In Lougheed v. Garden City Entrepreneurs Inc., [2008] O.J. No. 833 (S.C.J.), the plaintiffs brought a motion against the defendants seeking: default judgment in the amount of $345,145.72; an injunction ordering the defendants to re-instate a direct deposit entitlement of 11 cents per ATM transaction; and an order allowing such transaction funds to be applied against the entire total judgment until such judgment was satisfied.

The plaintiff corporation, Entrepreneur Expansion (Canada) Corp. (EECC), is in the business of owning, operating, marketing or franchising ATM machines. On September 1, 2004 the plaintiff entered into a joint venture business and a further franchise agreement with the defendant corporation, Garden City Entrepreneurs (GCE). Under the terms of the agreement, GCE would pay 11 cents per transaction from ATM machines to Chantara Lougheed (in trust), daughter of EECC owner William James Lougheed. The franchise agreement also provided that GCE pay EECC a fixed royalty rate of 2% of gross sales and provide EECC with reports on equipment whereabouts, investor status, transaction fees on ATMs and detailed financial reports.

The plaintiffs submitted that on or about the same time as the franchise agreement was entered into, GCE also took receipt of a Nano Cash ATM and provided EECC an IOU in the amount of $3,000. The plaintiffs also contended that pursuant to an agreement entered into in June 2005 and an action plan approved on June 20, 2005 by one of GCE’s principals, a payment of 75 cents per Interac approved surcharge transaction would be made to Mr. Lougheed’s wife.

Damages for Breach of Contract

The plaintiffs claimed damages for money owed for equipment, licence fees and transaction revenue as well as general damages for the defendants’ violation of the franchise agreement, the non-competition agreements between the parties, loss of income and further loss of opportunity. In prior correspondence from the defendants’ lawyer, the defendants took the position that they had the right to rescind the franchise agreement pursuant to s. 5 of the Arthur Wishart Act (Franchise Disclosure), 2000 (the Act). They maintained that the franchisor had failed to meet the disclosure requirements under the Act. Citing s. 5(7) of the Act, EECC responded that the defendants fell under the exemption and, therefore, were not required to receive disclosure.

Mediation and Arbitration Clause Must be Enforced

The Honourable Mr. Justice Donald J. Taliano held that it was not the court’s duty to resolve this dispute. He cited clause 28 of the parties’ franchise agreement. That clause stated that if a dispute arising out of or relating to the agreement occurs, the parties agree to first try to settle the dispute by mediation. Where this proves unsuccessful, any dispute or difference between the parties concerning the agreement shall be conclusively settled by arbitration. Justice Taliano asserted that clause 28 of the agreement constituted a complete answer to the motion and must be enforced. Accordingly, the motion for summary judgment was dismissed and the action was stayed pending the pursuit of the remedies set out in clause 28 of the agreement.

Conclusion

Where parties to a franchise agreement choose to provide alternative dispute mechanisms in their agreement, Ontario courts will enforce such provisions. For instance, in MDG Kingston Inc. v. MDG Computers Canada Inc., the Ontario Court of Appeal confirmed the enforceability of an alternative dispute mechanism clause in a franchise agreement that was statutorily rescinded due to the failure of the franchisor to provide adequate disclosure.

The Ontario Arbitration Act requires a court to stay a proceeding commenced where that matter is to be submitted to arbitration. In particular, where an arbitration clause uses broad language such as, “any dispute or difference between the parties,” the courts will unequivocally defer to such a provision.