Canada: Ontario Court Overturns Wrongful Termination Of Franchise Agreement By Franchisor

In the recent case of ANC Business Solutions Inc. v. Virtualink Canada Ltd. in the Ontario Superior Court of Justice, Justice Perell considered whether Virtualink, the franchisor of a franchise system offering "executive office suites," had unlawfully terminated ANC, one of its franchisees.

This cautionary case illustrates the risk to a franchisor that terminates a franchisee without complying with the notice requirements in the governing franchise agreement. The case also shows that a settlement agreement will not supersede or modify the notice requirements in a franchise agreement, unless it is explicit.

Virtualink's franchise system, which operated under the brand "Intelligent Office," involved renting office suites and providing various office support services, including (and importantly to this case) a voicemail system.

The parties entered into a Franchise Agreement on April 22, 2010.  Setting up the franchise required a significant investment, which included a $60,000 franchise fee and leasehold improvement costs of approximately $500,000. ANC was also required to purchase a technology system, which included phones and voicemail system, for approximately $80,000.  After making investments which totalled approximately $1 million, ANC opened its business in early 2011.

Although it received only a passing mention in the Court decision, ANC served a Notice of Rescission on April 20, 2012, just two days before the expiry of the two year period in which a franchisee can assert a rescission claim under section 6(2) of the Arthur Wishart Act. Not long after the service of the Notice of Rescission, in June 2012, the franchisor purported to terminate the franchise. 

In July 2012, the parties entered into a Settlement Agreement, pursuant to which the franchisor agreed to retract its Notice of Termination and the franchisee agreed to retract its Notice of Rescission. Importantly, the Settlement Agreement did not alter or supersede section 18 of the Franchise Agreement, which required that the franchisor give thirty days' notice of termination. During the thirty day notice period, the franchisee could cure the default and avoid termination.

On October 17, 2013, ANC had a technical malfunction in its voicemail system. The system could not be immediately fixed, and on October 30, 2013, the franchisor delivered a Notice of Default.  While the franchisee was making efforts to fix the voicemail system and cure the default, the franchisor terminated the franchise and the sublease on November 7, 2013, less than 30 days from both the malfunction and the Notice of Default.

ANC commenced an application, seeking immediate reinstatement as a franchisee, as well as the right to re-enter its subleased premises and resume its franchise's business operations.  ANC also sought damages for breach of the Franchise Agreement.  As alternative relief, ANC sought relief from forfeiture under the Commercial Tenancies Act.

The franchisor argued that the Settlement Agreement introduced a "one-strike policy" which gave it the right to terminate the franchise immediately. The franchisor also argued that the seriousness of the breach and the risk to the "integrity of the franchise system" entitled the franchisor to immediately terminate this franchisee. Justice Perell disagreed.

Justice Perell found that the franchisor did not give thirty days' notice, as required by section 18 of the Franchise Agreement. In doing so, the franchisor breached the Franchise Agreement.  The judgment is clear that "nothing in the 2012 Settlement Agreement that alters the provisions in the Franchise Agreement or in the associated Agreements that requires the Franchisor to provide the franchisee with an opportunity (or an extended opportunity) to remedy a default."

Justice Perell further held that "the notion that ANC's alleged default went to the core of the franchise system and compelled the franchisor to terminate the franchise is an after-the-fact attempt by the franchisor to justify its own breach of the Franchise Agreement."

In the result, Justice Perell reinstated the Franchise Agreement and held that ANC is entitled to damages due to the franchisor's breach. Justice Perell ordered that there be a trial to determine the quantum of damages, whether the franchisor breached their duty of fair dealing under section 3 of the Arthur Wishart Act  and whether the franchisor could require ANC to operate with a new Cloud-based phone message system.

The clear instructive point to be taken from this case is that franchisors run a major risk in terminating a franchisee without complying with the applicable notice requirements in the franchise agreement, and that franchisors should be careful to ensure that they have proper grounds to terminate in accordance with their franchise 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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions