"Time" to Pay Your Debts: Ontario Courts Weigh In on the Obligation to Pay Royalties in a Post-Expiry Overholding Period

  • January 09, 2023
  • Derek Ronde

In Coffee Time Donuts v. 2197938 Ontario Inc. (“Coffee Time”)[1],  the franchisor, Coffee Time, sought summary judgment for a claim for unpaid royalties and advertising fees from its franchisee in respect of a period from February 2016 to January 25, 2021. The franchisee resisted the claim by arguing that it was statute-barred under the Ontario Limitations Act, 2002, and insisting that the claim was unsuitable for summary judgment.

The history of the parties’ franchise relationship detailed a transition from a standard contractual relationship to an overholding scenario. Initially, the parties entered into a franchise agreement in 2009. The agreement expired on July 31, 2014 without a renewal provision. However, the franchisee continued operating and paying royalties as if the agreement was still in force. The franchisee stopped making payments on February 16, 2016 but continued to use the “Coffee Time” name and to secure goods from the system’s suppliers. The business relationship between the parties finally ended by consent several years later, on January 25, 2021. The plaintiff franchisor brought its claim on August 9, 2019, seeking unpaid royalties and advertising fees until the date of trial.

Justice Dow of the Ontario Superior Court of Justice had little regard for the franchisee’s argument that this action was not suitable for summary judgment. The Court was willing to determine whether the terms of the franchise agreement superseded its expiry in July 2014, and relied on the principles set out by the Ontario Court of Appeal in Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, whereby commercial contracts are to be: