Executive Summary: Key Legal and Evidentiary Issues

• Long-term course of dealings was used to interpret the Chez Ashton franchise contract and narrow the “Opérateur” obligations of Geneviève Lizotte, despite clear written clauses on training and continuous active presence.
• The enforceability and mechanics of a shotgun clause in a shareholders’ agreement were central, including whether ALGL could add new conditions tied to the franchise contract after Fortem exercised its right to buy.
• Evidentiary weight was placed on a decade-long tolerance by the franchisor of Lizotte’s de facto role and the delegation of day-to-day operations to a manager, with no prior objection or demand for training.
• The Court assessed the franchisee’s and franchisor’s contractual rights on transfer of shares, particularly Ashton’s right to consent to transfers under article 20 and whether it could withhold consent based on operator-training and presence conditions.
• Procedurally, the Court had to decide if a claim framed as an “homologation de transaction” could in substance support forced execution of a share transfer under the Civil Code and Code of Civil Procedure.
• The timing and legitimacy of dividends declared and paid to ALGL after 16 September 2022 were scrutinized, resulting in an order to repay dividends improperly received after ALGL should have ceased to be a shareholder.

Factual background

Chez Ashton is a well-known fast-food chain in the Québec City area. Some locations are operated directly by the franchisor, Ashton Casse-Croûte inc. (“Ashton”), while others operate under franchise agreements. In this case, the relevant franchise restaurant is operated by 9259-4381 Québec inc. (“9259”), a corporation originally owned in equal shares by companies tied to the chain’s founder, Ashton Leblond (“Leblond”), and to his then-partner, Geneviève Lizotte (“Lizotte”). 9259 entered into a standard Chez Ashton franchise agreement in 2012. Although the written contract designated Leblond as the “Opérateur” of the franchise and imposed strict obligations on the operator—including successful completion of the franchisor’s training, ongoing active participation in the restaurant’s operation, and continued control of the franchisee corporation—the practical reality was very different from the outset. Both Leblond and Lizotte spent extended periods in Florida, and day-to-day operations were largely carried out by staff under the franchisor’s close involvement. After the couple separated in 2015, Leblond stopped participating in the restaurant altogether. Lizotte became the de facto operator, supported by a general manager, Valéry Harvey, who received the required training and took on the operational tasks normally assigned to the “Opérateur”. Despite this shift, the franchisor never objected, never demanded that Lizotte attend training, and accepted that the restaurant would continue to be run in this way.

Corporate structure and contractual framework

The corporate and contractual structure is critical to understanding the dispute. On the shareholding side, the shares of 9259 were held 50/50 by entities linked to Leblond and Lizotte. A shareholders’ agreement contained a classic clause d’achat-vente obligatoire (shotgun clause). This clause allowed one shareholder (the “Offrant”) to offer to buy all the other shareholder’s shares at a set unit price, with the offeree then having a fixed period either to accept the offer and sell or, instead, to elect to buy the Offrant’s shares at the same unit price. The clause made the resulting transaction mandatory once the offeree exercised its option. On the franchising side, the standard Chez Ashton franchise agreement defined the “Opérateur” as the person who controls the franchisee through voting control of the shares and imposed the usual franchise-system disciplines: the operator had to complete an initial training course, be actively and continuously involved in running the restaurant, and maintain personal control of the franchisee. Any transfer of shares that would change control required the franchisor’s prior written consent, and the prospective transferee had to satisfy set criteria regarding business aptitude, reputation, creditworthiness, and financial capacity. An annex (Annexe H) adjusted these standard terms for this relationship by deeming Leblond to be the operator, even though he did not hold all the voting shares, so long as he held at least 50% and Lizotte held the remaining 50% directly.

Changes in ownership and practical operation

Over time, the ownership picture evolved. In 2019, Leblond’s holding company transferred its shares in 9259 to Groupe A.L.G.L. inc. (“ALGL”). In 2020, Lizotte transferred her shares in 9259 to Gestion Fortem inc. (“Fortem”), while continuing to play the de facto operator role. These transfers technically violated the letter of the annex requiring Lizotte to hold her shares directly, and later undermined the premise that Leblond was the operator. Yet no one raised that issue at the time; the franchisor allowed the franchise arrangement to continue on the same footing. In February 2022, another major step occurred: Jean-Christophe Lirette and Émily Adam (“the Buyers”) acquired the chain, including Ashton and ALGL, from Leblond. As a result, ALGL now held the 50% interest in 9259 once owned by Leblond’s group, but under new ultimate ownership. The new owners adopted a strategic decision to repurchase all partnership-style franchises, consolidating control. Meanwhile, under the existing shareholders’ agreement, Fortem held a right of first refusal in relation to transfers by ALGL. To avoid having Fortem exercise that right and potentially block a planned sale, Ashton granted a ten-year extension of the 9259 franchise, running from the end of the original maximum term in 2032 to 2042. This extension was sought by and granted to Lizotte, further confirming the franchisor’s acceptance of her de facto operator role.

Triggering and operation of the shotgun clause

On 4 July 2022, ALGL triggered the shotgun clause by offering to purchase all of Fortem’s shares in 9259 for a total price of $900,000. Acting within the clause’s mechanism and timeline, Fortem declined to sell and instead exercised its right to buy all of ALGL’s shares in 9259 at the same price, thereby transforming ALGL from prospective buyer into obliged seller. Under the shareholders’ agreement, once Fortem made that election, ALGL became bound to sell its shares to Fortem on the stated terms. ALGL acknowledged Fortem’s election but, in its 29 August 2022 response, tried to attach additional pre-conditions before the share transfer could close. Specifically, it insisted that, under the franchise agreement, Lizotte as “Opérateur” had to formally assume that role, attend and complete all required franchise training, and be actively and continuously present in the restaurant going forward. ALGL argued that without satisfying these contractual requirements, Ashton, as franchisor, could not or would not consent to the share transfer. Lizotte took the position that she could not realistically comply with these freshly invoked demands and that they did not correspond to how the franchise agreement had ever been applied. On 9 September 2022, Lizotte and Fortem sent the share purchase documentation to ALGL for signature and set 16 September 2022 as the effective transaction date. When ALGL failed to sign, Lizotte and Fortem commenced proceedings seeking, among other things, to have the transfer judicially enforced and to recover dividends paid to ALGL after the effective date.

The Superior Court decision: declaratory relief and procedural limits

At first instance, the Superior Court judge drew an important distinction between the contractual situation and the procedural route chosen by the plaintiffs. Substantively, the judge concluded that ALGL’s response was “insoutenable” under the shotgun clause: the mechanism is self-contained, and the offeree (Fortem) can either accept the offer to sell or elect to buy at the named price, but cannot be saddled with new conditions that change the deal or delay execution. On that basis, the judge found that ALGL was obliged to sell its shares in 9259 to Fortem at the price of $900,000 and that its refusal to proceed breached the shareholders’ agreement. However, the action had been framed as a demande en homologation de transaction, invoking the Civil Code provisions on transactions (settlement contracts) and the Code of Civil Procedure provisions allowing homologation of such settlements. The judge held that the acceptance of the shotgun offer did not constitute a “transaction” within the meaning of the Civil Code because there were no reciprocal concessions—a key element of that concept—and therefore the homologation route was technically inappropriate. Because execution forcée (specific performance) had not been expressly pleaded, the judge declined to order the share transfer or related dividend repayment via that procedural vehicle. In contrast, the request for a declaratory judgment on Lizotte’s obligations under the franchise contract was granted. The judge found that, in practice, neither Leblond nor Lizotte had ever complied with the written obligations imposed on the “Opérateur” concerning training and physical presence, and that the franchisor had consistently accepted a different operating model. The longstanding practice—Harvey, the restaurant manager, taking the training and running the site, with Lizotte in a supervisory role—amounted to a binding course of dealing that informed the interpretation of the contract. On that basis, the judge declared that Lizotte was the operator of 9259 without needing to undergo the franchisor’s training or meet the strict active-presence requirement. The judge also rejected the claim of abuse of rights by ALGL and Ashton, a point that was not contested on appeal.

Appellate analysis: franchise obligations and contractual interpretation

On appeal, Ashton and ALGL attacked the declaratory judgment concerning Lizotte’s operator obligations, arguing that the franchise contract was clear and should be enforced according to its written terms, including the clauses requiring training and continuous active presence by the operator. They pointed to an entire agreement clause and a written-waiver clause as blocking any reliance on informal practices or alleged waivers not evidenced in writing. The Court of Appeal rejected this approach. It held that even when contract language appears clear, it can still be ambiguous in the sense that it may not faithfully reflect the parties’ true common intention. Here, the evidence showed a decade-long modus operandi in which the franchisor knowingly allowed the restaurant to be operated by a trained manager, with Lizotte in an overarching, supervisory role, and never insisted that she attend training or be constantly on-site. The contract was a standard form that did not fit the particular situation of this franchise, especially given the personal relationship between Leblond and Lizotte and the highly customized way they had set up and run the restaurant. The Court accepted the trial judge’s view that these practical arrangements formed a relevant “usage” of the contract. The entire agreement clause, treated as boilerplate, could not be used to erase this concrete, long-term reality. Similarly, the written-waiver provision was inapplicable because the Court was not finding a waiver of rights under the contract, but rather that certain obligations never effectively formed part of the contract as actually agreed between the parties in these unusual circumstances. Consequently, Ashton could not, a decade later and under new ownership, suddenly demand that Lizotte comply with training and active-presence obligations that had never governed their relationship in practice. The Court of Appeal did, however, slightly refine the wording of the declaratory relief to specify more precisely which contractual obligations Lizotte was exempt from: her exemption concerned the obligations to attend the franchisor’s training and to participate actively and continuously in the day-to-day operation of the restaurant, while leaving intact her general duties as operator to collaborate with and supervise the general manager, who remains responsible for completing the required training.

Appellate analysis: interaction between franchise consent and shotgun clause

The heart of the appellate dispute involved the interaction between the shotgun clause in the shareholders’ agreement and the franchisor’s contractual rights to control share transfers. ALGL argued that these two instruments formed an interdependent “group of contracts” such that the franchisor’s consent rights, including its ability to insist on an acceptable operator, had to be fully respected when the shotgun clause was exercised. The Court of Appeal held that it was not necessary to apply the formal theory of interdependent contracts to resolve the case. It accepted that the franchise contract and the shareholders’ agreement both governed aspects of 9259’s ownership and operation and that the franchisor did have legitimate interests when shares were transferred. Article 20 of the franchise agreement subjected any transfer of shares in the franchisee to the franchisor’s prior written consent and required the transferee to satisfy criteria on business qualifications, reputation, credit standing, and financial resources. The Court noted that, in principle, an existing approved shareholder should ordinarily meet those criteria, absent unusual circumstances. In this case, by September 2022, Lizotte and Fortem had been co-owners for a decade, Lizotte had long been the de facto operator, and the franchisor itself had just extended the franchise term to 2042 expressly at Lizotte’s request. Given the Court’s conclusion that Lizotte was not obliged to fulfill the strict written operator-training and presence clauses, Ashton had no valid basis to withhold consent to the transfer of ALGL’s shares to Fortem. The Court went further, observing that the new owners appeared to be acting in bad faith: they had granted the ten-year extension of the franchise to induce Lizotte and Fortem not to exercise their rights, then triggered the shotgun clause intending to buy out Fortem, and, when Fortem elected to buy, switched roles to block the transaction through their position as franchisor. This conduct reinforced the conclusion that Ashton and ALGL could not rely on consent and operator-qualification clauses to defeat the exercise of the shotgun clause.

Appellate analysis: procedural vehicle and execution in kind

The Court of Appeal also revisited the procedural question that had prevented full relief in the Superior Court. Although the plaintiffs had styled their proceeding as a demande en homologation de transaction and the trial judge had refused to treat the shotgun outcome as a “transaction” for homologation purposes, the Court of Appeal focused instead on the substance of the conclusions sought. It noted that the modified conclusions in the introductory application explicitly asked the court to declare the sale effective as of 16 September 2022, to order ALGL to sign all necessary corporate documentation (including the share purchase agreement attached to the 9 September 2022 letter), and to record Fortem’s undertaking to pay the agreed price of $900,000 upon receipt of the executed documents. In substance, those were conclusions for exécution forcée (specific performance) of the contractual obligations created by the shotgun clause, not mere homologation of a settlement. The Court found no real prejudice to ALGL and Ashton from treating the claim in this way: they had always known that Fortem sought to force the share transfer, and they themselves acknowledged that ALGL was bound under the shotgun clause to sell its shares at the agreed price once Fortem elected to buy. Furthermore, they did not contest the conformity of the draft share purchase agreement with the original offer. In these circumstances, the Court of Appeal held that the trial judge should have granted the request for execution in kind, notwithstanding the original procedural label. It therefore ordered ALGL to sign the attached share purchase agreement, declared the agreement effective as of 16 September 2022, and took formal note of Fortem’s obligation to pay the $900,000 purchase price plus legal interest and the additional indemnity from that date.

Dividends and financial consequences

A final issue concerned the dividends paid by 9259 to ALGL after the date on which the shares ought to have been transferred to Fortem. Fortem had initially proposed 16 September 2022 as the effective date of the transaction in its correspondence, and the Court accepted that this was the date on which ALGL’s status as shareholder should legally have come to an end. Between that date and 9 January 2024, ALGL caused 9259 to declare and pay dividends totalling $223,670 (the factual section references a slightly different total, but the operative portion of the judgment uses $223,670). These dividends were paid without Fortem’s consent and at a time when ALGL should no longer have been entitled to any shareholder benefits. The Court of Appeal concluded that ALGL must restore the company to the position it would have been in had the transfer occurred when it should have. It therefore ordered ALGL to repay $223,670 to the bank account of 9259, together with legal interest and the additional indemnity calculated from the date of each dividend payment. The Court rejected the argument that its judgment could not have retroactive effect. Instead, it emphasized that the retroactivity flowed from the underlying contractual obligations: once Fortem exercised the shotgun option, ALGL’s only lawful course was to complete the sale as of the agreed effective date, and it could not profit from its own refusal by keeping dividends declared after that date.

Overall outcome and successful parties

In the result, the Court of Appeal partially allowed the main appeal only to clarify and narrow the wording of the declaratory paragraphs, while otherwise upholding the trial judge’s substantive interpretation of the franchise contract in Lizotte’s favour. It allowed the incidental appeal in full, set aside the Superior Court’s refusal to enforce the share transfer, and issued detailed orders compelling ALGL to sign the share purchase agreement, declaring it effective as of 16 September 2022, and acknowledging Fortem’s obligation to pay the $900,000 purchase price with interest and additional indemnity from that date. It also ordered ALGL to repay $223,670 in dividends to 9259, again with legal interest and the statutory additional indemnity from the dates of each payment, and awarded court costs in favour of Lizotte and Fortem on the incidental appeal and in first instance (while leaving the principal appeal without costs due to its mixed outcome). The net successful parties are Lizotte, Fortem, and 9259: they secure confirmation that Lizotte can continue as contractual “Opérateur” without having to undergo the franchisor’s training or meet strict active-presence requirements, the enforcement of Fortem’s right to acquire ALGL’s shares for $900,000, and a restitution order requiring ALGL to return $223,670 in dividends to 9259. Because the judgment does not quantify court costs or specify the exact amounts of legal interest and additional indemnity, the precise total monetary benefit to the successful side cannot be fully calculated from the text alone, but the principal sums awarded in their favour are the restitution of $223,670 to 9259 plus unquantified interest, indemnity and cost awards.