchise community. The topics include claims under franchise legislation, injunctive relief, and trademarks.

Rescission and Franchisor’s Associates

There was only one claim under the statutory cancellation and rescission provisions in recent months in Sidra Tea Company Ltd. v. Adinkra Hospitality Inc. Though the purported disclosure was patently deficient, the case is nevertheless worth noting for its summary of the disclosure obligations and comments on the personal liability of a franchisor’s associate. In contrast, in Soneri Invest. v. Shell Canada a claim against an alleged franchisor’s associate was struck at the pleading stage.

Sidra Tea Company Ltd. v. Adinkra Hospitality Inc., 2025 ABCJ 23

The Alberta Court of Justice found that Sidra Tea Company Ltd. (“Sidra”) was entitled to rescind and cancel all franchise agreements with Adinkra Hospitality Inc., the Master Franchisee of Sharetea for Alberta and that the director, officer, and majority shareholder of Adinkra was personally liable as an “associate” under section 14(2) of the Alberta Franchises Act.

Based on the evidence before the Court, it was “patently obvious” that Adinkra did not comply with the disclosure obligations mandated by the Alberta Franchises Act and Regulations. After signing a document titled Memorandum of Understanding (“MOU”) that was never signed by Adinkra, Sidra provided payments to Adinkra towards the franchise fee, equipment, inventory and utensils. Sidra also invested funds into a partnership arrangement with Adinkra to fund the construction costs of a Sharetea store that never commenced operations. No franchise agreement was signed by Sidra for any of the Sharetea locations.

The principal of Adinkra relied upon the signed MOU and a purported FDD that she showed to Sidra on her computer. With respect to the MOU, the Court held that the MOU was an unsigned document that did not comply with the statutory requirements and was of no informational value. With respect to the purported FDD: “It is a fantasy to advance the proposition that giving one the opportunity to view a document on another individual’s computer complies with disclosure obligations.” There was no evidence that this purported FDD complied with the prescribed content requirements.

Notice of cancellation and rescission of the franchise agreements was provided within the prescribed time parameters. Ms. Abassah-Oppong was held to be an associate of the franchisor for the purposes of personal liability because she was directly involved in the granting of the subfranchise, controlled the subfranchisor, was the only individual who had dealings with the franchisee, and was a director, officers and majority shareholder of the Adinkra.

The Court held that the intent of the Alberta Franchises Act is “to ensure an individual interested in such an investment opportunity makes an informed decision, armed with all material and relevant information prior to making a decision.” Further, “The requirements of the Act are not suggestions or discretionary actions.”

Soneri Invest. v. Shell Canada, 2025 ONSC 1547

The defendant, Shell Canada, successfully struck a claim against an individual defendant, Toch Slalosky (“Skalosky”), on the grounds that no reasonable cause of action had been pleaded.

The Court found that Skalosky was repeatedly referred to throughout the Claim as an employee of Shell. There was no allegation that Skalosky acted outside the scope of his employment or that he acted without due authority. The only allegation that may define Skalosky as something other than an employee is the Plaintiffs’ reference to Skalosky at paragraph 38 of the Statement of Claim as a “franchisor’s associate”.

However, the Court held that the allegation that Skalosky was a franchisor’s associate constituted merely a conclusory statement of fact unsupported by material facts and that it was based on assumptions or speculation.

Injunctive Relief

Injunctions, both interim and final, are powerful tools for franchisors and franchisees to enforce their contractual rights and protect their respective investments. The first case, First of Five Inc. v. Recipe Unlimited Corp. involves a successful claim by a franchisee to preserve the status quo pending the outcome of litigation relating to the renewal of its franchise agreement and lease. The second case, Ken Breau Corporation v. Dairy Queen, is the opposite: it is an unsuccessful claim by a franchisee for a permanent injunction that would have effectively granted the franchisee a right of first refusal for new locations within 8 km of its protected territory. The final case, Dakin West Inc. v. South Coast British Columbia Transportation Authority, is a failed claim for relief from forfeiture by a franchisor qua tenant following the departure of its franchisee.

First of Five Inc. v. Recipe Unlimited Corp et al, 2025 ONSC 93

The plaintiff, First of Five Incorporated (“First of Five“), obtained an interlocutory injunction to prevent the franchisor, Recipe Unlimited Corporation (“Recipe“), and the landlord, J.S.M. Corporation (Ontario) Ltd. (“J.S.M.“) from terminating a franchise agreement, a lease and a sublease, until their action was finally determined. This is the decision from the redetermination of the motion for an injunction following the initial denial of the motion and decision of the Divisional Court allowing the appeal and remitting the matter to a different judge.

First of Five was the franchisee and subtenant of Recipe for a combined Harvey’s and Swiss Chalet restaurant. Recipe was the franchisor and sublandlord. J.S.M. was the landlord. First of Five had the right to renew the franchise agreement and sublease for an additional 10-year term. After First of Five provided notice of its intention to renew, Recipe asserted defaults under the franchise agreement and that First of Five was therefore not entitled to renew. Recipe audited the stores and sent a total of five notices of default. First of Five cured some defaults, disputed other defaults and ultimately commenced an action and sought interim injunctive relief.

Since there was a contractual right to renew the franchise agreement and lease, the Court held that First of Five was seeking a prohibitory injunction and was therefore required to establish only that there was a serious issue to be tried at the first stage of the test for an interlocutory injunction.

In evaluating whether there was a serious issue to be tried, the Court held that the reasons cited by Recipe for terminating the franchise agreement and opposing First of Five’s right to renew “must be evaluated alongside the statutory obligation of good faith imposed by section 3 of the [Arthur Wishart (Franchise Disclosure) Act].” The Court found that there was a serious issue to be tried.

On the second branch of the test, the Court found that First of Five would suffer irreparable harm: “In the context of the termination of a franchise, loss of business, profits, reputation and goodwill have been found to constitute irreparable harm.”

The Court held that the balance of convenience favoured First of Five and dismissed the technical objections raised by Recipe to the pleadings and undertaking as to damages.

Ken Breau Corporation v. Dairy Queen, 2025 ONSC 126

The Applicant, The Ken Breau Corporation (“Breau”), a franchisee of the Respondent, DQC Canada Inc. (“DQC“), failed in its claim for breach of statutory obligations of fair dealing and good faith as required by s.3 of the Arthur Wishart (Franchise Disclosure) Act and injunctive relief restraining DQC from awarding a new restaurant to a different franchisee within eight (8) kilometres of Breau’s territory.

Breau operated it’s Dairy Queen franchise pursuant to the terms of an agreement dated July 21, 1954, as amended and assigned. The franchise agreement provided exclusivity for “The City of Brantford, Ontario and five (5) miles in any direction from the present city” limits (the “Territory”).

Breau proposed and obtained conditional approval for a new location in Paris, Ontario that was outside the Territory. After Breau was unable to secure its proposed new location and began exploring alternative franchise locations, DQC advised Breau that DQC was considering a proposal from another franchisee for a Grill and Chill Dairy Queen franchise in Paris, Ontario. As part of DQC’s Site Clearance Policy, Breau was provided an opportunity to express concerns about the proximity of the proposed new store to its licensed location.

Breau asserted that the DQC’s statutory obligations of good faith and fair dealing under s.3 of the Arthur Wishart (Franchise Disclosure) Act required: (i) that DQC disclose to Breau the interest of other potential franchisees that would have the impact of limiting development within the Territory; and (ii) that DQC accord the Territory the same approximate eight (8) kilometre protective radius from another DQC restaurant/store that it gives to other locations.

Consistent with precedent, the Court held that whether a party has breached the duty of good faith under s. 3 requires an examination of all the circumstances of the case and is context-specific.

The Court held that DQC was always entitled to consider its own interests in developing new restaurants/stores outside the Territory. Since the proposed new location was outside the Territory, DQC acted honestly and reasonably by informing Breau of the proposed new location in Paris, Ontario after it learned that Breau was not purchasing the site that DQC had conditionally approved. Once Breau confirmed that its conditionally approved location was not proceeding, DQC was entitled to explore other opportunities for development of stores in the Paris, Ontario area. There was no obligation for DQC to wait for Breau to find another potential location near the conditionally approved location that Breau was unable to purchase, to the exclusion of accepting and considering other franchise development applications from outside the Territory.

The Court rejected Breau’s submission that it was entitled to an additional 8-kilometre buffer zone beyond the limits of the Territory because it was contrary to the clear and express language of the franchise agreement. The Court held that there is nothing unfair or in bad faith about DQC applying the clear terms of the franchise agreement.

Dakin West Inc. v. South Coast British Columbia Transportation Authority, 2024 BCSC 2512

Dakin West Inc. (“Dakin”) failed to obtain relief from forfeiture in relation to the termination of a licence agreement between it and the respondent, which was referred to as TransLink, in relation to a small retail space at a SkyTrain station in New Westminster.

Dakin is an affiliate of the franchisor of Dakin Store Systems. Dakin enters into license agreements for retail spaces and then enters into sub-license agreements with franchisees of the Dakin Store Systems.

After a dispute arose regarding responsibility for payment of HVAC upgrades, the franchisee ceased operating. Dakin informed TransLink that it was in the process of attempting to secure a new franchisee for the premises, that it would take 30 to 45 days to recommence operations at the premises and that Dakin would pay any outstanding rent or fees owed under the license with TransLink. TransLink sent a notice of default for failure to pay certain amounts and failure to operate a business at the premises. Dakin paid the outstanding amounts and reopened the location for business.

TransLink served a second Notice of Default asserting deficiencies in the operations and ultimately TransLink issued a notice of termination.

Dakin sought relief from forfeiture. The Court declined to grant relief and held that:

• Dakin was unable to establish a substantial loss from the forfeiture apart from the loss of approximately $10,000 per year in royalty fees and that TransLink had established unquantifiable losses from Dakin’s breaches; and
• Dakin did not have clean hands because it entered into a franchise and sub-license agreement for that location without obtaining the consent of TransLink.

Trademarks

Trademarks are the heart of a franchise system. The first case, Sea Tow Services International, Inc. v. C-Tow Marine Assistance Ltd. is a reminder that foreign based franchise systems with minimal use in Canada risk losing their trademark registrations in Canada. The second trademark case, Best Brains, Inc. v. Priyadharishini Balasingam DBA Best Brains Tutors, is an example of a franchisor protecting its franchise system by preventing trademark infringement.

Sea Tow Services International, Inc. v. C-Tow Marine Assistance Ltd., 2025 FC 27

This was an Application and motion for judgment on a counterclaim by C-Tow Marine Assistance Ltd. (“C-Tow”) to expunge SEA TOW trademarks from the register of trademarks. The respondent Sea Tow Services International, Inc. (“Sea Tow”) was a New-York based company that provided a pre-paid membership model to deliver on-water services to recreational boaters including towing, fuel delivery, and repairs, as well as related membership services.

C-Tow is a B.C.-based company that offers the same services as Sea Tow. C-Tow had pending applications to register the C-TOW trademarks.

Both parties agreed that the SEA TOW trademarks were confusing with the C-TOW trademarks, except for SEA TOW taking a nuanced position that its marks remain distinctive in appearance.

Sea Tow relied on use in Canada by two former franchisees: a franchise that operated near Leamington, Ontario for approximately two years in 1987 and 1988 and a franchise on the Trent Severn waterway that was never operational. It also relied on members based in Canada as evidence of use of the SEA TOW trademarks.

C-Tow established use of its C-TOW trademarks in Canada extending back to 1985.

Though the parties advanced several technical arguments respecting trademark use and adoption, the Sea Tow marks were ultimately expunged because Sea Tow was not the person entitled to secure registration and because its trademarks were not distinctive as of the time the proceeding was commenced. C-Tow’s use of its C-TOW trademarks in Canada was of sufficient magnitude to negate the distinctiveness of the SEA TOW trademarks in Canada even though such use was by only one party.

Best Brains, Inc. v. Priyadharishini Balasingam DBA Best Brains Tutors, 2024 FC 2089

The Applicant, Best Brains, Inc. (“Best Brains”), succeeded in its claim that the use of the name “Best Brains Tutors” in association with educational services violates the Best Brains’s rights in the registered trademark BEST BRAINS, contrary to the Trademarks Act (the “TMA“).

The Respondent, Priyadharishini Balasingam DBA Best Brains Tutors, filed a statement of defence but did not file any evidence.

Best Brains owned a Canadian trademark registration for BEST BRAINS in association with educational services, namely providing classes and instruction in the fields of math, English and abacus. The Respondent offered educational services under the name “Best Brains Tutors” just four miles from a Best Brains Canada franchisee location in Scarborough.

The Federal Court had no trouble finding that there was infringement under section 20 of the TMA and passing off under subsection 7(b) of the TMA because the trademarks BEST BRAINS and BEST BRAINS TUTORS were confusing. In addition to nominal damages of $15,000 the Federal Court granted permanent injunctive relief and delivery up of infringing materials.