Executive Summary: Key Legal and Evidentiary Issues

• Appeal of summary judgment enforcing indemnity obligations under a franchise agreement

• Franchisee’s liability for unpaid rent and breach of lease after abandonment of leased premises

• Scope of guarantee and indemnity provisions under Franchise Agreement and Assignment Agreement

• Validity and impact of a settlement agreement (Mary Carter agreement) between landlord and franchisor

• Whether voluntary settlement by franchisor triggered franchisee’s indemnity obligations

• Court of Appeal upheld motion judge’s decision, dismissed the appeal, and awarded costs

Facts of the case
2562583 Ontario Inc. o/a Meltwich Food Co. (the franchisee) and its principal, Janarthanan Jeyaparan, entered into a Franchise Agreement with Meltwich Hospitality Group Inc. (the franchisor) to operate a restaurant in Oshawa, Ontario. The franchisee operated out of a leased commercial unit under an assigned lease with Ritson Division Retail GP Limited (the landlord). Mr. Jeyaparan personally guaranteed the franchisee’s obligations under both the Franchise Agreement and the Lease.

In mid-2018, the franchisee stopped paying rent and abandoned the premises. The franchisor terminated the Franchise Agreement and the landlord terminated the lease. The landlord then sued the franchisee, Mr. Jeyaparan, and the franchisor for unpaid rent and damages. The franchisor, who had guaranteed obligations under the Lease, defended the action and crossclaimed against the appellants for indemnity under the Franchise Agreement.

The franchisor’s settlement and crossclaim
In 2024, the landlord settled its claim against the franchisor through a Mary Carter agreement, in which the franchisor agreed to pay $175,000 in installments. The franchisor then sought summary judgment on its crossclaim against the franchisee and Mr. Jeyaparan for full indemnity for the settlement amount and legal expenses.

The motion judge’s decision
The motion judge granted summary judgment, finding the franchisee had breached the lease and Franchise Agreement, thereby triggering indemnity obligations under section 14.1 of the Franchise Agreement. The judge ruled there was no genuine issue for trial and rejected defences of misrepresentation and subterfuge. The appellants were ordered to pay $196,533.64 jointly and severally, plus an additional $2,000 in costs.

Issues on appeal and Court of Appeal ruling
On appeal, the appellants argued that the franchisor had no liability under the lease, that a voluntary settlement was not covered by the indemnity clause, and that the judgment improperly included unpaid installments. The Court of Appeal rejected all arguments, affirming that the franchisor was entitled to settle the claim and seek indemnity. The court found no procedural impropriety or abuse of process and held that the franchisor’s entitlement was clear under the agreements.

Outcome
The appeal was dismissed. The Court of Appeal awarded the franchisor $6,000 in costs of the appeal. The motion judge’s ruling in favour of the franchisor stands, enforcing the appellants’ indemnity obligations.