Are you curious about what is arbitration? This article has rewritten the ruling from an arbitrator. You will find it interesting to read through it and learn about arbitration. If you need a lawyer in Ontario, British Columbia, or Alberta, you can contact us. We will connect you with a business lawyer.
They will be able to provide you with legal advice about if arbitration would work for you.
The arbitration story below is all with fake information, based on a real case.
The Nature Of The Litigation
In this arbitration, ABC FRANCHISING claims for its commission on franchise fees under the Agreement. TVVF grounds its claim on the basis that the Agreement states in Section E. ABC FRANCHISING would receive 50% of the initial franchise fees that result from all new Friendly Coffee franchise locations. Each location will be sold for $50,000 with 5% royalties. [Bolding in original]
ABC FRANCHISING alleges that Friendly Coffee has opened five new locations since the date the Agreement was entered into and, on this basis, under ABC Franchising’s interpretation of Section E Friendly Coffee is required to pay ABC FRANCHISING $25,000 for each of these five new franchisees.
Company ABC is not making a claim of any royalties payable under any of the new franchise agreements for these locations. The franchising company is not claiming a commission on the basis that ABC is directly responsible for these new locations. Further, ABC FRANCHISING is not making a claim for any potential franchisee leads that it alleges Friendly Coffee “mismanaged”.
Friendly Coffee’s position is that the ABC FRANCHISING’s suggested interpretation of Section E would be commercially absurd since it would result in payments being made to ABC FRANCHISING regardless of ABC FRANCHISING’s efforts and without regard to the value of the work done by ABC FRANCHISING.
Friendly Coffee urges an interpretation of the Agreement in light of sound commercial principles, the factual matrix, and the whole of the Agreement. A proper interpretation, according to Friendly Coffee, would require payment under the Agreement to ABC FRANCHISING only if a lead provided by ABC resulted in a new franchisee.
Facts In the Arbitration
The parties submitted documents, sworn statements, and arguments. I have reviewed all material, including the affidavit delivered by ABC FRANCHISING after the deadline for delivery of ABC FRANCHISING’s Reply materials.
Unsworn statements were included in ABC FRANCHISING’s Reply materials and were objected to by Friendly Coffee given the requirements in Procedural Order #1 and the reminder given to ABC FRANCHISING of this requirement by way of the events referred to in Procedural Order #2.
An affidavit was provided after the deadline, which was also objected to by Friendly Coffee. For the same reasons given in Procedural Order #2, I have admitted the late Reply Affidavit into Neither party requested an oral hearing under ICDR Article E-8, and the matter proceeded solely by way of written submissions.
Much of the evidence before me goes well beyond what is required for a determination of the proper construction of the Agreement. Since ABC FRANCHISING is not claiming that it is entitled to payment of any franchise fees as a direct result of any of its efforts.
The evidence with respect to its efforts is of very limited assistance. It is ultimately a contractual interpretation. I have taken into account uncontradicted evidence of facts known to both parties at the time of entering into the Agreement. This was done as part of my contractual analysis. However, for the most part, I have not had to undertake a detailed analysis of the parties’ post-contractual conduct.
The law governing the proper approach to the construction of contracts is well settled:
The objective intention of the parties to a contract is to be determined from the words used in the document.
Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459.
Method Of Resolving Disputes
The starting point is to examine the words used, in the context of the contract as a whole, in order to see whether they are clear and unambiguous. Water Street, (supra). The question of whether ABC FRANCHISING is entitled to payment of its commission or finders fee “depends on the construction of the agreement between the parties and the facts”. The circumstances in which a commission is payable has been described as follows:
… a commission is payable upon, and only upon, the happening of the event provided for in the contract. What is that event? Did it happen? These are the only issues in cases of this sort.’
A leading text on this area of law summarizes the issue as follows. Citifund Financial Services Ltd. v. Sayani, (1992), 67 B.C.L.R. (2d) 157 (C.A.)
Consolidated Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co. (1980), 112 D. L. R. (3d) 49.
Lettuce Serview Ltd. Partnership v. Western Delta Lands Partnership, 2007 BCSC 528 at para. 92.
Alex Duff Realty Ltd. v. Eaglecrest Holdings Ltd. (1983), 26 Alta. L.R. (2d) 133 at para. 7 (C.A.) citing Taylor v. Silver Giant Mines Ltd.,  S.C.R. 280, at 289 cited with approval in Lettuce Serview Ltd. Partnership, supra.
… where the agent is to be remunerated on the happening of an event… the question of whether the event has occurred depends upon the facts of the case … the express or implied terms of the agency contract.
The Surrounding Circumstances
Friendly Coffee already had franchise locations. However, it was looking to expand and market their franchise beyond the personal relationships of Mr. Smith and others already involved in Friendly Coffee. Friendly Coffee had not developed a significant internet strategy for locating quality prospects and had not attended franchise tradeshows or other similar forums.
ABC FRANCHISING was in the business of providing marketing services to franchisors. This included the identification of new franchisees. ABC FRANCHISING had some success in particular with a franchise called Apple Computer.
Legally Binding Decision
Prior to entering into the Agreement, Friendly Coffee had an existing Area Representative Agreement for the Ontario Area. Mr. Smith swears in his affidavit that he advised Mr. Lu of the existence of this agreement, but in his reply affidavit, Mr. Lu denies any such discussion.
It is notable that the Ontario Agreement is dated August 27, 2005 (well before the June 2010 date of the Agreement). It gives the area representatives certain nonexclusive rights to prospect for new franchisees in Ontario (along with the right to operate stores themselves). Even so, the Ontario Agreement reserves for Friendly Coffee the continuing right to enter into Franchise Agreements in Ontario for franchisees not recruited by the area.
Binding On The Parties
Given Mr. Lu’s denial of knowledge of the Alberta Agreement, I have not taken it into account as a relevant surrounding circumstance for the purposes of contractual. If I had found that its existence was known or ought to have been known by Mr. Lu this would have been supportive of Friendly Coffee’s interpretation of the Agreement.
In any event, the Area Representative Agreement stands as an example of the express terms one would expect in a commercial agreement that provides for exclusive rights in an area (and exceptions to that exclusivity). While the nature of the exclusivity claimed by ABC FRANCHISING is not entirely the same as in the Area Representative Agreement.
It is telling that express language dealing with issues of exclusivity is entirely lacking in the Agreement with ABC Franchising.
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