In Hanewich v. Budget Brake & Muffler Franchising Ltd.,1 the Court of Queen's Bench of Alberta summarily dismissed the claims made by the plaintiff franchisee against defendant franchisors, Budget Brake & Muffler Franchising Ltd. (BB Franchising) and Budget Brake & Muffler Distributors Ltd. (BB Distributors). The case serves as an interesting example of a Canadian court rejecting a franchisee's creative attempt to revive an expired potential right to statutorily rescind a franchise agreement.
From 2006 onwards, the franchisee carried on business as both a franchisee and subtenant of BB Franchising pursuant to a franchise agreement and sublease due to expire July 2016. In 2012 and 2013, the franchise was unprofitable and the franchisee purported to terminate the franchise and sublease by notice to BB Franchising effective December 31, 2013, after which date it argued it had no obligation to pay any royalties or rent. As a result, BB Franchising purported to terminate the relationship by notice and counterclaimed for damages. While the franchisee asserted various grounds for relief, in the end it focused on whether the franchise agreement was mistakenly signed by BB Distributors, the parent company of BB Franchising, rather than BB Franchising. The franchisee asked the court to declare that there was a mutual mistake made by the parties. As a result of this alleged mutual mistake, the franchisee sought the rectification of the franchise agreement. The franchisee proposed that its agreement should be with 'BB Franchising,' not 'BB Distributors.' The rectification would create a new agreement, and the franchisee's right to rescind the franchise agreement under the Alberta Franchises Act would run from the date of rectification. Despite the creativity of this argument, the Court found no merit to these submissions.
The Court held that there was no mistake and therefore, no need to rectify the franchise agreement. BB Distributors' signature was simply a typographical error that was only on the signature page and that did not prevent the parties from carrying on business for seven years. It was clear from the evidence of conduct between the parties that the franchisor was BB Franchising. The Court also found that pursuant to section 13 of Alberta's Franchises Act, the franchisees' statutory rescission rights had expired in 2008, two years after entering into the franchise agreement, and therefore the franchisee was not entitled to rescind.
While franchisors ought to be mindful that the correct entities are accounted for as signatories when executing their franchise agreements, this decision supports the notion that courts will be hesitant to order the rectification of a franchise agreement based on a typographical error, especially where there is no evidence, logic or authority suggesting that such an error would lead to the conclusion that the franchise had not been granted to the franchisee. Evidence of the parties' conduct may be enough to demonstrate a franchise relationship and a typographical error should not prevent the parties from carrying on their franchise operation.
Footnote
1 Hanewich v. Budget Brake & Muffler Franchising Ltd., 2016 ABQB 727.
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