COURT OF QUEEN S BENCH OF MANITOBA

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1 Date: Docket: CI (Winnipeg Centre) Indexed as: Diduck v. Simpson Cited as: 2018 MBQB 76 COURT OF QUEEN S BENCH OF MANITOBA B E T W E E N: ROBERT DIDUCK, ) Counsel: ) plaintiff, ) DANIEL W. CHORNOPYSKI ) for the plaintiff - and - ) ) DAVID SIMPSON operating as NAROL ) ANDREW W. BOUMFORD PROFESSIONAL SERVICES and the said ) for the defendants NAROL PROFESSIONAL SERVICES, and INTERLAKE CHEMICALS INTERNATIONAL LIMITED, ) ) ) ) JUDGMENT DELIVERED: defendants. ) MAY 10, 2018 BOND J. FACTS [1] In 2015, Robert Diduck responded to an on-line advertisement for a business opportunity referred to as the Sure Step Distributorship Program. Sure Step is a product manufactured by Interlake Chemicals International Limited ( Interlake Chemicals ). When Mr. Diduck contacted Interlake Chemicals in response to the advertisement, he was given the phone number of David Simpson who was identified as a master distributor of Sure Step. On November 22, 2015, Mr. Diduck entered into a distributor agreement with Narol

2 Page: 2 Professional Services Ltd., with Mr. Simpson signing the distributor agreement on behalf of the company. It later came to light that Narol Professional Services was in fact not a limited company but a partnership, with Mr. Simpson and his wife as partners ( Narol ). [2] The distributor agreement provided for the assignment of an exclusive sales territory to Mr. Diduck. It also required Mr. Diduck to: attend training sessions as were required by Narol or Interlake Chemicals from time to time; operate his business in a professional manner and in accordance with accepted business practices; maintain business records and allow Narol access to them; aggressively market the product; and, supply and apply the product in a good workmanship fashion in accordance with the directives issued by [Narol] to [Mr. Diduck] from time to time. There was no evidence of any directives being issued. [3] Upon entering into the distributor agreement, Mr. Diduck paid $24,750 as required by the distributor agreement. He was given some training by Mr. Simpson, although the evidence of what training was offered or provided was vague. [4] The business relationship did not go well, and on September 16, 2016, Mr. Diduck delivered what purported to be a demand letter to the president of Interlake Chemicals. In it Mr. Diduck claimed that Mr. Simpson had misrepresented the legal status of Narol and had provided limited training to him

3 Page: 3 in relation to the Sure Step product. Mr. Diduck demanded the return of the $24,750 that he had paid to Mr. Simpson upon entering into the distributor agreement with Narol. [5] In January 2017, Mr. Diduck filed a statement of claim against the defendants. He asserted claims for breach of the distributor agreement and for negligent misrepresentation. He claimed that the distributor agreement should be rescinded because of misrepresentation about the legal status of Narol. He claimed damages for breaches of the distributor agreement relating to inadequate training provided and violations of his exclusive sales territory. He also claimed that Mr. Simpson and Interlake Chemicals misrepresented the Sure Step Distributorship Program in their assertions about potential profit, sales and income. [6] In May 2017, with the consent of the defendants, Mr. Diduck filed an amended statement of claim, which added a claim pursuant to The Franchises Act, C.C.S.M. c. F156 ( Act ). In his amended statement of claim, Mr. Diduck asserted that Mr. Simpson and Interlake Chemicals failed to provide him with the franchisor s disclosure document as required under section 5 of the Act. On July 31, 2017, Mr. Diduck delivered to each of the defendants notice in writing that he was rescinding the distributor agreement pursuant to the Act.

4 Page: 4 MOTIONS FOR SUMMARY JUDGMENT [7] Mr. Diduck seeks summary judgment against the defendants. 1 He argued that although it was not described or identified as such by the parties, the distributor agreement he entered into was in fact a franchise agreement as defined by the Act. He argued that Mr. Simpson and Interlake Chemicals had not provided him with the necessary disclosure document as required under section 5 of the Act, and that he had rescinded the distributor agreement pursuant to section 6(2) of the Act. [8] Interlake Chemicals seeks summary judgment, arguing that Mr. Diduck s claim for economic loss based on negligent misrepresentation must fail. It argued that any representations it may have made regarding the Sure Step Distributorship Program were merely sales talk and projections, and could not found a claim for negligent misrepresentation. THE TEST FOR SUMMARY JUDGMENT [9] The test to be applied on a motion for summary judgment in Manitoba is whether the claim or defence raises a genuine issue for trial. If there is a genuine issue for trial, it is not for the motion court to resolve that issue; rather, the motion should be dismissed and the matter should proceed to trial. See Lenko v. Manitoba, 2016 MBCA 52, [2016] M.J. No. 156 (QL) at para. 71. In 1 The notice of motion referred to the determination of a question of law pursuant to Manitoba, Court of Queen s Bench Rules, r (1). However, based on the materials filed by all parties and oral arguments of all parties, this was a motion for summary judgment. No objection was taken to the motion proceeding as such.

5 Page: 5 Lenko, the court referred to the decision in Homestead Properties (Canada) Ltd. v. Sekhri et al., 2007 MBCA 61, 214 Man. R. (2d) 148, where the court succinctly summarized the proper analysis for a motion for summary judgment. In Homestead Properties, the court stated: [15] When a plaintiff moves, he must prove, on a prima facie basis, that his action will succeed. If he meets that burden, then the defendant has the burden to establish that there is a genuine issue for determination. If he fails to do so, summary judgment granting the claim will follow. As was made clear in Blanco et al. v. Canada Trust Co. et al. (2003), 173 Man. R. (2d) 247; [...] 2003 MBCA 64, at para. 62, regardless of who is the moving party, the analysis is a two-step process. [10] The parties are obliged to put their best case forward when either bringing or defending a motion for summary judgment. They must present evidence, and not merely assertions. See Homestead Properties at para. 19. [11] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada reviewed the principles applicable to motions for summary judgment, and encouraged courts to be more liberal in granting motions for summary judgment. This direction has been accepted and followed by courts in Manitoba. See Lenko at para. 70. ROBERT DIDUCK S MOTION FOR SUMMARY JUDGMENT [12] I must consider first whether Mr. Diduck has established, on the face of the evidence presented, that his action will succeed. To do so, I must consider whether Mr. Diduck has made out a prima facie case for the conclusion that the

6 Page: 6 distributor agreement he signed was a franchise agreement as defined by the Act. [13] Mr. Diduck argued that the business relationship he had with the defendants was in fact a franchise arrangement, and that the distributor agreement he entered into was a franchise agreement. He takes the position that Interlake Chemicals and Mr. Simpson both fall within the definition of a franchisor or a franchisor s associate under the Act. [14] The following definitions are set out in section 1 of the Act: franchise means a right to engage in a business in which the franchisee is required by contract or otherwise to make a payment or continuing payments (whether direct or indirect) or a commitment to make that payment or those payments to the franchisor or the franchisor s associate in the course of operating the business or as a condition of acquiring the franchise or commencing operations, and (a) in which (i) the franchisor grants the franchisee the right to sell, offer for sale or distribute goods or services that are substantially associated with the franchisor s, or the franchisor s associate s, trademark, trade name, logo or advertising, and (ii) the franchisor or the franchisor s associate exercises significant control over, or offers significant assistance in, the franchisee s method of operation under a business plan, including building design and furnishings, locations, business organization, marketing strategies or training; or (b) in which (i) the franchisor or the franchisor s associate grants the franchisee the representational or distribution rights whether or not a trademark, trade name, logo or advertising is involved to sell, offer for sale or distribute

7 Page: 7 goods or services supplied by the franchisor or a supplier designated by the franchisor, and (ii) the franchisor, the franchisor s associate or another person designated by the franchisor provides location assistance, including (A) securing retail outlets or customer accounts for the goods or services to be distributed, offered for sale or sold, or (B) securing locations or sites for vending machines, display racks or other product sales displays used by the franchisee; and includes a master franchise and a subfranchise. franchise agreement means any agreement that relates to a franchise between (a) (b) a franchisor or franchisor s associate; and a franchisee. franchisee means a person to whom a franchise is granted and includes (a) a subfranchisor with regard to that subfranchisor s relationship with a franchisor; and (b) a subfranchisee with regard to that subfranchisee s relationship with a subfranchisor. franchisor means a person who grants or offers to grant a franchise and includes a subfranchisor with regard to that subfranchisor s relationship with a subfranchisee. franchisor s associate means a person (a) who, directly or indirectly, (i) (ii) controls the franchisor, is controlled by the franchisor, or (iii) is controlled by another person who also directly or indirectly controls the franchisor; and (b) who

8 Page: 8 (i) is directly involved in the grant of the franchise (A) by being involved in reviewing or approving the grant, or (B) by making representations to the prospective franchisee on behalf of the franchisor for the purpose of granting the franchise, marketing the franchise or otherwise offering to grant the franchise, or (ii) exercises significant operational control over the franchisee and to whom the franchisee has a continuing financial obligation in respect of the franchise. [15] Andraya Frith, Dominic Mochrie & Gillian Scott, managing eds., Canadian Franchise Guide, 2nd ed. (Toronto: Thomson Reuters Canada Limited, 2015, 2016) vol. 1 (loose-leaf), at 2-10 (updated ), under the heading Definition of a Franchise, state that the determination of whether a particular provincial franchises act applies to any particular commercial arrangement requires a contextual analysis of the arrangement when considering the definition of a franchise. They identify the definition of a franchise in the provincial legislation of Ontario, New Brunswick, Prince Edward Island, Manitoba, and British Columbia as being similar to each other. They state (at p. 2-11, loose-leaf updated ): The comprehensive definition of a franchise captures within its meaning a number of business relationships other than traditional business format franchises. The definitions are broad. [16] The wording of the definition of a franchise in the Manitoba Act is very similar to that in the Ontario legislation, which is entitled the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3. The Ontario definition of

9 Page: 9 a franchise is considered in Ontario Ltd. v. Grill It Up Holdings Inc., 2011 ONSC 2735, 88 B.L.R. (4th) 191. In that case, Corbett J. stated (at para. 31): The expansive definition of franchise agreement in the Arthur Wishart Act is clear: if the substance of the relationship is a franchise, it matters not whether the parties sign a document called a franchise agreement. He considered the nature of the parties business arrangements, their agreement, and evidence about the intention of the parties at the time of the signing of the agreement. He found that although the plaintiffs had refused to sign the draft franchise agreement presented to them by the defendants, the relationship between them was nevertheless a franchise. [17] Simplified, the initial portion of the definition of a franchise in subsection 1(1) of the Act is that the franchisee is required by contract or otherwise to make a payment or continuing payments or a commitment to make that payment or those payments to the franchisor or the franchisor s associate in the course of operating the business or as a condition of acquiring the franchise or commencing operations. The Canadian Franchise Guide states that the required payments in the course of operating the business may include payments made for products or services supplied by either the franchisor or the franchisor s associate (see p. 2-11). Pursuant to the distributor agreement, Mr. Diduck was required to make a payment of $24,750 to Narol, which payment included the purchase of a certain quantity of the Sure Step product. Mr. Diduck made that payment. The distributor agreement also provided for annual renewal of the

10 Page: 10 distributor agreement, if Mr. Diduck either purchased $2,400 worth of the Sure Step product on an annual basis, or made a payment of $2,400. The payment made by Mr. Diduck when he entered into the distributor agreement, as well as the requirement for ongoing payments, could satisfy the initial portion of the definition of a franchise. [18] With the initial portion satisfied, to qualify as a franchise, then, the arrangement must fall into one of the two alternatives set out as clauses (a) and (b) of the definition of a franchise in the Act. Mr. Diduck relied particularly on clause (a), which itself has two components, both of which must be satisfied. It is uncontested that the distributor agreement granted Mr. Diduck the right to sell the Sure Step product in a certain territory, satisfying the component set out in sub-clause (a)(i). Mr. Diduck argued that the arrangement also satisfied the component set out in sub-clause (a)(ii), which requires that the franchisor or the franchisor s associate exercise significant control over, or offer significant assistance in, the franchisee s method of operation under a business plan, including building design and furnishings, locations, business organization, marketing strategies or training. Mr. Diduck asserted that the defendants provided significant assistance in his method of operation, including particularly marketing strategies and training. He argued that the fact that the franchisor was not involved in building design, furnishings or location was immaterial because the business was not a bricks and mortar type of business. He referred to the Interlake Chemicals Distributor s Manual that he was given. The

11 Page: 11 Interlake Chemicals Distributor s Manual provides information about the Sure Step product and how to apply it. It provides answers to common customer questions, suggestions for acquiring business, and sales strategies. Mr. Diduck argued that this, coupled with the provision in the distributor agreement for training to be provided, amounts to significant assistance. [19] In his argument, Mr. Diduck relied in particular on the Grill It Up Holdings Inc. case. However, I find that that case is distinguishable. Factors taken into consideration in that case included the fact that the franchisor designed and supervised construction of the store, and ordered and paid for the equipment for the store. The franchisor also provided the menu for the store, and the franchisee was obliged to serve the food described in the menu. The franchisee was similarly required to use special trademark sauces of the restaurant. (See para. 13.) Justice Corbett found that this transaction was structured in a manner typical of franchise transactions (see para. 23). The franchisor testified that the restaurant was to be a typical fast-food franchise operation (see para. 24). [20] The Canadian Franchise Guide states that traditional product distribution or dealer arrangements may fall within the first branch (a), or clause (a), of the definition of a franchise. It states that where a manufacturer grants a distributor or dealer the right to sell goods associated with the manufacturer s trademark and the manufacturer offers significant assistance in the distributor s or dealer s method of operation (including business organization,

12 Page: 12 marketing techniques or training), the arrangement may constitute a franchise. It also states that product distributors may, depending on the facts, inadvertently be considered franchises within the scope of this branch of the definition. (See p ) [21] Interlake Chemicals argued that the distributor agreement does not meet the definition of a franchise under clause (a) because the franchisor must offer significant assistance in, the franchisee s method of operation under a business plan (emphasis added) and there was no business plan requested or provided in this case. Moreover, it argued that the training and manual it provided simply do not amount to significant assistance as contemplated by the definition under the Act. It stated that the Interlake Chemicals Distributor s Manual provides information, tips and suggestions only. Mr. Diduck was provided with, and permitted to use, the Sure Step logo and marketing materials. He was free to choose any name for his company and his website, but was not permitted to use Sure Step in the name. He was given no direction or guidance on how to organize his business. [22] I agree with Interlake Chemicals that although Mr. Diduck was provided with information and advice, this does not amount to significant assistance as contemplated by the Act. In addition, the element of assistance provided under a business plan is absent.

13 Page: 13 [23] In the alternative, Mr. Diduck relied on sub-clause (b)(ii) of the definition of a franchise, arguing that the defendants provided location assistance, and that the granting of exclusive sales territory amounts to location assistance. In my view, Mr. Diduck s position in that regard is not tenable. Granting exclusive sales territory does not, in my view, amount to providing location assistance as required by the definition in the Act. Sub-clause (b)(ii) defines location assistance as including securing retail outlets or customer accounts, or securing locations for vending machines or product sales displays. None of these apply here. [24] I am satisfied that the payment Mr. Diduck was required to make to Mr. Simpson upon entering into the distributor agreement with Narol satisfies the initial portion of the definition of a franchise under the Act. However, as required under sub-clause (a)(ii), the franchisor is required to offer significant assistance in the franchisee s method of operation under a business plan, or, as required under sub-clause (b)(ii), the franchisor is required to provide location assistance. I find that the evidence did not satisfy this second requirement. I am not satisfied that the evidence presented supports the conclusion that the relationship between Mr. Diduck and the defendants was a franchise arrangement. [25] I conclude that Mr. Diduck has not made out a prima facie case on the evidence before me and, therefore, has failed to meet the necessary threshold for summary judgment. Mr. Diduck s motion is denied.

14 Page: 14 INTERLAKE CHEMICALS MOTION FOR SUMMARY JUDGMENT [26] Interlake Chemicals moved for summary judgment dismissing Mr. Diduck s claim against it for negligent misrepresentation. It argued that Mr. Diduck s claim raises no genuine issue for trial, and must fail at law. [27] The required elements for a successful claim of negligent misrepresentation are: (1) there must be a duty of care based on a special relationship between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted. See Queen v. Cognos Inc., [1993] 1 S.C.R. 87 at 110, as cited in Olfman v. RBC Life Insurance Co., 2013 MBQB 142, [2013] M.J. No. 203 (QL) at para. 31. [28] Interlake Chemicals argued that it did not owe Mr. Diduck a duty of care. It also argued that any alleged misrepresentations are not actionable because

15 Page: 15 they were merely sales talk, puffery, or forecasts and that any alleged reliance on those statements was not reasonable. Finally, it argued that in any event Mr. Diduck waived any reliance on those statements when he signed the distributor agreement with Mr. Simpson. [29] In response to Interlake Chemicals motion for summary judgment, Mr. Diduck relied on his argument that the relationship between Mr. Diduck and Interlake Chemicals was that of a franchise under the Act, and as such it was a special relationship that includes a duty of care. For the reasons outlined above, I am not satisfied on the evidence before me that the business relationship in this case was a franchise arrangement. [30] Further, I agree with Interlake Chemicals that the alleged misrepresentations were essentially projections, forecasts, or statements of opinion about the profitability of the Sure Step Distributorship Program. The statements are contained within the Sure Step Distributor information packet provided to Mr. Diduck by Interlake Chemicals. They are projections of profit based on anticipated sales. They are not statements of fact. As such, they cannot found a claim for negligent misrepresentation. See Grant v. Oracle Corp. Canada Inc., [1995] 3 W.W.R. 202 at para. 18 (Man. C.A.); Andronyk v. Williams (1985), 21 D.L.R. (4th) 557 at (Man. C.A.). [31] I also agree with Interlake Chemicals that there is no evidence before me that Mr. Diduck relied on those statements in deciding to enter into the

16 Page: 16 distributor agreement or that it would have been reasonable for Mr. Diduck to do so. [32] I find that Interlake Chemicals has established that its defence regarding the claim based on negligent misrepresentation will be successful at trial. I find that Mr. Diduck has not demonstrated that there is a genuine issue for trial. Interlake Chemicals motion for summary judgment is granted. CONCLUSION [33] Mr. Diduck s motion for summary judgment is denied. [34] Interlake Chemicals motion for summary judgment is granted. J.