Canada: Sweet Relief: British Columbia Court Of Appeal Upholds Mutual Cancellation And Release Agreement Between Franchisor And Franchisee

Last Updated: February 9 2018
Article by Colin Pendrith

Franchisors can be reassured by a recent decision of the British Columbia Court of Appeal (Dairy Queen Canada, Inc. v. M.Y. Sundae Inc.) that affirmed the use of Mutual Cancellation and Release Agreements as a means to resolve franchise disputes while protecting franchisors against future claims.

In a May 2017 newsletter, we reported on a decision of the British Columbia Supreme Court that endorsed the use of a Mutual Cancellation and Release agreement as a means of terminating a franchise agreement. In that case, Dairy Queen Canada, Inc. (Dairy Queen), the franchisor, presented the Mutual Cancellation and Release Agreement to a franchisee that was in default of various obligations under its franchise agreement. In lieu of immediate termination, the Mutual Cancellation and Release Agreement gave the franchisee the opportunity to continue to operate for six months, during which it could sell its business, provided that the franchisee complied with the franchise agreement during the six month period. Importantly, and as its title would suggest, the Mutual Cancellation and Release Agreement contained a release of the franchisee's claims against the franchisor.

After signing the Mutual Cancellation and Release Agreement, the franchisee pursued claims against the franchisor for breach of contract, as well as various breaches of the Arthur Wishart Act (Franchise Disclosure), 2000 (the Wishart Act), including breach of the duty of good faith and fair dealing.

In the original decision, the Supreme Court of British Columbia upheld the Mutual Cancellation and Release Agreement and found that it was a complete bar to the franchisee's claims. The Court rejected the franchisee's arguments that the Mutual Cancellation and Release Agreement had been signed under duress or should be disregarded on grounds of unconscionability.

The franchisee appealed this decision to the Court of Appeal for British Columbia, which upheld the lower court's decision.

As part of the appeal, the franchisee brought a motion to adduce fresh evidence from a hand-writing expert in support of a novel argument that the Mutual Cancellation and Release Agreement had not been signed at all. In dismissing the motion, the Court held that the proposed fresh evidence was "more than simply new evidence. This is a reversal of the entire case that [the franchisee] took to trial."

The Court also rejected the franchisee's argument that the Mutual Cancellation and Release Agreement had been entered into under duress, and endorsed the trial judge's finding that the offer to forbear enforcement in exchange for entering in the Mutual Cancellation and Release Agreement was nothing more than "legitimate commercial pressure." The Court explained:

In this case, Dairy Queen was asserting a contractual right to terminate the franchise agreement for failure to abide by its terms. The Mutual Cancellation and Release was presented as an alternative to immediate closure to provide time for Mr. Richards to wind up the business in an orderly fashion. The trial judge concluded that:

... the Cancellation and Release is more generous on its face than the [Franchise] Agreement itself, allowing the franchisee time to recoup its investment through the sale of an operating franchise rather than immediate termination of the Agreement and an accompanying demand to cease and desist.

The trial judge appears to have accepted that the proposal of Dairy Queen to provide additional time to the appellants in return for the Mutual Cancellation and Release fell within the range of legitimate commercial pressure. I can see no error in this conclusion.

The Court of Appeal also rejected the franchisee's argument that the timeline to review and sign the Mutual Cancellation and Release Agreement was insufficient and amounted to illegitimate pressure. Rather, the Court found that the ten-day period provided was ample time for the franchisee to explore its legal options. The Court explained:

[The franchisee] had known since April that Dairy Queen was taking the position that if he did not adhere to the standards required of the franchise, Dairy Queen could shut the business down. He had ample time to explore legal options before August 9. The trial judge determined that he had seen the document on July 31 and also that it was a document with which he was familiar. He could have refused to execute it, and defended any termination on the merits. This is not a case in which the demand was made without warning and without notice, leaving him with no option but to sign.

The Court of Appeal fully endorsed the trial decision below, holding that there was "no error in the trial judge's thorough analysis and certainly no palpable and overriding error."

The Court's decision confirms that mutual cancellation and release agreements can be valuable tools for franchisors looking to end unworkable franchise relationships while limiting their liability. In these circumstances, the agreement can also be beneficial to franchisees that would otherwise face immediate termination for breaches of the franchise agreement. Instead, the franchisee will hopefully be able to find a buyer and recoup some or all of its investment in the franchise. For these reasons, before effecting a termination, franchisors should consider whether a mutual cancellation and release agreement could provide a mutually beneficial way to end the relationship while (hopefully) avoiding conflict.

A copy of the trial decision is available here.

A copy of the appeal decision is available here.

Dairy Queen was represented by Colin Pendrith of Cassels Brock at the summary trial and on appeal.

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