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Thursday, October 07, 2021 @ 6:18 AM  

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Appeal by 2161907 Alberta from a judgment dismissing its application for declaratory relief and allowing the counter-application by 11180673 Canada. The appellant held the rights to the Tokyo Smoke cannabis brand that it licensed to retail operators such as the respondent. The parties entered into a series of agreements for the operation of a Tokyo Smoke cannabis store in Toronto, including a licence for use of the brand and a sublease whereby the respondent rented the retail premises from the appellant. In addition, the appellant offered funding for start-up costs and rent and a branding inducement fee of $2 million payable upon the respondent’s receipt of its retail store authorization. Two days prior to opening, a dispute arose over the appellant’s payment of the respondent’s rent. The respondent advised it would not open the store due to non-payment. The appellant took the position that the respondent breached the parties’ agreement. The appellant terminated the relationship and refused to pay the branding fee. The application judge found that the appellant had no basis to terminate the agreements and had acted in bad faith. The appellant was ordered to pay the branding fee. 2161907 Alberta appealed.

HELD: Appeal allowed to limited extent. The application judge did not err in finding that the appellant’s termination of the licence agreement was invalid. The judge reasonably interpreted the termination provision as requiring an objectively credible threat to cease carrying on business and reasonably characterized the respondent’s statement as emotional frustration rather than a threat triggering termination. The application judge erred in finding that the appellant breached its duty of good faith, as there was no basis for finding any dishonesty or that the respondent was knowingly misled about the appellant’s intentions. There was no basis for finding that the appellant’s change in position was capricious or arbitrary. The finding that the appellant sought to “pounce” on an opportunity to end its relationship with the respondent and avoid the branding fee was insufficient to justify a finding of bad faith. The bad faith finding was set aside, and the appeal was otherwise dismissed.

2161907 Alberta Ltd. v. 11180673 Canada Inc., [2021] O.J. No. 4630, Ontario Court of Appeal, P.S. Rouleau, A. Hoy and K.M. van Rensburg JJ.A., August 30, 2021. Digest No. TLD-October42021007