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Ontario Court of Appeal Upholds Collection of Amounts Owed by Franchisee Under Guaranty

Published: 05/04/2017

By Kate Byers, Derek Ronde

In Cora Franchise Group Inc. v. Watters,1 the Ontario Court of Appeal upheld the decision of Justice O’Marra of the Ontario Superior Court of Justice to grant summary judgment to a franchisor, the Cora Franchise Group (Cora), against the guarantor of a franchisee corporation that was in ongoing default of its obligations to Cora.

The success on summary judgment extended to the striking of a significant portion of a multi-million dollar counterclaim asserted by the guarantor against Cora for damages it claimed the franchise corporation had suffered as a result of Cora’s actions. The guarantor argued that the company’s alleged losses should be set off against the amounts the guarantor owed to Cora under the guaranty. Justice O’Marra had dismissed the counterclaim, accepting Cora’s arguments that set-off was precluded by the franchise agreement and did not apply to the claimed losses, and that the counterclaim was statute-barred under the Limitations Act. In upholding the decision, the Court of Appeal held that Justice O’Marra had not erred in dismissing the guarantor’s claim for a set-off against Cora because the right to damages asserted was that of the franchisee, not the guarantor, and the franchise agreement clearly precluded set-off. Further, the Court of Appeal also found no error in Justice O’Marra’s dismissal of the guarantor’s purported counterclaim as statute-barred: the guarantor and franchise corporation were well-aware of its claim more than two years prior to asserting the counterclaim.

The decision provides a helpful assurance to franchisors that Ontario courts will assist franchisors in enforcing their contractual rights against guarantors.

Cora was represented by Derek Ronde and Kate Byers of Cassels Brock in this litigation.

1 Cora Franchise Group Inc. v. Watters, 2017 ONCA 286 (CanLII), <http://canlii.ca/t/h36cz>