Franchising is often presented as a lower-risk path to entrepreneurship, a way to run a business under an established brand, with a proven system and ongoing support behind it. In British Columbia, that relationship is governed by a layered framework of statute, contract, and common law. When the relationship works, those layers stay in the background. When it breaks down, they move to the center of the dispute, and the stakes for both sides can be substantial: a franchisee’s life savings on one side, a franchisor’s system value and brand reputation on the other.

In this blog, we look at a recent decision of the Supreme Court of British Columbia in which a franchisor was ordered to release more than $106,000 in sale proceeds, and use it to outline how franchise disputes are decided in this province: the franchisor’s power to approve or block a sale, the limits on treating related companies as one, the duty of good faith, and the often-decisive question of whether a non-competition clause can be enforced after the relationship ends.

What Law Governs Franchise Disputes in British Columbia?

Franchise relationships in B.C. are governed primarily by the Franchises Act, which came into force on February 1, 2017. The Act imposes a duty of fair dealing in the performance and enforcement of the franchise agreement (s. 3), protects a franchisee’s right to associate with other franchisees (s. 4), and mandates pre-sale disclosure through a disclosure document (s. 5). It gives franchisees a statutory right of rescission where disclosure obligations are not met (s. 6) and a right to damages for misrepresentation (s. 7), and it provides that these rights cannot be waived (s. 10).

Those statutory rights matter, but they are not the whole story. Many franchise disputes in British Columbia are resolved not on the statute at all, but on the ordinary terms of the franchise agreement and on general principles of contract and corporate law. The decision discussed below is a clear recent illustration: the court resolved a six-figure dispute without using the Franchises Act, by reading the contract the parties signed and applying settled BC law on the separateness of corporations.

Can a Franchisor Withhold Your Sale Proceeds for Another Company’s Debt?

Generally, no, at least where the debt is owed by a separate corporation that is not a party to your franchise agreement. That is the lesson of 1087057 BC Ltd. v. RFSP Equipment & Operating Inc., in which the Supreme Court of British Columbia ordered a franchisor to release $106,363.70 in sale proceeds it had required to be held back in trust.

The franchisee operated a pizza restaurant on Marine Drive in West Vancouver under a 2016 franchise agreement with the franchisor. After the franchisor declined to renew the agreement, the franchisee arranged to sell the restaurant to an arm’s-length buyer. The franchise agreement required the franchisor’s consent to that sale. The franchisor gave its consent only on the condition that $106,363.70 of the proceeds be held in the seller’s lawyer’s trust account until unrelated litigation concluded. That litigation concerned promissory note and rent obligations connected to two other restaurants operated by a separate company, but with the same franchisor, whose directors overlapped with the franchisee’s. The sale closed in November 2022, the funds sat in trust, and the franchisee eventually petitioned the court for their release.

The court resolved the dispute on the franchise agreement itself. The agreement provided that the franchisor’s consent to a sale could not be “unreasonably withheld,” but also entitled the franchisor to require, as a condition of consent, that there be no default by the “Franchisee” under the franchise agreement or any other contract between the franchisee and the franchisor. Because the agreement defined “Franchisee” to include the individual principals personally, the live question became whether those individuals were themselves personally liable to the franchisor. In separate litigation, the court had since dismissed the claims against them personally, finding that the relevant promissory note had been made only by the separate company, with the individuals signing as its officers rather than in their personal capacity. With that determination made, the condition’s trigger fell away, and the funds had to be released.

The court went further on the point that matters most for franchise owners. Even if the separate company was liable, that company was not a party to the franchise agreement, and the franchisor had no right to withhold the sale proceeds for amounts owed by a separate legal entity, “whether related or not.” The franchisee had argued the condition was unconscionable, relying on Uber Technologies Inc. v. Heller; the court did not need to decide that question, because the agreement’s own terms, which no one argued were unconscionable, resolved the matter and did not permit the holdback once the personal claims were gone.

Separate Companies Stay Separate: Alter-Ego Arguments in British Columbia

Will a B.C. court treat two related companies as a single entity so that one can be made to answer for the other’s debts? Only rarely, and not on shared ownership or directorships alone. In the holdback case, the franchisor argued that the selling company and the indebted company were “alter egos” of one another and that assets had been moved to defeat creditors, invoking the Fraudulent Conveyance Act and the Fraudulent Preference Act. On that basis, it asked the court to adjourn the franchisee’s petition so it could pursue a separate claim.

The court refused. Beyond the fact that the two companies shared directors, there were no pleaded facts and no evidence that would justify piercing the corporate veil to make one company liable for the other’s alleged debt (B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Holdings Ltd.; Edgington v. Mulek Estate; XY, LLC v. Zhu). The court also declined to let the franchisor use the dispute to obtain pre-judgment security for a separate entity’s alleged debt with no pleaded legal basis, noting that the underlying litigation had been outstanding for seven years.

For business owners who hold different locations or ventures in different corporations, the practical message is reassuring but conditional: the corporate form is respected in British Columbia, and a counterparty cannot reach across it simply because the same people sit on two boards. The veil can be pierced, but only where the facts and evidence genuinely support it.

Breach of Contract and the Duty of Good Faith

Can a franchisor exercise its contractual powers however it likes? No. Even where a franchise agreement gives the franchisor broad discretion, that discretion is constrained by a duty of good faith that runs through every contract in Canada. The Supreme Court of Canada established the modern framework in Bhasin v. Hrynew, recognizing a general organizing principle of good faith and a freestanding duty of honest performance. The Court built on that in C.M. Callow Inc. v. Zollinger, holding that a party cannot knowingly mislead its counterparty about how it intends to exercise a contractual right, and again in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, holding that contractual discretion must be exercised reasonably and for purposes consistent with the bargain the parties actually made.

The same reasonableness instinct runs through the franchise context, where a franchisor’s consent to a sale typically cannot be “unreasonably withheld.” British Columbia courts apply these principles directly. In Klyn v. Pentax Canada Inc., the Supreme Court of British Columbia found that a party’s post-termination conduct repudiated the contract and breached the duty of good faith and honest performance, and awarded $25,000 in punitive damages to mark the court’s disapproval. In the real-estate context, Chitchot v. 0998823 B.C. Ltd., found a developer in breach of contracts of purchase and sale where its own inaction prevented the completion conditions from being satisfied; a reminder that a party cannot rely on a condition it frustrated by its own conduct.

For franchisees, this line of authority matters because so much of a franchisor’s leverage is discretionary: setting fees, approving sales, directing marketing spend, and deciding whether to renew. The reasonableness standard, and the good-faith duty behind it, is often the franchisee’s most effective tool for challenging how that discretion was used.

Can a Franchisor Enforce a Non-Compete in British Columbia?

A non-competition clause against a former franchisee is enforceable in British Columbia only if it is reasonable, and the starting presumption is that restraints of trade are unenforceable. British Columbia has no statutory ban. Restrictive covenants here are governed by the common law restraint-of-trade doctrine, which means each clause is tested case by case.

The framework comes from Elsley v. J.G. Collins Insurance Agencies Ltd.: the covenant must protect a legitimate proprietary interest and be reasonable in its duration, geographic reach, and the scope of activity restrained. In Shafron v. KRG Insurance Brokers (Western) Inc., the Supreme Court of Canada confirmed that an ambiguous covenant cannot be reasonable, that courts have only a narrow ability to “blue-pencil” sever offending words, and that judges will not rewrite an overbroad clause to save it. IRIS The Visual Group Western Canada Inc. v. Park is a cautionary illustration: a non-compete against an optometrist was held ambiguous and overbroad, and therefore unenforceable.

Context matters enormously. Courts apply the doctrine more permissively where the restraint protects the goodwill of a business that was sold, and more strictly in pure employment-style relationships. In Rhebergen v. Creston Veterinary Clinic Ltd., an escalating-damages covenant was upheld in a clinic context, while in Edward Jones v. Voldeng, the Court of Appeal refused an interlocutory injunction against a departing financial advisor absent strong evidence of actual solicitation.

Two recent Supreme Court of British Columbia decisions sharpen the contrast. In AFX Mixing & Pumping Technologies Inc. v. McKinon, the court refused a broad interlocutory injunction that would have barred a former managing director from doing business with the employer’s clients, holding that the order went beyond what was reasonably necessary to protect the company’s legitimate interests. By contrast, in People Corporation v. White Raven Consulting Ltd., the court granted an injunction against a vendor who had sold his advisory practice for $10.5 million, because the goodwill attached to the sale of a business justified a restraint that would not have been acceptable in an ordinary employment setting. For a franchisee who has rebranded and reopened nearby, that distinction, sale-of-business goodwill versus ordinary post-relationship competition, is frequently the difference between an enforceable covenant and an unenforceable one.

Why Franchise Disputes Are So Challenging

Franchise disputes are rarely simple contract fights. They tend to combine several sources of complexity at once:

• Complex corporate structures and related entities, through which franchisors manage branding, real estate, supply, and fees, and through which franchisees often hold different locations in different companies. As the holdback case shows, identifying which entity owes what, and to whom, can be decisive.
• Layered contractual obligations, including disclosure documents, operations and marketing policies, consent-to-sale provisions, and restrictive covenants, each of which may carry its own remedies and timelines.
• Tight statutory deadlines, particularly the rescission windows under the Franchises Act, which can be lost through delay.
• High stakes on both sides, as franchisees commit their capital and franchisors defend the integrity and value of the system.

Early procedural missteps, such as failing to preserve critical financial records or misframing a claim, can have serious consequences later in a case. This is why franchise litigation rewards early, specialized assessment.

What This Means for Franchise Owners in British Columbia

The practical lesson for B.C. franchisees and franchisors is that outcomes are shaped as much by the franchise agreement and by general contract and corporate law as by the franchise statute. A franchisor’s consent to a sale must be exercised reasonably, and it cannot be used as leverage to secure a debt owed by a separate company.

The corporate form is respected: relatedness, without pleaded facts and evidence, will not let a counterparty pierce the veil. The duty of good faith constrains how a franchisor uses its discretionary powers, from fee-setting to renewal. And a non-competition clause is only as good as its reasonableness, with the courts unwilling to rescue an overbroad or ambiguous restraint.

For anyone entering, operating, or exiting a franchise in British Columbia, the time to understand these rights is before a dispute crystallizes. Reading the consent-to-sale and restrictive covenant clauses carefully, keeping ventures properly separated at the corporate level, preserving documents, and obtaining an early read on the enforceability of key clauses can be the difference between resolving a matter efficiently and being drawn into prolonged litigation.

Frequently Asked Questions

Can a franchisor in BC withhold my sale proceeds because a related company owes it money?

Generally, no. In 1087057 BC Ltd. v. RFSP Equipment & Operating Inc., the Supreme Court of British Columbia ordered a franchisor to release $106,363.70 it had required to be held in trust, because the debt was owed by a separate company that was not a party to the franchise agreement. A franchisor’s consent powers do not extend to securing the debt of a separate legal entity, related or not.

Will a BC court treat my companies as one (“alter ego”)?

Not on shared ownership or directorships alone. British Columbia courts pierce the corporate veil only where there are pleaded facts and evidence that justify it. Common directors, without more, are not enough to make one company answer for another’s debts.

What law governs franchises in British Columbia?

Franchises are governed primarily by the Franchises Act, in force February 1, 2017, which imposes a duty of fair dealing, protects the right to associate, requires pre-sale disclosure, and gives non-waivable rescission and damages rights. Even so, many disputes are decided on the franchise agreement’s own terms and on general contract and corporate-law principles.

Are non-compete clauses against franchisees enforceable in British Columbia?

British Columbia has no statutory ban on non-competes, so they are governed by the common law restraint-of-trade doctrine. A covenant is enforceable only if it protects a legitimate proprietary interest and is reasonable in time, geography, and activity. Courts are more willing to enforce a restraint tied to the goodwill of a business that was sold than a broad post-relationship restraint.

Does a franchisor have to act reasonably and in good faith?

Yes. A franchisor’s consent to a sale typically cannot be “unreasonably withheld,” and every contract in Canada is subject to a duty of honest performance and good faith (Bhasin v. Hrynew; Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District). A franchisor that withholds consent for an improper purpose, such as securing an unrelated debt, risks having the condition set aside.

Meridian Law Group: Providing Top-Tier Commercial Litigation Services in Vancouver

Meridian Law Group provides premier representation in commercial litigation, business disputes, breach of contract, and real estate disputes, including the specialized issues that arise in franchise conflict: consent to sale, disclosure, good faith, fees, restrictive covenants, and the treatment of related corporate entities. Whether you are a franchisee facing enforcement of a non-compete, a franchisor defending system standards, or an owner caught in a dispute over fees or sale proceeds, the firm’s litigators create tailored legal solutions and vigorously pursue the best result for each client. For business owners weighing their options, our related commentary on oppression claims and minority shareholders in B.C. offers further context on commercial disputes.

From its location in the prominent Nelson Square Building in downtown Vancouver, Meridian Law Group has advocated for clients across British Columbia, Canada, and internationally for more than three decades. To discuss your matter, please call (604) 687-2277 or contact us online.

About the authors: Paul Harden is a Principal at Meridian Law Group in Vancouver. He holds a BA in Philosophy from the University of Calgary (2004) and a Juris Doctor from the University of British Columbia (2012), and was called to the British Columbia Bar in 2013. His practice spans estate litigation, business and property disputes, general civil litigation, insurance claims, and serious personal injury. He is a member of the Canadian Bar Association, the Law Society of British Columbia, and the Trial Lawyers Association of BC.

Bahij Mirzad joined Meridian Law Group in May 2026 after being called to the Bar, having previously summered and articled at a full-service regional firm in Vancouver. He obtained a Bachelor of Arts, with distinction, in Criminology and Political Science from Simon Fraser University in 2019 and received his Juris Doctor from Osgoode Hall Law School at York University in 2025.  Bahij practices commercial litigation, construction litigation, civil litigation, estate litigation, and family law. He has appeared before the Provincial Court and the Supreme Court of British Columbia.