Executive Summary: Key Legal and Evidentiary Issues

• Meltwich Hospitality Group Inc. moved for default judgment against its franchisee after the franchisee abandoned its restaurant and the franchise agreement was terminated.
• Both defendants — the corporate franchisee and its principal, Harmeet Singh Gulati — failed to defend the action and were noted in default.
• Liability arose under the franchise agreement, with the individual defendant also personally liable as guarantor.
• Damages were calculated under sections 3.2 and 16.3 of the franchise agreement, comprising unpaid royalties and liquidated damages, totalling $88,166.74.
• The 18% contractual interest rate under section 3.5 was found to apply only to unpaid royalties of $42,166.74, not to liquidated damages or costs.
• Costs of $4,293.49 were awarded on a full indemnity basis, as supported by the Bill of Costs.

Facts of the case

Meltwich Hospitality Group Inc., a franchisor, commenced an action against 1968728 Ontario Inc. (the corporate franchisee) and its principal, Harmeet Singh Gulati, following the franchisee's abandonment of its restaurant and the subsequent termination of the franchise agreement between the parties. Mr. Gulati was both a party to the franchise agreement and a guarantor of the obligations under it. Neither defendant filed a defence, and both were noted in default.

Contractual provisions at issue

The franchise agreement was central to the dispute. Sections 3.2 and 16.3 of the agreement governed the plaintiff's entitlement to damages — specifically, ongoing royalty payments and liquidated damages upon breach. Section 3.5 provided for a contractual interest rate of 18%, which the plaintiff sought to apply to the full judgment amount, including damages and costs.

Reasoning and analysis

Justice Schabas accepted the plaintiff's uncontradicted evidence that the defendants had breached the franchise agreement, making them jointly and severally liable for damages. Damages under sections 3.2 and 16.3 were calculated as follows: unpaid royalties of $1,916.67 per month for 22 months (April 20, 2023 to February 28, 2025), totalling $42,166.74, plus liquidated damages of $46,000 based on the average monthly royalty multiplied by 24 months — for a combined total of $88,166.74. On the interest issue, the court read section 3.5 narrowly, finding that the 18% rate applied only to "required payments under the agreement" — that is, the unpaid royalties of $42,166.74 — and not to the liquidated damages or costs. Post-judgment interest on the liquidated damages of $46,000 was therefore set at the rate prescribed by the Courts of Justice Act. Costs of $4,293.49 were found to be reasonable and were supported by the Bill of Costs, with the court noting that the plaintiff was entitled to full indemnification for its costs.

Ruling and overall outcome

The court granted default judgment in favour of Meltwich Hospitality Group Inc. The defendants were ordered to pay damages of $88,166.74 jointly and severally, together with costs of $4,293.49. Pre- and post-judgment interest at 18% applies to the unpaid royalties of $42,166.74, while post-judgment interest on the liquidated damages of $46,000 runs at the Courts of Justice Act rate. The total monetary award, inclusive of damages and costs, is $92,460.23.