Canada: British Columbia Court Confirms No Implied Right Of Renewal

Last Updated: March 24 2006
Article by Blair A. Rebane and Chris Eagles

Most Read Contributor in Canada, September 2016

In Sultani v. Blenz the Canadian Coffee Company Ltd., the British Columbia Court of Appeal considered a case in which a franchisee sought relief after discovering that his franchise agreement did not provide a right of renewal. Mr. Sultani purchased an existing Blenz franchise which had been operated by the former franchisee pursuant to a ten year franchise agreement. At the time Mr. Sultani purchased the franchise, there were approximately eight years left on the original franchise agreement. Although the franchise agreement did not provide for any right of renewal, Mr. Sultani initially sought an injunction and later proceeded with a claim for damages as a result of certain representations which he alleged led him to believe that the franchise agreement could be renewed following its expiry.

Mr. Sultani appears to have believed that the franchise agreement was renewable, based on a statement in the advertisement of the franchise that the lease of the franchised premises contained an option to renew and a statement from a representative of Blenz. With respect to the statement by the representative of Blenz, the trial court stated:

I accept the evidence of Ms. Moen on this point. Blenz had just told the plaintiff that it wanted a new franchise and sublease agreement rather than assign the old one. This is consistent with the business practice described by Ms. Moen. The suggestion of the plaintiff does not fit with either the contracts themselves or the business practice of the defendants… Nikituk [the former franchisee] said that he was aware that there was an "opportunity for a further ten year term which he called a "renewal". On this basis, he had informed the broker and the plaintiff. While it was true that there was such an opportunity, it was not contracted and was subject to full negotiation involving the third party landlord as well as Blenz. It appears that this statement by the previous franchisee/ vendor took on enhanced life in the mind of the plaintiff which he used to make assumptions and interpretations in his dealings with Blenz. Not once did the plaintiff directly ask about the term of the franchise or any renewal…

Notwithstanding Mr. Sultani’s belief, neither the franchise agreement nor the sublease contained rights of renewal. As a result, when at the end of the ten year franchise term, Blenz decided to take a new direction at the franchised premises Blenz refused to renew or enter into any continued relationship with Mr. Sultani. In determining that no right of renewal existed, the trial court noted:

There is no express right of renewal in the franchise agreement or sublease. When there is no right to renew or option to renew on ascertainable terms, no renewal is enforceable by the court … Both the franchise agreement and sublease were in writing so that any pre-contractual representation not included in the written agreement is inadmissible under the parole evidence rule because it is inconsistent with the written agreement. 

After confirming that the court will not imply a right of renewal into a franchise agreement (where no such right is contained in the express terms of a written agreement), the Court of Appeal went on to consider whether it ought to interrupt the trial decision on the basis of certain representations which Mr. Sultani argued contradicted the written language of the franchise agreement. Mr. Sultani based his argument in favour of giving effect to the alleged representations on Zippy Print Enterprises Ltd. v. Pawliuk, an earlier decision of the British Columbia Court of Appeal in which the Court refused to enforce an "entire agreement" clause where the franchisor had made "specific pre-contract representations on points of substance…with the intent to induce the making of the license agreement, unless the intended effect of the exclusion clause was pointed out to the respondents."

The Court of Appeal distinguished the decision in Zippy Print, before going on to dismiss Mr. Sultani’s appeal. In dismissing Mr. Sultani’s appeal, the Court referred to "the general rule against giving effect to collateral agreements which contradict a written entire agreement clause", known as the "Parole Evidence Rule". In considering the application of the Parole Evidence Rule, the Court of Appeal quoted from an earlier decision of the Court of Appeal with respect to the policy basis for such rule:

…It is a normal and in my view legitimate expectation in the commercial world that, absent fraud or some other vitiating element, provisions such as [the entire agreement clause] will generally be given effect to, so that prior discussions concerning the contract may not prevail over what has been acknowledged in writing to constitute the parties’ "entire agreement."…

The Court of Appeal went on to observe that "to give effect to the argument of the appellant in this case would be to allow an alleged parol representation to effect significant change to the franchise agreement and the sublease."

The Sultani v. Blenz decision is of importance to franchisors because it confirms that courts will not require a franchisor to renew a franchise agreement unless the franchise agreement specifically provides that the franchisee has a right to renew. The decision is also significant because, although it does not go so far as to overrule the decision in Zippy Print, it represents another step in a developing line of cases in British Columbia in which the courts have shown a willingness to apply the Parole Evidence Rule to franchise agreements. In doing so, the Courts have once again indicated that, "absent fraud or some other vitiating element", franchisors ought to be able to enforce the terms of their written agreements. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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