Case: Coffee Time Donuts Incorporated v. 2197938 Ontario Inc., 2022 ONCA 435 (CanLII)

Keywords: franchise agreement; contracts; continuation by conduct; Saint John Tug Boat Co. Ltd. v. Irving Refining Ltd., 1964 CanLII 88 (SCC)

Synopsis:

The Parties enter into a franchise agreement under which the Appellants operate their business as a “Coffee Time” store. The agreement requires the Appellants to pay royalties to the Respondent. Following the expiry of the agreement, the Appellants stop paying the royalties (whilst continuing to use the “Coffee Time” branding and purchasing products from exclusive suppliers). (See para. 2).

The Respondent commences an action for $90,283.84 (plus interest) in unpaid royalties on the basis that the agreement continued by conduct, even after expiration of the written agreement. (See para. 3). The Respondent moves for summary judgment. The Motion Judge (Justice Dow) determines the agreement was continued by the conduct of the Parties, including that the Parties had followed “the entirety of the agreement” for almost 19 months following its expiry. (See para. 5). The Appellants say they continued to pay royalties during that period “out of courtesy”. (See para. 8).

The Motion Judge grants summary judgment to the Respondent. The Court of Appeal (van Rensburg, Harvison Young, and Copeland JJ.A.) finds no error in the Motion Judge’s decision; the appeal is dismissed with costs. (See para. 12).

Importance:

This case addresses an interesting question in the law of contracts – namely, when (and under what circumstances) does a contract continue after the expiration of the written agreement. The Court of Appeal affirmed that the conduct of contracting parties can extend the functional life of an agreement beyond its explicit terms. As support for this proposition, the Court of Appeal cited Saint John Tug Boat Co. Ltd. v. Irving Refining Ltd., 1964 CanLII 88 (SCC), in which the Supreme Court of Canada explained that conduct, unaccompanied by any verbal or written undertaking, may be considered “continuing acceptance” of an offer so as to give rise to a binding contract. (See para. 7; Saint John Tub Boat Co. Ltd. at pp. 621-624).

In the circumstances of this case, the Respondent asserted that the agreement between the Parties continued on a “month-to-month” basis post-expiry of the written agreement; that the Appellants continued to use the “Coffee Time” branding, continued to purchase from exclusive suppliers, and continued paying royalties. The Appellants, on the other hand, asserted that, after the written agreement expired, they were “free” from the obligation to pay royalties. For the Motion Judge, the Appellants’ position “flies in the face of commercial realities” and, as such, did not require “the full machinery of a trial” to resolve. (See para. 8). The Court of Appeal determined the Motion Judge made no error in reaching that conclusion.

Counsel for the Appellants: Ranbir Mann (RS Mann Professional Corporation, Brampton)

Counsel for the Respondent: James Quigley (Papazian Heisey Myers, Toronto)

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