A brief summary as to what this case means for you:

The following case illustrates that if franchisors do not provide for post-termination non-competition and non-solicitation in their franchise agreements, franchisees may not be prevented from carrying on a competing business and soliciting their old customers in the event the franchise relationship terminates.

Personal Service Coffee Corp. v. Beer

[2006] O.J. No. 4932, Ontario Superior Court of Justice
A.J. Stong J.
October 24, 2006

The plaintiff granted dealer rights for individuals to purchase a territory and sell coffee related products within that territory. The plaintiff sold two such territories to the defendant Mr. Beer, one in Durham in 2002 and one in Peterborough in 2003. In 2004 the defendant sought an order declaring the dealer agreements were franchise agreements and sought rescission of the agreements for the plaintiff's failure to provide disclosure. At trial Mr. Beer was successful in his action and the plaintiff was unsuccessful in its cross action seeking an accounting and injunctive relief preventing Mr. Beer from setting up a competing business. The Ontario Court of Appeal upheld that the agreements were franchise agreements and that the plaintiff did not provide the required disclosure document, but the court did not bar the plaintiff franchisor from seeking compensation for its damages suffered. The plaintiff franchisor then brought this action for damages in relation to Mr. Beer's appropriation of the plaintiff's business, customer lists and equipment, know how, and systems. The defendant counterclaimed for damages for interference with economic relations.

The court began its analysis by examining the terms of the rescinded agreements as relates to non-competition. The agreements did not provide for any form of covenant regarding post-termination non-competition or non-solicitation. Ultimately the court found that the plaintiff failed to prove on a balance of probabilities that the defendant was restricted from competing with the business post-termination due to an absence of such restrictions in the franchise agreements, despite finding that the defendant benefited directly from the plaintiff's systems and know how. The agreements did provide that the defendant was prohibited from disclosing confidential information, however, there was no evidence that that happened. There were no provisions in the agreement to provide for the post-termination servicing of customers and the court stated that the plaintiff should have mitigated its damages and attempted to contact the customers that the defendant continued to service post-termination. Turning to the defendant's counterclaim, the court dismissed the claim finding that the defendant did not demonstrate that the plaintiff interfered with its economic relationships and did not contact the defendant's suppliers, as claimed by the defendant.

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