Executive Summary: Key Legal and Evidentiary Issues

• Franchisees appealed arbitral awards, alleging that Sundial’s acquisition of a competitor breached franchise agreements and statutory duties.

• The court reviewed the arbitrator’s findings on contract interpretation, privity, corporate veil, and damages under appellate standards, primarily reasonableness for mixed fact and law.

• The court upheld the arbitrator’s ruling that Sundial was neither a franchisor nor an associate under the Franchises Act, and found no fundamental breach or actionable inducement.

• Only nominal damages of $1,000 per franchisee were awarded for a breach of the duty of good faith, specifically regarding the employment of a Nova Cannabis executive.

• Costs of the appeal were determined based on Schedule C, Column 5, with costs awarded jointly and severally against three applicants.

• The respondents were awarded costs under Column 5 of Schedule C, with Items 18-21 applied, and no multiplier.

Background and facts

The dispute arose after the legalization of non-medicinal cannabis in Canada on October 17, 2018. Four Alberta franchisees—1010805 Alberta Ltd, 2087866 Alberta Ltd, 2083136 Alberta Ltd, and 2082910 Alberta Ltd—entered into franchise agreements with Spirit Leaf Inc, which was incorporated in May 2017 to develop a franchise system for recreational cannabis retailers. In 2019, the applicants signed their franchise agreements with Spirit Leaf. On July 20, 2021, Sundial Growers Inc acquired Spirit Leaf, and on March 31, 2022, Sundial acquired all shares of Alcanna Inc, which owns a 63% equity interest in Nova Cannabis, operator of Value Buds discount cannabis stores.

The applicants commenced arbitration on March 17, 2022, seeking a determination of whether Sundial breached or induced a breach of the franchise agreements by acquiring Alcanna, the majority owner of Nova Cannabis, which operates competing Value Buds stores. The arbitrator was appointed on April 12, 2022, and hearings were held from August to October 2022.

On December 1, 2022, the arbitrator issued a Partial Final Award, declaring that Spirit Leaf Inc breached the duty of good faith under the franchise agreement by employing or appointing individuals who were current employees or appointees of Nova Cannabis Inc in positions related to the performance of the franchise agreement. Nominal damages of $1,000 were awarded to the claimant, payable by Spirit Leaf Inc, and all other claims against Spirit Leaf Inc or Sundial Growers Inc were dismissed. The arbitrator reserved jurisdiction to award costs, which were subsequently determined in a Costs Quantum Award on April 20, 2023.

The applicants appealed both the Partial Final Award and the Costs Quantum Award to the Court of King’s Bench of Alberta under section 44 of the Arbitration Act.

Court’s analysis and decision

The court addressed several issues, including its jurisdiction to determine whether the arbitrator properly interpreted the principle of contra proferentem, the appropriate standard of review, and whether the arbitrator made reviewable errors in interpreting the contracts, applying statutory definitions, refusing to pierce the corporate veil, and awarding damages and costs.

The court found that section 44(3) of the Arbitration Act did not bar it from determining whether the arbitrator properly interpreted contra proferentem, as there was no explicit referral of that question to the arbitrator. The standard of review for contractual interpretation was found to be reasonableness, not correctness, because the agreements were not pure standard form contracts and the case involved a significant factual matrix.

The court upheld the arbitrator’s finding that contra proferentem applies only in cases of ambiguity, even in franchise contexts, citing Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2016 SCC 37. The court also found no reviewable error in the arbitrator’s determination that Sundial was not a franchisor or associate under the Franchises Act, nor bound by the franchise agreements. The arbitrator’s findings that the agreements permitted the acquisition of competing businesses, and that no fundamental breach or actionable inducement occurred, were also upheld. The nominal damages award for the breach of good faith was found appropriate, as the breach did not deprive the applicants of the core benefits of their contracts.

Ruling on costs and outcome

After the appeal was dismissed, the parties could not agree on costs. In a subsequent ruling dated July 21, 2025, the court determined that the respondents, having successfully defended the appeal, were entitled to costs under Column 5 of Schedule C of the Alberta Rules of Court, with Items 18-21 applied. The court declined to apply a multiplier, finding the case was not unusually complex. Costs were awarded jointly and severally against 2087866 Alberta Ltd, 2083136 Alberta Ltd, and 2082910 Alberta Ltd, with 1010805 Alberta Ltd excluded due to its limited role.

In summary, the respondents, Sundial Growers Inc and Spirit Leaf Inc, were the successful parties. The appeal was dismissed in its entirety, and the only damages awarded in the underlying arbitration remained the nominal $1,000 per franchisee. No additional amounts were ordered in the court proceedings. The respondents were awarded costs under Column 5 of Schedule C, with Items 18-21 applied, jointly and severally against three of the four applicants.