Cara Operations Ltd. v. Entreprises Bojo Vie Inc., J.E. 2009-388

In 1991, the defendant, Entreprises Bojo Vie Inc., a corporate entity owned by the Vieira brothers, signed a franchise agreement with Cara Operations Ltd. (the plaintiff), for the establishment of a Harvey’s restaurant in Dollard-des-Ormeaux, Québec. The Vieira brothers were guarantors.

In 2002, the restaurant’s sales began to slip. The defendant company contended that the decrease in its restaurant’s sales was due to the poor advertising campaign chosen by the plaintiff. Moreover, it claimed it was in a volatile situation because it received no financial aid from the franchisor. As a result, the defendant claimed $500,000 in damages or as a reward for its 25 years of loyal service to the plaintiff. The plaintiff proceeded with an ex parte motion seeking an injunction, and the franchise agreement was rescinded.

Decision

Clause 8.01 of the binding franchise agreement provided that the defendant franchisee was required to pay an advertising fee equal to 4% of its gross sales. Such a clause was not uncommon in franchise agreements. In the present case, the clause did not impose an obligation on the franchisor to choose an advertisement which would be beneficial to all franchisees, and the franchisor never guaranteed that the advertisement financed by the defendant’s franchisee fees would specifically benefit the defendant’s Harvey’s restaurant. Moreover, the defendant did not satisfactorily prove that its decreased sales were due to the poor advertisement choice by the plaintiff. The Court stated that a considerable decrease in sales generated from the operation of a restaurant could be the result of many other factors, such as the decision to take the breakfast meals off of the menu, the phenomenal increase in fast food restaurant chains in Québec throughout the years, as well as the change in eating habits in Québec society. As such, what was once a lucrative industry was not necessarily so today.

The defendant franchisee had to accept this risk. As for its second claim, the defendant did not demonstrate that it did not receive financial support from the franchisor. Rather, since 2002, it was granted royalty grace periods in order to increase its business’ profitability. Furthermore, the plaintiff offered the owners of the defendant company $50,000 for them to close their restaurant and satisfy their personal guarantee obligations, a proposal which they refused. In any event, according to the Court, the objective of the franchise agreement was not to create a relationship of cooperation or of mutual aid, nor did it seek to create a charitable organization. Instead, the purpose of the franchise agreement was to establish a commercial relationship between two independent business entities. Finally, the defendant’s claim seeking a reward based on loyal service was dismissed because it was not founded in law.