Executive Summary: Key Legal and Evidentiary Issues

• Dispute centered on whether a franchisor could impose a condition requiring sale proceeds be held in trust for a debt allegedly owed by a separate corporation (Three Ltd.) and not the franchisee petitioner.

• Petitioner argued the condition was unconscionable, citing unequal bargaining power under Uber Technologies Inc. v. Heller, 2020 SCC 16.

• Respondent alleged the petitioner, Three Ltd., and their principals were related and alter egos, and raised potential fraudulent transfer or conveyance claims.

• A prior summary trial in the Pinetree Action dismissed the claim against the individual defendants (Mr. Singh, Mr. Bhatti, and Mr. David), with counsel advising that Justice Sharma found they signed the promissory note only as officers of Three Ltd.

• Clause 15.1 of the Franchise Agreement permitted the franchisor to withhold consent if the franchisee owed money under the contract or any other contract with the franchisor.

• No facts were pleaded nor evidence provided to support claims that the petitioner was indebted to the respondent or that a corporate veil should be pierced.

Background and parties involved

This case arose from a franchise relationship between 1087057 BC Ltd. (the petitioner) and RFSP Equipment & Operating Inc. (the respondent), concerning a Freshslice Pizza restaurant on Marine Drive in West Vancouver, BC (the "Marine Freshslice"). The petitioner's directors and shareholders, Devendra Singh and Charanjit Bhatti, held equal shares and were also named as franchisees under a Franchise Agreement dated August 23, 2016. A separate corporation, Three Enterprises Ltd. ("Three Ltd."), which had Mr. Singh, Mr. Bhatti, and Jimmy David as directors, operated two other Freshslice Pizza restaurants under a different franchise agreement with the respondent—one on Pinetree Way in Coquitlam, BC (the "Pinetree Freshslice") and one on Mount Seymour Parkway in North Vancouver, BC (the "Seymour Freshslice"). Three Ltd. was dissolved in December 2019.

The promissory notes and the Pinetree Action

Three promissory notes were central to the dispute: one dated April 8, 2016 in the amount of $118,000, another dated April 30, 2016 in the amount of $120,000, and a third dated November 3, 2016 in the amount of $142,727.20, all with interest at 9% per annum. The April 8 Promissory Note was signed by Three Ltd. and by Mr. Singh, Mr. Bhatti, and Mr. David in their personal capacities. The April 30 Promissory Note was signed by Three Ltd. only. The November 3 Promissory Note was signed by Three Ltd. and by Mr. Singh, Mr. Bhatti, and Mr. David, though there was an issue whether these three signed in their personal capacities or as officers of Three Ltd. On June 1, 2018, the respondent and Freshslice Properties Ltd. commenced the "Pinetree Action" against Three Ltd., Mr. Singh, Mr. Bhatti, and Mr. David, seeking judgment for the balance owing under the November 3 Promissory Note and payment of rental amounts due for the Pinetree Freshslice. On August 8, 2025, Mr. Singh, Mr. Bhatti, and Mr. David brought a summary trial application in the Pinetree Action. Justice Sharma dismissed the claim against them. Counsel for the petitioner advised that Justice Sharma found that the November 3 Promissory Note was made only by Three Ltd.—in other words, Mr. Singh, Mr. Bhatti, and Mr. David signed only in their capacity as officers of Three Ltd. The action against Three Ltd. remains extant.

The sale and the contested condition

On January 15, 2021, the Vice President of Marketing and Legal Affairs of the respondent, Mr. Tom Horler (now deceased), wrote to Mr. Singh and Mr. Bhatti advising that, as a result of poor evaluations of the Marine Freshslice, the Franchise Agreement would not be renewed after its expiration on July 31, 2021. The petitioner, Mr. Singh, and Mr. Bhatti were provided 90 days to sell the Marine Freshslice, and thereafter if the restaurant was not sold, a month-to-month extension may be granted by the respondent. The petitioner continued to operate the Marine Freshslice until its proposed sale in 2022. On July 15, 2022, the petitioner entered into a contract of purchase and sale (the "CPS") to sell the Marine Freshslice to an arms-length purchaser. Pursuant to the Franchise Agreement, the consent of the respondent was required for the sale to complete. On August 17, 2022, Mr. Horler imposed a condition (the "Condition") making the respondent's consent to the sale conditional upon $106,363.70 (the "Funds") being held in trust until the Pinetree Action was concluded. An addendum dated August 18, 2022 agreed that the buyers would hold back the Funds from the sale proceeds, and an addendum dated October 15, 2022 agreed that the seller's lawyer would hold the Funds in their trust account. Mr. Singh stated that he did not agree with the Condition; however, after multiple phone calls with Freshslice representatives, it was clear that they would not agree to the sale without this term being included. The petitioner was under pressure to complete the sale as it was going into debt. The sale completed on November 15, 2022, and the Funds remain in trust. The petition was commenced on May 5, 2025.

Arguments of the parties

The petitioner referred to clause 15.3 of the Franchise Agreement for the proposition that the respondent franchisor must act reasonably in considering whether to consent to a sale. The petitioner argued that the respondent knew the sale required its consent and that the petitioner needed to sell the Marine Freshslice, and it was unconscionable to insist on the Condition for a debt owed by Three Ltd. and not by the petitioner. The petitioner cited Uber Technologies Inc. v. Heller, 2020 SCC 16, arguing that an unconscionable inequality of bargaining power forced the petitioner to accept the unfair Condition. The respondent argued that the petitioner and Three Ltd. were related companies because they had overlapping directorships, and that the two corporations, Mr. Singh, and Mr. Bhatti were all alter egos of one another. The respondent also pleaded that a transfer of ownership to the petitioner was made to delay, hinder, prejudice, or defraud the respondent of its remedies, citing the Fraudulent Conveyance Act and Fraudulent Preference Act. The respondent argued that the petition should be dismissed, sent to the trial list, or adjourned pending further developments in the Pinetree Action.

The court's analysis and interpretation of the Franchise Agreement

Justice Norell determined that clause 15.3 of the Franchise Agreement was not the applicable clause, as it applies to the sale of a partnership interest in a franchisee partnership. The applicable clause was clause 15.1, which provides that the franchise shall not be sold without the prior written consent of the franchisor, which shall not be unreasonably withheld. Clause 15.1 also provides that the franchisor may require as a condition precedent to granting consent that, as of the date of the request for consent and as of the effective date of transfer, there shall be no default in the franchisee's obligations under the contract or any other contract between the franchisee and the franchisor. The refusal to consent based on non-compliance with these conditions shall be deemed to be a reasonable withholding of such consent. Because Mr. Singh and Mr. Bhatti were franchisees under the Franchise Agreement, if they owed money to the respondent under the Franchise Agreement or any other contract at the time the CPS was made, the respondent's refusal to consent would be deemed reasonable. At the time Mr. Horler proposed the Condition on August 17, 2022, the liability of Mr. Singh and Mr. Bhatti was a live issue in the Pinetree Action. The court did not read Mr. Horler's email as suggesting anything more than that the Funds be held in trust until the liability of Mr. Singh and Mr. Bhatti was determined. With Justice Sharma's subsequent decision dismissing the action against Mr. Singh and Mr. Bhatti, there has been a determination that they do not owe the debts alleged in the Pinetree Action. The litigation against Mr. Singh and Mr. Bhatti is concluded and pursuant to the Condition, the Funds should be released.

Rejection of alter ego and fraudulent conveyance arguments

The court rejected the respondent's arguments for several reasons. First, to the extent the argument was based on Mr. Singh and Mr. Bhatti making themselves judgment proof through a fraudulent preference or conveyance, Justice Sharma found they are not liable to the respondent. Second, no material facts were pleaded, nor was there evidence, which would support a claim that a loan to Three Ltd.—even if some loan funds found their way to the petitioner—would make the petitioner liable to the respondent. Third, there has been significant delay; the Pinetree Action has been outstanding for seven years, and the respondent has not yet obtained judgment against Three Ltd. Fourth, the court concluded that the argument was an attempt to obtain pre-judgment security for an alleged debt of Three Ltd. without any pleaded legal basis or evidence to do so. The court also rejected the alter ego argument, noting that other than the fact that Mr. Singh and Mr. Bhatti are directors of both the petitioner and Three Ltd., there were no facts pleaded or evidence which would support piercing the corporate veil, citing B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Holdings Ltd., Edgington v. Mulek Estate, and XY, LLC v. Zhu.

Ruling and outcome

The petition was granted. Justice Norell ordered that the Funds in the trust account of the petitioner's counsel shall be paid to the petitioner. The respondent shall pay to the petitioner its assessable costs of this petition at Scale B. The court declined to refer the matter to the trial list, finding there was no conflicting evidence on the application, no need for credibility assessments, and only the interpretation of clear contractual terms. The amount involved is modest compared to the cost of proceeding to a trial or further hybrid procedures. Ordering the matter to the trial list would be contrary to the object of the Supreme Court Civil Rules to secure the just, speedy and inexpensive determination of the proceeding on its merits.