Court Strikes RE/MAX Ottawa Franchisee’s Claims Against Franchisor

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Author: Ben Hanuka, Law Works P.C.

Overview

In Westeinde (FNP) Inc. v. RE/MAX Core Realty Inc., a January 11, 2019, motion decision of the Ontario Superior Court in Ottawa, the court struck out a third party claim of the defendant, a RE/MAX Core franchisee in Ottawa, against its franchisor, RE/MAX Integra.

The franchisee, RE/MAX Core, was sued by its landlord for breach of a lease agreement after backing out of the lease.

RE/MAX Core brought a third party claim against its franchisor, RE/MAX Integra, alleging that it originally approved RE/MAX Core’s intended branch office in Ottawa but later withdrew its approval – causing RE/MAX Core to breach its lease agreement with the landlord. RE/MAX Core sought damages against RE/MAX Integra for alleged breaches of the duty of good faith and interference with economic relations.

The court found that, while the third party claim against RE/MAX Integra contained material facts about the alleged breaches of the duty of good faith, it did not sufficiently tie the alleged bad faith conduct to specific terms in the franchise agreement. Because of that, it did not set out all material facts about these allegations. The court granted leave to amend the third party claim of breach of the duty of good faith.

But the court struck the claim of intentional interference with economic relations, without leave (permission) to amend it, because it had no chance of success.

Key Facts

The plaintiff, Westeinde (FNP) Inc. (“Westeinde”), was the landlord. The defendant, RE/MAX Core Realty Inc. (“RE/MAX Core”), was an Ottawa-based RE/MAX franchisee. The third party, RE/MAX Ontario-Atlantic Canada Inc. (“RE/MAX Integra”), is the franchisor of the RE/MAX system in Ontario.

Westeinide sued RE/MAX Core for breach of a lease. RE/MAX Core sought to open a branch office in Ottawa. It selected Westeinde’s property as an ideal location. As required under its franchise agreement, RE/MAX Core sought RE/MAX Integra’s approval for the location.

RE/MAX Core alleged in its third party claim that RE/MAX Integra approved the location but later withdrew its consent in bad faith, causing RE/MAX Core to incur liability to Westeinide.

In response, RE/MAX Integra alleged that it withdrew its original approval of the location because it discovered that the location was close to another existing RE/MAX office.

Good Faith and s.3(2) of the Wishart Act

The motion judge held that, based on existing case law in Country Style v 1304271 Ontario, Fairview Donut v TDL and Bhasin v Hrynew, the duty of good faith must be plead with full particulars, and this includes reference to the terms of the franchise agreement that the franchisor allegedly breached. This applies to allegations of bad faith conduct both at common law and under s.3(2) of the Wishart Act.

In the third party claim, RE/MAX Core alleged that RE/MAX Integra knew about the proximity between the offices and that it acted arbitrarily and in bad faith when it reversed its approval of the Ottawa locations without valid reasons. The motion judge held that these allegations had to be tied to RE/MAX Integra’s obligations under its franchise agreement with RE/MAX Core. For example, the franchise agreement restricted RE/MAX Integra from unreasonably withholding its permission to open additional offices.

The court held that RE/MAX Core had the ability to tie its allegations of bad faith to the franchise agreement but failed to do so. As a result, RE/MAX Core failed to plead full particulars of all its allegations of breach of good faith or dishonest or misleading behaviour.

But the court allowed RE/MAX Core leave (permission) to amend its third party claim, by adding the required particulars, because of the following key factors. First, the existing third party claim was a short and concise document that already contained many material facts to support the claim of breach of bad faith conduct. Second, the required additions were relatively minimal.

Interference with Economic Relations

The motion judge struck RE/MAX Core’s allegations of interference with economic relations against RE/MAX Integra without leave to amend because it had no chance of success.

Interference with economic relations requires intentionally interfering with a party’s relationship with another and causing it damage as a result. Here, there was no allegation that RE/MAX Integra committed an unlawful act against Westeinide – the landlord – which in turn caused damage to RE/MAX Core. Rather, RE/MAX Core’s complaint was about RE/MAX Integra’s bad faith dealings with it, not the landlord.

As a result, RE/MAX Core had not made a claim that could possibly qualify as an allegation of unlawful behaviour by RE/MAX Integra against the landlord. It was therefore clear on the face of the allegation that the claim for damages for intentional or unlawful interference with economic relations would fail.

Conclusion

This decision is a reminder that alleged breaches of the duty of good faith must be made out with full particulars and with specific references to contractual obligations. It is not open to a franchisee to complain generally about a franchisor’s conduct without tying the allegations to specific terms in the franchise agreement.

This decision also demonstrates the legal complexities of alleging breach of intentional interference with an economic relationship.