



COURT OF APPEAL FOR ONTARIO

CITATION: 2176693 Ontario Ltd. v. Cora Franchise Group Inc.,
    2015 ONCA 152

DATE: 20150312

DOCKET: C58420

Epstein, van Rensburg and Benotto JJ.A.

BETWEEN

2176693 Ontario Ltd. and 2130679 Ontario Inc.

Applicants (Respondents)

and

The Cora Franchise Group Inc.

Respondent (Appellant)

Geoffrey B. Shaw and Derek Ronde, for the appellant

Darren Smith, for the respondents

Heard: September 24, 2014

On appeal from the order of Justice Wendy M. Matheson of
    the Superior Court of Justice, dated January 31, 2014, with reasons reported at
    2014 ONSC 600, 119 O.R. (3d) 100.

van Rensburg J.A.:

[1]

This appeal engages the interpretation of the rights and obligations of
    franchisors and franchisees under the
Arthur Wishart Act (Franchise
    Disclosure), 2000
, S.O. 2000, c. 3 (the 
AWA
), in the context of
    the franchisors consent to an assignment of a franchise agreement to a third
    party.

[2]

The appeal is from an order granted on application by the respondents,
    declaring void and unenforceable clauses in two franchise agreements requiring
    delivery of a release as a condition of the respondents assignment of their
    franchise agreements. For the reasons that follow, I would dismiss the appeal.

A.

Facts

[3]

The appellant is the franchisor of Cora restaurants. The respondents
    are two corporate franchisees with common control that operate Cora restaurants
    in Ancaster and Niagara Falls, Ontario. Each franchisee entered into a
    franchise agreement with the appellant, the Ancaster franchisee in 2007 and the
    Niagara Falls franchisee in 2008.

[4]

In 2011 and 2012 the respondents commenced legal actions in the Superior
    Court against the appellant. In their actions the respondents assert a number
    of
AWA
claims, including breach of the duty of fair dealing in the
    performance and enforcement of their franchise agreements under s. 3, as well
    as common law claims of breach of contract, negligence and misrepresentation.

[5]

In 2013, in an effort to mitigate their damages, the franchisees decided
    to sell the franchise businesses, and to assign their franchise agreements to
    third parties.

[6]

Pursuant to s. 22.4 of each franchise agreement, the franchisors
    consent is required before the franchisee is able to assign its rights under
    the franchise agreement. Sections 22.4 and 22.6 set out a number of conditions
    precedent to the franchisors consent, including the provision of detailed
    information about the proposed assignee in order to permit the franchisor to
    decide whether the assignee would be a suitable franchisee and operator and a
    requirement that the assignee complete training programs and demonstrate its
    fitness as a franchisee. Section 22.6 also requires the franchisee seeking to
    assign its rights to provide a general release of any claims against the
    franchisor. The section provides specifically that the franchisor, as a
    condition precedent to the granting of its consent, will require:

22.6.4
Franchisee and its directors, officers
    and shareholders signing and delivering in favour of Franchisor and its
    directors, officers, shareholders and employees, a general release in the form
    specified by Franchisor of any claims against Franchisor and its officers,
    directors, shareholders and employees.

[7]

The Niagara franchisee entered an agreement with a third party for the
    sale of the franchise on July 23, 2013, subject to the appellants consent.
    Communications between the parties followed, which included an exchange with
    respect to the requirement that the franchisee provide a release. The
    franchisors counsel requested that the franchisee comply with the conditions
    for consent set out in the franchise agreement. The franchisee responded that
    it would not be executing a general release pursuant to s. 22.6.4. The
    franchisor wrote back, stressing that it expected strict compliance with the
    assignment provisions, including the requirement for a general release. The
    franchisees counsel expressed its position that such a release was contrary to
    s. 11 of the
AWA.
That section provides as follows:

Any purported waiver or release by a franchisee of a right
    given under this Act or of an obligation or requirement imposed on a franchisor
    or franchisors associate by or under this Act is void.

[8]

The franchisors counsel responded that it was not seeking the release
    of claims covered by the
AWA
, and thereafter provided the Niagara
    franchisee with a draft release. The release stated explicitly that it would
    not constitute a waiver of any rights prescribed by the
AWA
or claims
    made thereunder in the pending Superior Court action.

[9]

The Niagara franchisee refused to sign the release, and the two
    respondents brought an application to the Superior Court seeking a declaration
    that s. 22.6.4 of each franchise agreement was void, unconscionable and
    unenforceable.

B.

Decision on the Application

[10]

The
    application judge identified the overarching issue in the application as
    whether s. 22.6.4 of the two franchise agreements was void by virtue of s. 11
    of the
AWA.
A related issue was whether the impugned release
    conditions could be read down to be compliant or otherwise be enforceable in
    part.

[11]

The
    application judge first interpreted s. 22.6.4. She considered the ordinary
    meaning of the requirement to provide a general release  of any claims, as
    including a release of rights under the
AWA.
The words in the form
    specified by Franchisor did not take the release provision outside of s. 11 of
    the
AWA,
as they related to form, and did not narrow the substantive
    requirement for a general release.

[12]

The
    application judge held that accepting the appellants argument that its offer
    to agree to a narrower release after

the issue was raised protected
    the clause from s. 11, would create a potential for abuse. A franchisor could
    wait and see if a complaint was raised. If not, it could obtain full releases
    from franchisees who did not assert their rights.

[13]

The application judge next considered whether the effect of
    s. 11 was to void the whole of s. 22.6.4 of the franchise agreement or whether
    that section could be read down or partially enforced to permit the franchisor
    to require, as a condition of its consent to an assignment, a release of non-
AWA
claims
.

[14]

The
    application judge held that s. 11 of the
AWA
should be interpreted
    according to the
AWAs
purpose of mitigating the inequality of
    bargaining power between franchisors and franchisees. She referred to
405341
    Ontario Ltd. v. Midas Canada Inc
., 2010 ONCA 478, 322 D.L.R. (4th) 177, where
    this court held that terms in a franchise agreement calling for a general
    release were unenforceable. She noted that the court in that case neither found
    the clauses partly enforceable nor read them down.

[15]

The
    application judge then reviewed and distinguished several cases, including
Seidel
    v. Telus Communications Inc
., 2011 SCC 15, [2011] 1 S.C.R. 531, where the Supreme
    Court concluded that a provision in a cell phone contract that required all
    claims to be arbitrated did not apply to statutory claims that could be
    litigated in court under the
Business Practices and Consumer Protection Act
,
    S.B.C. 2004, c. 2. The provision did apply to require the plaintiffs other claims
    against the defendant to be arbitrated. The application judge distinguished
Seidel
on the grounds that (i) the policy considerations in the statutes at issue
    were different, and (ii)
Seidel
involved access to justice and
    arbitration rather than the release of substantive claims.

[16]

The
    application judge preferred to analogize the case at hand to
Shafron v. KRG
    Insurance Brokers (Western) Inc.
, 2009 SCC 6, [2009] 1 S.C.R. 157, where
    the Supreme Court held that the reading down or notional severance of
    offensive employment contract provisions would invite employers to draft overly
    broad covenants in the hope that either employees would not assert their rights
    or that a court would sever or read down only the unreasonable parts of the
    covenant. She found that the policy considerations at issue in this case were
    similar.

[17]

The
    application judge determined that the wording of s. 11 is broad and does not
    contemplate that a provision of an agreement can be struck down only in part.
    Section 22.6.4 explicitly contemplates a general release, and partial enforcement
    would raise the same potential for abuse as discussed above. Also, since many
AWA
rights are codifications of the common law, reading down offending
    provisions to exclude non-statutory rights would create debate and confusion
    about the status of overlapping claims. A purposive interpretation supported
    rendering the provision void rather than allowing the appellant to essentially
    rewrite it.

[18]

The
    application judge accordingly issued a declaration that s. 22.6.4 of the two
    franchise agreements is void and unenforceable.

C.

Issues on Appeal

[19]

The
    appellant contends that the application judge erred:

·

by failing to give effect to the ability of the franchisor to
    choose the form of release and therefore to tender an
AWA-
compliant
    release;

·

by disregarding the fact that the release sought as a condition
    of the proposed transfer did not in any way affect the respondents
AWA
rights;

·

in failing to follow the authority of
Seidel v. TELUS
    Communications Inc.
, and refusing to sever the illegal parts of the
    impugned clause; and

·

in applying incorrect policy considerations.



D.

Analysis

[20]

The
    main issue on this appeal is whether the impugned clause in the franchise
    agreements, while unenforceable with respect to
AWA
claims, should
    nonetheless be enforced in part. In my view, in the circumstances here, the
    clause cannot be severed to require only a release of non-
AWA
claims
    as a condition of consent to the proposed assignment. I will deal briefly first
    with the standard of review and the appellants preliminary arguments
    respecting the interpretation of the contract and its actions in seeking only an
AWA
-compliant release. I will then consider the effect of s. 11 of the
AWA
on s. 22.6.4 of the franchise agreements and whether this court
    should sever or read down this provision. I will also address the
Seidel
decision,
    which in my view does not provide the appropriate analytical framework for the
    resolution of the issues engaged in this appeal.

(1)

Standard of Review

[21]

This
    appeal involves the interpretation of a contract in light of a statutory
    provision. Unless there is an extricable question of law, the interpretation of
    a contract is a question of mixed fact and law:
Sattva Capital Corp. v.
    Creston Moly Corp.
, 2014 SCC 53, 373 D.L.R. (4th) 393, at paras. 50-53.
    The correctness standard applies if the legal aspect of the issue is readily
    extricable, otherwise deference is warranted.

[22]

In
    my view, both the interpretation of s. 22.6.4 and the issue of whether that
    section of the contract is entirely unenforceable or can be severed, raise
    questions of mixed fact and law. They involve an assessment of the words of the
    contract, considered in light of the context and the broader policy objectives
    of the
AWA
. The decision of the application judge is therefore
    reviewable on the standard of palpable and overriding error. That said, the
    result of this appeal does not turn on the standard of review. The decision
    below, in my view, was correct and devoid of any palpable and overriding error.

(2)

The Appellants Preliminary Arguments: Whether Section 22.6.4 Engages Section
    11 of the
AWA


[23]

The
    appellant asserts that the application judge erred in concluding that s. 22.6.4
    of the franchise agreements contravenes s. 11 of the
AWA
, and is
    therefore unenforceable.

[24]

First,
    the appellant argues the application judge ignored language in the clause
    permitting it to require the respondents to provide a release in the form
    specified by the Franchisor. Second, the appellant submits that, because the
    draft release it provided in fact required only a release of common law claims,
    s. 11 was not engaged at all.

[25]

I
    would reject the appellants argument that the words in the form specified by
    the Franchisor expressly allow the franchisor to determine the scope of the release,
    including to make it compliant with the
AWA
, and therefore save the
    clause from being contrary to s. 11 of the
AWA
. As the application
    judge stated, based upon an ordinary interpretation of those words, they
    relate to form, not substance. The clause requires a general release of any
    claims against [the] Franchisor, and not a release of whatever claims the
    franchisor might specify. The section does not call for a release of claims to
    the extent that applicable law would permit (which would import flexibility
    into the substance of the obligation to provide a release); the only
    flexibility is with respect to form, which does not detract from or qualify the
    obligation to provide a general release of all claims.

[26]

I
    would similarly reject the appellants argument that, as it required only a
    release of common law claims from the respondents, s. 11 was not engaged. The
    clause clearly anticipates that, as a condition of the franchisors consent to
    an assignment, the franchisee will provide a general release of all claims.
    Such a release would include
AWA
claims, and that would violate s. 11.

[27]

Accordingly,
    the impugned clause, by its terms, requires the franchisee, as a condition of
    transfer, to provide a general release, which would include
AWA
claims.
    The appellant, by its conduct, could not alter the contractual obligation by
    seeking to obtain something less, something that would be compliant with the
AWA.
Section 11 of the
AWA
is clearly engaged.

(3)

Section 22.6.4 Is Not Void; It Is Unenforceable

[28]

The
    application judge concluded that the requirement to provide a general release
    was both void and unenforceable. As I explain below, s. 11 of the
AWA
does not render the impugned clause of the franchise agreement void; rather the
    obligation imposed by the clause, and that the appellant seeks to enforce, is unenforceable
    as enforcement would be contrary to statute.

[29]

Section
    11 of the
AWA
provides that [a]ny purported waiver or release by a
    franchisee of a right given under this Act  is void. On its plain language,
    this provision operates to void
the release or waiver itself
,
and not the provisions of a contract requiring such a release to be provided.
    Section 22.6.4 of the franchise agreement is not itself a release of a right
    under the
AWA
 it simply requires that such a release be provided in
    the event of an assignment of the franchise by the franchisee. Section 11
    therefore does not operate so as to void the impugned clause from the outset. A
    void provision would result where, as in
Seidel
, for example, the
    contract contains an explicit waiver of rights where the waiver is prohibited
    by statute.

[30]

The
    issue here, then, is whether the clause of the franchise agreement that
    requires the provision of a general release of all claims is unenforceable as
    contrary to statute.

[31]

Once
    it is recognized that s. 22.6.4 requires the franchisee, in order to exercise
    certain rights under the franchise agreement, to provide a general release of
    all claims (and not just such claims as the franchisor may specify), then it is
    unenforceable as requiring the performance of something that would contravene
    s. 11 of the
AWA
. It is acknowledged that the clause cannot not be
    enforced to require a release of
AWA
claims. The question is then whether
    the court should read down the requirement to compel only the performance of
    something that would be legal, i.e.: a release, but not of
AWA
claims.
    This engages the doctrine of severance.

(4)

Section 22.6.4 Cannot Be Severed and Enforced to the Extent It Is Not in
    Conflict with Section 11 of the
AWA

[32]

The
    appellant argues that if s. 11 of the
AWA
is engaged by s. 22.6.4, the
    application judge erred by failing to sever or read down the clause to require
    a release of non-
AWA
claims only, and that she relied on inappropriate
    policy considerations in doing so. The appellant submits that this court should
    find the clause unenforceable only in part, and require the respondents to
    provide a release of non-
AWA
claims.

[33]

The
    appellant asserts that the practical effect of the application judges decision
    is that the appellant will be deprived of its contractual right, bargained for
    in good faith, to obtain a release as a condition of providing its consent to
    an assignment. The appellant argues that it is not necessary in order to
    promote the policy behind the
AWA
to find the section of the contract completely
    unenforceable; rather, it should be read down to permit the franchisor to
    tender a release that does not purport to release
AWA
claims.

[34]

I
    conclude that the application judge did not err when she held that the clause
    could not be severed or read down and enforced only to the extent it was not in
    conflict with s. 11 of the
AWA
.

(a)

General Principles of Severance

[35]

Where
    part of a contract is unenforceable because enforcement would be contrary to
    statute or the common law, rather than setting aside the entire contract,
    courts may sever the offending provisions while leaving the remainder of the
    contract intact. Severance lies along a spectrum of remedies available when a
    provision of a contract is illegal, including voiding the contract in whole or
    in part. The appropriate remedy will depend on the particular context:
Transport
    North American Express Inc. v. New Solutions Financial Corp.
, 2004 SCC 7,
    [2004] 1 S.C.R. 249, at para. 6. Courts are generally reluctant to sever
    contractual provisions because severance alters the terms of the original
    agreement between the parties:
Shafron
, at para. 32.

[36]

Severance
    takes two forms: blue-pencil and notional. Blue-pencil severance involves
    removing part of a contract, as if by drawing a line through it. Notional
    severance involves reading down a contractual provision so as to make it legal
    and enforceable:
Shafron
, at para. 2. Where severance is appropriate,
    courts choose the technique that in light of the particular contractual
    context involved, would most appropriately cure the illegality while remaining
    otherwise as close as possible to the intentions of the parties expressed in
    the agreement:
Transport North American Express Inc.
, at para. 32.

[37]

Courts
    will consider the context of the contract at issue and any relevant policy
    considerations when assessing whether and how to sever provisions: see, for
    example,
Shafron
. Severance engages policy concerns to a certain
    degree beyond protecting the parties intentions, because the court is being
    asked to assist one party to enforce an otherwise unenforceable provision.

[38]

The
    context here is a business relationship carried out through the vehicle of a
    franchise. Franchise agreements are contracts of adhesion, frequently in
    standard form with the main provisions  presented on a take it or leave it
    basis:
Shelanu Inc. v. Print Three Franchising Corp.
(2003), 64 O.R.
    (3d) 533 (C.A.), at para. 58. These contracts often give the franchisor a
    significant degree of control over the franchisees business. In interpreting
    franchise agreements, courts have applied policy goals in addition to accuracy
    in giving effect to the parties intentions and have expressed concern about
    inequality of power within the contractual relationship, and the resultant need
    to protect the more vulnerable contracting party from abuse at the hands of the
    more powerful party: Geoff R. Hall,
Canadian Contractual Interpretation
    Law
, 2nd ed. (Markham: LexisNexis Canada, 2012), at p. 194.

[39]

For
    the reasons outlined below, in my view, s. 22.6.4 should not be read down to
    permit the appellant to require a release of only non-
AWA
claims. The blue
    pencil approach does not apply in the circumstances, because there is no phrase
    in s. 22.6.4 that could be struck to enable the clause to require a release of
    only non-
AWA
claims. The clause should not be notionally severed given
    that severance would undermine the purposes of the
AWA
.

(b)

The Clauses Should Not Be Notionally Severed

[40]

In
    my view, notional severance is not an appropriate remedy in the circumstances,
    as it could undermine the purpose of s. 11 of the
AWA
. This courts
    decision in
Midas Canada Inc.
is not determinative of whether clauses
    in a franchise agreement purporting to require a release can be severed.
    However, the reasoning in that decision informs the analysis and supports the
    view that notionally severing or reading down clauses calling for a broad
    release would not be in line with the purposes of the
AWA
. Before
    continuing with the severance analysis, I pause to consider the
Midas
decision.

(i)

The
Midas
Case Is Helpful But Not Determinative

[41]

In
    the
Midas
case, this court considered whether a franchisor could
    require a general release of claims by a franchisee as a condition of the renewal
    or assignment of a franchise agreement.

[42]

The
    case arose in the context of a class proceeding. The claims were asserted under
    both the common law and the
AWA
. While the class proceeding was
    pending, the representative plaintiffs franchise agreement expired. As a
    condition of renewal, the standard form agreement included a provision requiring
    a general release of any and all claims and causes of action against the
    franchisor.

[43]

The
    franchisor tendered a draft general release in its proposed renewal agreement that
    purported to release all claims of any nature. The franchisee moved for an order
    preventing the franchisor from requiring it to execute a release from the
    claims certified in the class action as a condition of the renewal or transfer
    of its rights under the franchise agreement. It sought a declaration that any
    provision requiring class members to release the franchisor from liability as a
    condition of the renewal or transfer of their rights under the agreement was unenforceable
    to the extent of some or all of the common issues in the proceeding.

[44]

This
    court concluded that the renewal and assignment provisions of the franchise
    agreement requiring a general release were unenforceable and that a release in
    accordance with those provisions would be void.

[45]

MacFarland
    J.A. stated at para. 26, [t]he language of s. 11 could not be clearer. If you
    include a term in your franchise agreement that purports to be a waiver or
    release of any rights a franchisee has under the Act, it will be void. After
    observing that the claims by the franchisees in the class proceedings were both
    under the
AWA
and common law, she noted at paras. 29 and 30:

To permit the appellant to require the class members to release
    any claims they might have against the appellant in order to take advantage of
    any other rights they might have under the Agreement, in my view, is simply
    contrary to the spirit, intent and letter of the Act. Where a franchisor
    insists upon such waiver or release, s. 11 makes it clear that any such waiver
    or release will be void.

The purpose of the Act is to protect franchisees. The
    provisions of the Act are to be interpreted in that light. Requiring
    franchisees to give up any claims they might have against a franchisor for
    purported breaches of the Act in order to renew their franchise agreement,
    unequivocally runs afoul of the Act.

[46]

Here,
    the application judge relied on
Midas
to conclude that s. 22.6.4 of
    the franchise agreement could not be enforced in part. She noted that
    MacFarland J.A. did not find the clauses in
Midas
enforceable in part.
    However,
Midas
does not establish that clauses requiring a release can
    never be severed or read down. The court concluded that the relevant provisions
    were unenforceable. The issue of severance was not considered in
Midas
,
    as there was no indication that the franchisor had offered or was prepared to
    accept anything less than a full release of claims.

[47]

While
    the
Midas
decision is therefore not determinative, the views expressed
    in that case can nevertheless inform this courts consideration of the
    severance issue, as noted later in these reasons.

(ii)

Relevant Factors for Notional Severance

[48]

In
Transport North American Express Inc.
, at para. 42, a case dealing
    with a contract providing for an illegal rate of interest, the Supreme Court
    adopted several factors to assess the appropriateness of notional severance or
    partial enforcement as a remedy in the face of an illegal provision in a
    contract. When re-worded to apply to the franchise context, the factors would
    read as follows: (1) whether the purpose or the policy of s. 11 of the
AWA
would be subverted by severance, (2) whether the parties entered into the
    agreement for an illegal purpose, (3) the relative bargaining positions of the
    parties and their conduct in reaching the agreement, and (4) the potential for
    the franchisee to enjoy an unjustified windfall. Although not in a statutory
    context, the Supreme Court relied on similar considerations in
Shafron
to conclude that, as a general rule, notional severance should not be available
    in the case of restrictive covenants in employment contracts (at paras. 37-41).

[49]

While
    the context is different, some of the factors identified are useful in this case.
    Indeed, in
Midas
, MacFarland J.A. considered the first factor  the
    policies of the
AWA
 in concluding that the clauses at issue there
    were unenforceable. Here, the application judge considered similar factors as
    well. Considering these factors is also consistent with the courts general
    approach to the interpretation of franchise agreements as discussed above,
    which takes into account policy goals and is concerned with the inequality of
    bargaining power between franchisors and franchisees.

[50]

In
    my view, the illegal purpose factor, while appropriate in the illegal interest
    rate context, is not helpful when considering the terms of a franchise agreement.
    Franchise agreements are entered into for legal and legitimate business
    purposes, as was the case here. Even when considering a particular problematic
    clause, it will be rare that parties have an illegal purpose.

[51]

Similarly,
    the factor looking at the positions of the parties and their conduct in
    reaching the agreement may be of limited assistance in the franchise context.
    Unlike a loan on which an illegal rate of interest is charged, a franchise
    agreement covers a wide range of subjects and is often in standard form. As
    such, the parties conduct in reaching the agreement may not provide much insight
    into whether severance of a particular clause would be appropriate. However, I
    note that the relative bargaining positions of the parties may be relevant,
    especially given the concern about inequality of bargaining power in the
    franchise context.

[52]

In
    the circumstances of this case, there are limited factual findings on which to
    assess the parties positions and conduct in forming the agreement, so this
    factor is of little assistance.

[53]

Accordingly,
    I consider only the first and fourth factors: whether the purpose or policy of
    s. 11 of the
AWA
would be subverted by the mode of severance suggested
    by the appellant, and whether the franchisee would receive an unjustified
    windfall if the clause is held to be unenforceable in its entirety.

(iii)

The Purpose and Policy of Section 11 of the
AWA
Would Be
    Subverted by Severance

[54]

As
    MacFarland J.A. held in
Midas
, the purpose of the
AWA
is to
    protect franchisees (at para. 30). Section 11, in particular, aims to protect
    franchisees against more sophisticated franchisors who might seek to have
    franchisees contract out of their
AWA
rights. As the application judge
    noted, enforcing in part a clause calling for a general release raises the
    potential for abuse by franchisors.

[55]

In
    the context of restrictive covenants in employment contracts, the Supreme Court
    cited similar concerns about abuse in holding that notional severance was not
    available as a remedy. The Court in
Shafron
concluded that, permitting
    notional severance would [invite] employers to draft overly broad restrictive
    covenants with the prospect that the courts will only sever the unreasonable
    parts or read down the covenant to what the courts consider reasonable (at
    para. 33). Applying the doctrine of notional severance would also [provide] no
    inducement to an employer to ensure the reasonableness of the covenant and
    inappropriately [increase] the risk that the employee will be forced to abide
    by an unreasonable covenant (at para. 41).

[56]

As
    this court said in
Shelanu Inc. v. Print Three Franchising Corp.
, at
    para. 66, the franchise context is similar to the employment context. Like
    employees, franchisees generally do not have equal bargaining power to the
    franchisor and are unable to negotiate more favourable terms (because franchise
    agreements are contracts of adhesion). Their relationship with the franchisor
    continues to be affected by a power imbalance because the franchisee must
    submit to inspections and audits and is often required to purchase items from
    the franchisor (
Shelanu
, at para. 66).

[57]

Applying
    notional severance to clauses otherwise unenforceable under the
AWA
would similarly invite franchisors to draft overly broad [provisions] with the
    prospect that the courts will only sever  or read [those provisions] down. It
    would provide no incentive to franchisors to ensure their franchise agreements
    are in compliance with the
AWA
. It would also increase the risk that a
    franchisee  having signed a waiver or release of all claims  would
    erroneously believe it is not entitled to pursue any claims against the
    franchisor, including its
AWA
claims. Reading down contractual
    requirements that overreach would have a chilling effect on the exercise of
    franchisees rights. Each of these possibilities suggests that notional
    severance would diminish the protection offered by s. 11 of the
AWA
against franchisors who might seek to have franchisees contract out of their
AWA
rights.

[58]

In
    my view, therefore, permitting notional severance of the overbroad clause in
    this case could subvert the policy and purpose of s. 11 of the
AWA.

(iv)

The Franchisees Would Receive a Windfall to Some Degree

[59]

The issue here is whether there is a potential for the
    respondents to receive an unjustified windfall if the clause is struck in its
    entirety rather than read down to require a release of non-
AWA
claims
    alone. The appellant argues in effect that the respondents would receive a
    windfall: they bargained to provide a release of all claims in exchange for the
    appellants consent to a transfer of their rights under the franchise
    agreement, and if the clauses are severed in their entirety, they will not have
    to provide any release at all. The appellant contends that the application
    judges decision has the effect of giving franchisees more than they are
    entitled to and eroding the franchisors contractual rights beyond what is required
    to give effect to the protections under the
AWA.

[60]

To
    the extent that the respondents would no longer be required to release their
    common law claims, the appellant is correct that the respondents receive a
    greater protection than what they would have been entitled to. However, the
    extent of the windfall is difficult to assess, since there is significant
    overlap between the common law and
AWA
claims of a franchisee alleging
    misrepresentation. Of course, there is no windfall to the respondents by not
    requiring them to release their
AWA
claims as such a release would not
    be enforceable.

[61]

In
    any event, the legitimate interests of the franchisor, in the context of an
    assignment, are protected even without the requirement of providing a release.
    As the appellant notes in its factum, the purpose of Coras assignment
    provision is to ensure that the franchise agreement is assigned to a party that
    will be a competent franchisee able to operate the franchise in accordance with
    Coras standards. All of the other conditions precedent to the franchisors approval
    of an assignment remain in place. In particular, the appellant does not lose
    its ability to approve the assignee as a franchisee.

(v)

Conclusion on Notional Severance

[62]

The
    potential for some windfall to the respondents in this particular case does not
    outweigh the potential for abuse and subversion of the purposes of s. 11 of the
AWA
if severance were permitted. Having regard to the relevant
    considerations, I conclude that the clause should not be notionally severed or
    read down to require only a release of non-
AWA
claims. Allowing
    franchisors to include such clauses in franchise agreements, knowing courts would
    only find them unenforceable in part, could serve to undermine the purposes of
    the
AWA
.

(c)

Seidel
Is Distinguishable

[63]

The
    appellant contends that the application judge ought to have applied the
    analysis from the Supreme Courts decision in
Seidel v. TELUS
    Communications Inc.
, to conclude that the requirement to provide a release
    would be void only to the extent that the franchisor seeks the release of
AWA
claims. The application judge distinguished
Seidel
on the basis that
    it involved different policy considerations and dealt with access to justice
    and arbitration rather than the release of substantive claims. I would
    distinguish
Seidel
but for different reasons that have to do with how
    the question in each case came before the court. As I will explain, the
    analytical framework in
Seidel
simply does not apply here.

[64]

It
    is apparent that the court in
Seidel
did not use the enforceability
    and severance analysis that I have followed in this decision. The issue arose
    in a different way and required a different framework of analysis. As I have
    indicated, the question in this case is the enforceability of a contractual
    provision that would require an act to be performed that is contrary to
    statute. The question in
Seidel
was whether (or to what extent) an impugned
    provision in the contract itself was void.

[65]

In
Seidel
, the representative plaintiff commenced a court action in
    relation to a cell phone contract, asserting both common law rights and claims
    under the British Columbia
Business Practices and Consumer Protection Act
(the 
BPCPA
). The defendant sought to stay the court proceedings,
    relying on a clause in the contract providing for any claims to be referred to
    mediation and thereafter, if unresolved, to private, confidential and binding
    arbitration (the arbitration clause). Under s. 172 of the
BPCPA
, persons
    affected by a consumer transaction were entitled to bring actions under the
BPCPA
in the Supreme Court to enforce the statutes consumer protection standards. Section
    3 of the
BPCPA
(like s. 11 here) stated that any agreement that waived
    statutory rights was void.

[66]

The
    question was, then, the effect of the statutory provision on the arbitration
    clause. The contractual term itself purported to waive rights, including those
    under the
BPCPA
. The arbitration clause was not
unenforceable
as requiring an act contrary to the
BPCPA
; rather, the Supreme Court
    applied s. 3 so as to
void
the arbitration clause to the extent it
    would require
BPCPA
claims to be arbitrated. In other words, the
    arbitration clause was void to the extent that it would restrict the exercise
    of the
BPCPA
rights.

[67]

Section
    11 of the
AWA
, like s. 3 of the
BPCPA
, provides that any
    agreement that would waive or release rights under the
AWA
is void.
    However, as we have seen, the franchise agreement requires the delivery
of
    a general release
that would include
AWA
claims. It is not the
    franchise agreement itself that waives or releases rights; accordingly, unlike
    in
Seidel
, the question is not whether the contractual term itself is already
    void, or void in part by virtue of a statutory provision (as would be the case
    if the franchise agreement, for example, contained a release of rights).

[68]

This
    distinction is more than merely technical.

[69]

The
    enforceability and severance analysis requires an extra step. The appellant is
    seeking to enforce a contractual obligation, an obligation that by its terms is
    too broad and incapable of being enforced without violating s. 11 of the
AWA.
The appellant needs the assistance of the court to permit it to call for
    something less, something that will be in accordance with the statute.

[70]

This
    extra dimension invokes policy concerns that do not arise where the court is
    asked to interpret a statutory provision to determine whether and to what
    extent it renders provisions in an agreement void. In the latter case, the
    legislature has spoken. In the former, while the holding that a provision is
    unenforceable results from statute, the degree to which the court is willing to
    sever the impugned clause requires a different analytical framework. Taking
Seidel
as an example, the only assistance the plaintiff could reasonably expect of the
    court was to be given the benefits of the rights under the
BPCPA
. The
    court in that case was asked only to extend the applicable statutory
    protections. Here, the appellant requires the courts assistance to render its
    overbroad provision compliant with statute. And it follows that, as in
Midas
,
Shafron
, and
Transport North American Express Inc.
, the court
    must consider the broader implications of providing that assistance.

E.

Conclusion

[71]

Accordingly,
    I would conclude that the impugned clause in the franchise agreement is not
    voided by s. 11 of the
AWA
, but rather it is unenforceable, as
    enforcement would result in a release which would be void by virtue of s. 11. In
    all the circumstances of this case and in light of the purpose of s. 11 and the
    other provisions of the
AWA,
the impugned clause should not be
    notionally severed and enforced in part to require the delivery of a release of
    non-
AWA
claims by the franchisee as a condition of the franchisors
    consent to an assignment. I would therefore dismiss the appeal.

[72]

I
    would award the respondent its costs of this appeal in the agreed-upon amount of
    $12,500, inclusive of disbursements and applicable taxes.

Released: KMvR March 12, 2015

K. van Rensburg
    J.A.

I agree Gloria
    Epstein J.A.

I agree M.L. Benotto
    J.A.


