Ontario Court Dismisses Franchisor’s Action to Cancel Settlement

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By: Anthony Pugh, Law Works 
Editor: Ben Hanuka, Law Works 

In Tiny Hoppers Corp. v. 2402074 Ontario Inc., an April 28, 2020, decision of the Ontario Superior Court of Justice, the court dismissed the plaintiff franchisor’s action for repayment of amounts that it had paid under a settlement to the defendant franchisees.  The franchisor alleged that the franchisees breached their de–branding and non-disparagement obligations. 

Key facts 

Tiny Hoppers is the franchisor of a system of daycares.  The Defendant franchisees operated franchises in Guelph, Brampton, and Cambridge.  They rescinded their franchise agreement with Tiny Hoppers in January 2015.  The parties negotiated and, in March 2015, Tiny Hoppers agreed to pay $750,000 to the franchisees in installments to the settle the rescission claim.  The defendants agreed to de–brand and to a non-disparagement clause.  They rebranded their daycares as Dino & Kidz. 

Tiny Hoppers continued to make payments until September 2015, by which time it had paid $500,000 under the settlement.  It then started an action to seek repayment of that amount, alleging that Dino & Kidz had breached its obligation to de–brand and to refrain from disparaging Tiny Hoppers.  Both sides brought motions for summary judgment 

Dino & Kidz did not breach their obligation to de–brand 

Tiny Hoppers argued that Dino & Kidz failed to rebrand because they represented on a website that they had taken over the locations to, among other things, handle “previous lingering issues”.  It argued that this amounted to associating Dino & Kidz with Tiny Hoppers, in order to blame Tiny Hoppers for any problems. 

The court rejected this argument and found that the representation on the website amounted to Dino & Kidz assuring customers that it was continuing business under a different name.  The court noted that the parties understood at the time of settlement that Dino & Kidz would continue to operate. 

Dino & Kidz did not disparage Tiny Hoppers 

Tiny Hoppers also argued that the website post was disparaging.  The court disagreed.  The post did not identify what the lingering issues were, so it would not reduce the reputation of Tiny Hoppers in the eyes of a reasonable person.  Further, since the court found that there were lingering issues, the defence of justification would available for Dino & Kidz had the post been disparaging. 

Tiny Hoppers also pointed to an email that they received from a CTV reporter.  In the email, the reporter stated that a Dino & Kidz representative told her that certain problems that the Ministry of Education identified at the Cambridge daycare were due to a manager that Tiny Hoppers hired to manage it, and who Dino & Kidz could not remove.   

CTV later ran a story identifying the issues, and that Dino & Kidz was blaming them on the previous director.  It did not identify that director.  It then ran a statement from Dino & Kidz’ principal about how Dino & Kidz was responding to the Ministry.  This statement did not refer to Tiny Hoppers at all. 

Tiny Hoppers did not obtain an affidavit from the reporter.  The court held that the email from the reporter was not admissible evidence for its truth since its prejudicial effect outweighed its value.  In any event, the statement was not disparaging since it was only made to Tiny Hoppers, and the court held that it was true. 

Finally, Tiny Hoppers raised an issue about a Facebook post from one of the principals, which stated that once Dino & Kidz took over, everything changed for the better.  The court held that this was not disparaging since it only referred to what Dino & Kidz had done. 

The court ordered that Tiny Hoppers pay the balance owing for the settlement in addition to costs to Dino & Kidz.