Got Damages? A Review of the Alberta Court of Appeal’s Clarification on Net Loss Damages Related to the Termination of a Franchise Agreement

Background

In 1777453 Alberta Ltd. v. Got Mold Disaster Recovery Services Inc.[1] (“Got Mold”), a claim was brought by 1777453 Alberta Ltd. (the “Franchisee”) for damages against Got Mold Disaster Recovery Services Inc. (the “Franchisor”) in relation to the cancellation of a franchise agreement (the “Agreement”) made between the two parties. Under the Alberta Franchises Act,[2] (the “Franchises Act”), if a franchisor fails to give its franchisee a franchise disclosure document in a timely manner, the franchisee may cancel the franchise agreement and claim any net losses it incurred in acquiring, setting up and operating the franchise business.

In Got Mold, the Franchisor failed to give proper disclosure in a timely matter, triggering the net loss damages provision of the Franchises Act. The Franchisee had continued to operate its business after cancellation of the Agreement, and the key issue was whether the calculation of net losses should deduct future profits earned by the Franchisee using the assets of the business, which is no longer part of the franchise, after cancellation of the Agreement.