S.C.A. No. 02318 IN THE SUPREME COURT OF NOVA SCOTIA APPEAL DIVISION Hallett, Matthews and Freeman, JJ.A. BETWEEN: ATLAS SUPPLY COMPANY OF CANADA LIMITED, body corporate and YARMOUTH EQUIPMENT LIMITED, and JOHN M. MURPHY Respondent Charles Peter McLellan Bernard Francis Miller for the appellant D.A. Caldwell, Q.C. Dennis James for the respondent Appeal Heard: January 14, 1991 Judgment Delivered: April 23, 1991 THE COURT: Appeal dismissed per reasons for judgment of Matthews, J.A.; Freeman, J.A. concurring; Hallett, J.A. dissenting by separate reasons MATTHEWS, J.A.: The principal issue before us is whether an exclusionary clause in written agreement between the parties precludes giving effect to acts and statements made by the agents of the appellant to the respondent Murphy. The appellant is a wholly owned subsidiary of Imperial Oil involved in the distribution and sale of automotive parts and related products. Prior to 1985 that activity, exclusively wholesale, was achieved through nation wide network of outlets leased from the appellant and operated by agents on commission basis. Those agents were not required to make personal investment nor were they financially responsible for the inventory. There were nine such agencies in Atlantic Canada. The appellant became concerned respecting its position in the market place. For example, the total revenue from sales for the Atlas agency at Yarmouth, Nova Scotia, had declined from $700‑$750,000.00 in the early 1980's to $450‑$500,000.00 during 1983‑85. Franchises such as Canadian Tire, together with specialty operations dealing directly with the public, were adversely affecting the appellant's business. In or about 1985‑6 the appellant carried out an intensive and extensive assessment of its total operations with view to changing its manner of conducting business by way of an agency to offering franchise to business people. Atlas had no previous experience in retailing. However, it is obvious, Imperial Oil had. Atlas took about year to prepare franchise program to replace the existing agencies. The appellant would enter the retail market and challenge its competitors. In essence this new system would require that local business people make personal investment in the franchise, provide among other things, premises, chattels, personnel and vehicles and assume control and financial responsibility for the inventory. John MacDougall, the appellant's regional manager for Atlantic Canada, had the duty to obtain franchisee suitable to the appellant for Western Nova Scotia, to replace its Yarmouth agency. As the trial judge, the Honourable Mr. Justice W.J. Grant, in his decision rendered April 4, 1990 said: "The recent experience Atlas had. with Yarmouth was anything but encouraging. It was declining operating as an independent agency. It reached the point where it was no longer independent but had to be combined with Metro. When it became satellite of the Dartmouth agency it declined even more." MacDougall prepared promotional brochure incorporating some of the material he received from his head office. At trial, MacDougall admitted that the purpose of the brochure was to inform, induce and entice prospective franchisees. Before advertising for franchisees, MacDougall sent the brochure to the appellant's national sales manager R.M. Ritchie, who was specifically responsible for the franchise program. In memo dated October 23, 1985, Ritchie informed MacDougall that: "We have taken the liberty of producing pro forma financial outlook for the above (Yarmouth) agency as franchise operation. The sales mix is based on the data obtained through the Inventory Turns Report. Based on the typical type of operation, as we know it today, the outlook indicates that we do not have viable case for development." After detailed analysis, the net earnings after finance costs as disclosed in the pro forma financial outlook for wholesale and retail sales totalled $11,000.00. However, MacDougall prepared his own projections. These were in several important aspects more enthusiastic than those‑ of his superior, Ritchie. His material was in much less detailed form than Ritchie's and, importantly, showed the combined net earnings for wholesale and retail sales at $33,000.00. The respondent, Yarmouth Equipment, expressed interest in the Yarmouth franchise. It had only been in operation for short period, having been incorporated in late 1985. It was hardware venture, selling nuts and bolts in bulk, hydraulic hoses, rubber products, industrial vee belts and line of fire extinguishers. Its targeted market included fishing plants, service stations, contractors and auto body shops. Its principal officer, the respondent Murphy, was business man, primarily involved in real estate and rental properties. He had high school equivalency; had been partner in Shell Service Station and part owner of used car business; was president of construction company, company involved in building and selling fishing boats, and company in the wholesale and building supply business. He had little prior experience in the automotive parts industry or retail sales. In each of his enterprises, Murphy had knowledgeable partners or employees who carried out the majority of the work and management. All of this was known to the appellant. MacDougall did not give Murphy the Ritchie calculations, nor did he inform Murphy until the discovery stage of this litigation that, in the opinion of Ritchie, the Yarmouth operation, as discussed with Murphy, was not viable. The following exchange took place during MacDougall's cross‑examination: "Q. Yeah, and in Atlantic Canada the plan was virtually to convert all nine agencies to franchise agencies? A. As recall that is correct. Q. Yeah, and the purpose of the promotional literature that was put together was to inform prospective franchisees was it? Q. And ultimately to induce them to come into the franchise program if they were otherwise suitable? Q. Right. And so the object of the promotional literature was that, to entice prospective franchise operators, correct? A. Yes. That's correct." Ritchie subsequently, on January 15, 1986, adjusted some of the MacDougall figures. The result was somewhat brighter than his October 23, 1985 figures, but they were projected over three year period. Ritchie sent that information to MacDougall. Again MacDougall did not give this material to Murphy. The appellant argues that MacDougall's adjusted projections only showed "marginally greater potential" than Ritchie's. Twenty‑two thousand dollars may not be great difference if few hundred thousand dollars were estimated as the combined earnings, but here that is not the case. The point is, that MacDougall was in possession of figures prepared by Ritchie and his staff. Ritchie was the national sales manager specifically responsible for the franchise program. Ritchie's projections were such that Atlas did "not have viable case for development" in Yarmouth. MacDougall's projections were prepared to induce franchisee to enter into the agreement. They did not display Ritchie's gloomy forecast. The respondents' argument is that in order to induce Murphy to enter into the franchise agreement MacDougall gave his projections to Murphy and refrained from informing Murphy that other projections had been prepared by his head office which led Ritchie to conclude that the proposed Yarmouth franchise was not viable. The trial judge remarked: "MacDougall said he knew that Murphy did not have the resources to check out the accuracy of the Atlas projections. He said he knew Murphy was relying on them. He said he told Murphy that they 'put the resources of Atlas into the program'. He also knew Murphy had no experience in the sale of retail auto parts. He said the figures for specialty sales were 'guess work', put up arbitrarily." And further: "Murphy said he relied on the Atlas projections. He had no means to check them out nor did he have any reason to doubt the figures as he knew Atlas was owned by Esso. He said he was assured by MacDougall that Atlas had done its homework." MacDougall did not give the "Atlas projections" or its "homework" to Murphy. He gave Murphy instead his more favourable projections. The following is an exchange from MacDougall's direct examination: "Q. Now what comment could you make as to the, what this showed you when you prepared these projections as to the viability of the, of the operation operating as you've shown here? A. Well it was marginal, $33,000 for the investment plus the effort and responsibility, it was marginal type operation." When MacDougall showed Murphy his projections, Murphy immediately raised some concerns as to the retail sales figures. Ultimately, it was this aspect of the business which led to the failure of both the Yarmouth and Charlottetown franchises. The following is from Murphy's direct examination: "Q. Yeah, let's go to those projections and now think they're found at page 11 of tab one My Lord. What discussion was there about the projections then Mr. Murphy? A. We asked Mr. MacDougall how they arrived at that figure of $93,000 because there was no retail sales of Atlas never before in Yarmouth and we knew that, and Mr. MacDougall quickly went to this population. Q. Yes? That's page 16 My Lord. That's the one headed Franchise Program Yarmouth, Bridgewater, Kentville, ...population. A. That's the one yes. And he assured us that these figures and the projections were all done scientifically through believe himself, or head office at Toronto and that it was based on figures that they had received from competitors of theirs that 20% of the wholesale business should be retail and from there relied, we relied on his projections, Atlas's projections. Q. Did you have any way or any means yourself to check or confirm or not, the projections that were made? A. had no reason to doubt these figures because know Atlas is wholly owned subsidiary of Esso and Mr. MacDougall was representing Atlas so at that time when they tell me they've done their homework, was assured and had no reason to further check." The figures and projections were not those done scientifically and as result of investigation and research by Atlas's head office. They were MacDougall's but held out to be from head office to persuade Murphy to rely upon them. Some of the MacDougall projections, particularly respecting retail sales, were guess work; they were based upon assumptions which, the evidence discloses, could not be justified. Those assumptions included: "(a) the potential of the retail market; (b) the profit potential of the franchise; (c) the target for the specialty sales; (d) staff of two, rather than three; (e) the franchisee was required to devote full time to the business without pay." Murphy was not informed that the MacDougall projections were based on two employees, rather than three as determined by Ritchie; or that both the projections of MacDougall and Ritchie were based upon franchisee spending full time in the business without remuneration. MacDougall in cross‑examination, when commenting upon the projections of the total earnings after finance costs at $11,000.00 said: "A. Well, that's certainly not viable, would think not. Q. No that's not viable at all is it, especially if you are, assuming as you say you did, that the owner is going to donate his labour free, then it's not viable at all is it? A. That's absolutely correct, yes. Q. No, no, and note that Mr. Ritchie has inserted here manpower from two, vehicles two, and there's no place there for the assumption that the owner donates his time for nothing is there? [Actually Ritchie had altered MacDougall's required manpower from two to three] Q. In fact, in any of these documents that we see that were provided by Atlas, we do not see the state of assumption that the owner is expected to donate his time for nothing, do we? A. That is correct. Q. Nor was that discussed with, with Mr. Murphy, that he was expected to donate his time for nothing, correct? A. Mr. Murphy was aware that the franchise program was designed for the franchisee to assume full time responsibility at the franchise location. Q. Oh no doubt about that, since he's the owner, but there's great difference between him being one of the employees and him being the owner isn't there? A. Yes. Q. Yeah, because you, you knew, believe you knew in your own mind that it took at least three people to run the franchise operation in Yarmouth, not two. But you say your assumption was he was expected to be the third of them? A. believe that he was aware of that as well. Q. Oh, did you tell him that? A. think we discussed it yes. Q. In your discovery however, you haven't mentioned anything about that discussion have you, even after asked you to relate all of your discussions with Mr. Murphy. You don't recall ever having said that before do you? A. guess this is the first time. Q. Yeah, yeah, and in any event, it's, it's very important assumption to make in these kind of projections that the owner is expected to devote his time as an employee to the company on full time basis. That's very important assumption isn't it? A. Yes it certainly is. Q. And it makes great deal of difference whether the net result of the operations makes the thing viable, true? A. Yes. Q. For example, on net, net earnings after finance costs of $11,000 there simply is no room for the employer to get either paid for his work or to get an adequate return on his investment of $106,000, is there? A. cannot believe because it's such an important assumption that we would not have discussed it, you know, at sometime. Q. But you just don't recall having discussed it though do you? A. No not at this stage; not specifically." agree that is such an important assumption that it should have been discussed with Murphy. It was not. The trial judge said: "It would require full time franchisee who, from MacDougall's financial assessment, would be required to work without pay. MacDougall knew Murphy was not prepared to spend much time at the business because he had other irons in the fire including real estate, manufacturing and sales operations." Murphy said that he informed MacDougall "immediately", that is, in the early discussions that he was involved in other enterprises and he could not devote full time to the franchise. There can be no doubt MacDougall and Ritchie knew that to be the fact. Atlas was in possession of the figures produced from all of its resources over substantial period of time. That information was not made available to Murphy. Indeed it was withheld from him. He was led to believe that the MacDougall figures were those of Atlas's head office. As result, Murphy did not have equal opportunity with Atlas to properly assess the project. MacDougall meanwhile was inducing Murphy to enter into the agreement, holding out that the appellant had scientifically done its homework. As the trial judge concluded, MacDougall not only expected and intended Murphy to rely upon MacDougall's financial forecast, he knew Murphy was relying upon it. He also concluded that Murphy had neither the resources nor ability to check the financial forecast given to him and that indeed MacDougall knew that Murphy did not do so. All of this led the trial judge to the reasonable conclusion that: "It seemed to me that if MacDougall had been open with Murphy and told him what Ritchie thought and what Ritchie expected, the deal would never have been completed. As well had MacDougall inquired into the viability of Yarmouth Equipment and passed that information on to Ritchie probably the deal would have been squelched. At no time was MacDougall up front with the defendant Murphy by telling him that the Atlas experience in latter years with Yarmouth had been bad or that he was required to marry up the franchise with an otherwise successful business." That conclusion, based as it was upon evidence adduced before the trial judge, should not be disturbed unless it is demonstrated to be clearly wrong. In the circumstances, as will later discuss, in my opinion, these parties were not in an equal bargaining position. It is significant that Ritchie did not testify. In late January, 1986, MacDougall and Ritchie met with Murphy in Yarmouth. They visited the proposed site for the franchise and found it adequate. The trial judge found that: "There were discussions of the franchise and its viability. Ritchie raised no concerns of the projections or the viability of the operation." This despite Ritchie's prior memo to MacDougall concluding that the proposal, without alternatives, was not viable. These alternatives, as set out in Ritchie's memo of October 23, 1985, were: "1. Marriage with an existing jobber business in the Digby, Yarmouth, Liverpool, Shelburne, Bridgewater areas. 2. Possibility of development of the Cash'n Carry business to $100,000.00 rather than the $60,000.00 indicated on the outlook. The additional margin generated from retail would present viable case. 3. Operation of the franchise as wagon jobber, which would eliminate sales vehicle and driver and make the offer viable one." MacDougall neither informed Murphy of the existence of the memo nor of any of its contents. On February 28, 1986, the respondent Yarmouth Equipment, entered into franchise agreement with the appellant. The respondent Murphy signed the agreement on behalf of Yarmouth Equipment and as guarantor of the obligations of Yarmouth Equipment. The trial judge remarked: "The franchisee operation transferred the financial responsibilities to the franchisee who purchased direct from Atlas. It was responsible to pay Atlas. It dealt in cash with the public and was responsible for any credit extended. It also penetrated the retail market for the first time. It was certainly in the interests of Atlas to transfer these responsibilities to the franchisees. The Atlas agency concept may not have been exactly sinking ship but it was certainly leaking, particularly the Yarmouth agency." And also: "Atlas of course, wanted successful franchisee. If it was the sole operation then of course it would depend on its own merits. These merits apparently were not there, at least Mr. Ritchie concluded that Yarmouth was not viable and he so instructed MacDougall." MacDougall and Ritchie knew that Murphy was engaged in other businesses and could not spend full time with the franchise. Also the appellant knew after the franchise began that Murphy was not spending full time there and also knew that in June, 1986 Murphy moved to Ottawa due to the special education requirements of two of his children. However, the appellant did not inform Murphy that the financial assumptions in the material given to Murphy were based upon the fact that Murphy was to spend full time in the franchise without pay. The trial judge concluded that: "During March, April, May and early June of 1986 Murphy spent 50‑60% of his time at the franchise, which was more than he had anticipated. Murphy said he discussed his Ottawa move with MacDougall in mid‑May. He told him that the former employees of Atlas could handle the operation. He said there was no disagreement from MacDougall. On June 6th he and his wife and family moved to Ottawa." It certainly is reasonable to assume that had Murphy been informed of the appellant's adjustment in the figures, based as they were on ill founded assumptions, and the conclusions reached, then as the trial judge said "the deal would never have been completed"; it "would have been squelched". In October and November, 1986, Murphy's new accountant expressed great concern about the profitability of both Yarmouth Equipment and the franchise. He later prepared projections which demonstrated that both businesses were losing propositions. Unfortunately Ritchie's dire predictions came true and the Yarmouth franchise suffered from an "horrendous failure" in its retail sales. On February 12, 1987, the appellant delivered notice of default to the respondents, thus bringing the franchise to an end. Indeed, by 1987, the only two Atlas retail franchises in the Atlantic provinces, Yarmouth and Charlottetown, were not in business. The appellant (plaintiff) had sued for damages claiming that the respondent (defendant) Yarmouth Equipment had defaulted in its obligations to pay to the appellant certain amounts due under the terms of the franchise agreement. Those obligations were guaranteed by the respondent (defendant) Murphy. The respondents counterclaimed for damages. The trial judge found that Yarmouth Equipment was "doomed to failure regardless of Atlas". Its inventory and other assets were sold and the proceeds of that liquidation sale used to pay down the bank indebtedness. The appellant was adjudged to recover judgment against the respondent, Yarmouth Equipment, for $206,344.00 being the sum agreed upon by counsel. There has been no appeal from that ruling. The trial judge made certain findings of fact: "1. The projections of Ritchie showed that the franchise was not viable on its own merits. 2. MacDougall held out to Murphy through the material that the project was viable on its own merits. He held out that the profits were reasonably achievable. 3. MacDougall had an honest belief that all the material he got from head office was factual and accurate. However, it was not all either factual or accurate. 4. Ritchie found the forecasts showed the retail figures too high, the expenses too low and the projected profit too high. 5. The projections of MacDougall were inaccurate as to expenses and grossly inaccurate as to retail sales and profits. 6. MacDougall knew that Murphy was relying on the financial forecasts he had given him. He expected Murphy to rely on them and intended Murphy to do so. 7. MacDougall knew that Murphy did not have the resources and other ability to check out the Atlas financial forecasts and that he did not do so. 8. MacDougall knew that Murphy had questioned his retail sales forecast but was reassured by MacDougall telling him the resources of Atlas had gone into the forecasts. 9. It was the financial forecast which induced Murphy to enter into the contract and MacDougall knew that fact. The purpose of the financial forecast was to induce purchasers to enter into the contracts. 10. MacDougall knew and Ritchie knew that Murphy was not going to operate the franchise fulltime himself but would rely on the former Atlas employees. 11. Murphy went to Ottawa with the knowledge of Atlas and with no objection from Atlas.” After review of some of the relevant law the trial judge said: "FINDING: find the projections of MacDougall for Atlas relating to retail sales, expenses and profit were warranty. find they were meant to be relied upon by Murphy as an inducement to contract. find they were relied upon by Murphy and induced him to contract. Atlas was in position to have that information, purported to have that information and gave that information as being accurate. find the warranty was breached." The franchise agreement contained an exclusionary clause. The trial judge held that the clause did not foreclose the respondents' right to rely upon the breach of warranty. The trial judge weighed and evaluated all of the evidence. have carried out the duty of re‑examining the evidence as expressed in Stein v. The Ship 'Kathy K', 1975 CanLII 146 (SCC), [1976] S.C.R. 802. In my opinion, the appellant has not established that the trial judge made some palpable and overriding error which affected his assessment of the facts. It is evident from the decision that the trial judge must have concluded that Murphy was credible witness. have set out the facts, comments thereon and the trial judge's findings in some detail as they pertain to the representations made by the appellant's agents to the respondent Murphy. The effect of these representations upon the exclusionary clause in the agreement must now be considered. The exclusionary clause, sometimes referred to as disclaimer and the other relevant clauses in the agreement are: "2.06 Entire Agreement This Agreement, any documents incorporated by reference herein and the Schedules hereto constitute the entire agreement between the parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions with respect to the subject matter hereof whether oral or written. Except as provided herein, there are no conditions, representations, warranties, undertakings, inducements, promises or agreements, whether direct, indirect, collateral, express or implied made by ATLAS to the Franchisee. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Guarantor and authorized signing officers of ATLAS and the Franchisee. Failure to deliver or accept delivery of Automotive Products which is excused by or results from the operation of any provision of this Agreement shall not extend the term of this Agreement." "4.02 Other Business The Franchisee shall not, directly or indirectly, carry on, be engaged in, be concerned with or interested in any business (other than the Franchised Business) that is carried on or conducted from the premises or adjacent thereto, whether or not related in any manner to the Franchised Business, hereunder, except with the express written permission of ATLAS." "6.01 Operation In order to maintain the high quality and uniform standards, methods, procedures and specifications of the System and to promote and protect the goodwill associated therewith, the Franchisee shall, except where otherwise agreed to in writing by ATLAS:... (o) subject to Section 4.02, cause the Guarantor to provide direct supervision and devote full time and attention to the Franchised Business in order to ensure the proper, efficient and effective operation thereof, and maintain at all times sufficient number of trained personnel to service all Customers of the Franchised Business;" "18.10 Investigation The Franchisee acknowledges that it has conducted an independent investigation of the Franchised Business and ATLAS and recognizes that the business venture contemplated by this Agreement involves business risks and that its success will be largely dependent upon the business ability of the Franchisee. ATLAS expressly disclaims the making of and the Franchisee acknowledges that it has not received any warranty or guarantee, express or implied, as to the potential volume, profits or success of the Franchised Business." "18.11 Review of Agreement The Franchisee acknowledges that it has received, has had ample time to read and has read this Agreement. THE FRANCHISEE FURTHER ACKNOWLEDGES THAT IT HAS HAD AN ADEQUATE OPPORTUNITY TO BE ADVISED BY ADVISORS OF ITS OWN CHOOSING REGARDING ALL PERTINENT ASPECTS OF THE FRANCHISED BUSINESS, ATLAS AND THIS AGREEMENT." In respect to clauses 4.02 and 6.01, the appellant knew from the time of the initial interview with Murphy that Murphy had no attention of spending his full time in respect to the franchise; that he did not do so; that Murphy had other businesses which required his time and attention; and indeed one of Ritchie's alternate proposals was that there should be "Marriage with an existing jobber business". The trial judge remarked: "MacDougall and Ritchie on behalf of Atlas both knew that Murphy intended only to work on the franchise part‑time. From the tenor of Tab this franchise would only be granted in violation of this Article." The appellant now wishes to seize upon the existence of Yarmouth Equipment to demonstrate that Ritchie's concerns were alleviated because of Murphy's involvement with that company. In so doing it follows that the appellant is forced into the position that it had no intention of applying the provisions of clauses 4.02 and 6.01. With hindsight, the appellant cannot contend that Ritchie's forecast was relieved because of the existence of Yarmouth Equipment. That company could not fit within the category of "an existing jobber business", as intended in Ritchie's memo of October 23, 1985. Yarmouth Equipment was new and different type of venture for Murphy, having been incorporated in late 1985. No one on behalf of Atlas suggested to Murphy that the viability of the franchise would depend upon the success of Yarmouth Equipment. The trial judge said: "Apparently MacDougall did not inquire in detail into the health of Yarmouth Equipment, otherwise he would have learned that it had just started and was having very rocky beginning". In respect to clause 18.10 the appellant knew full well that Murphy had not conducted any such independent investigation; that he did not have the resources and other ability to do so or to check the Atlas financial forecasts; that MacDougall and Ritchie intended that Murphy be induced to enter into the agreement by having him rely upon the projections produced by MacDougall. Not only did the appellant know that Murphy had not conducted any such independent investigation, but by MacDougall's conduct, Murphy was encouraged not to do so. That is, the appellant participated in breach of the terms of the agreement which it prepared. The trial judge held respecting clause 18.10: "MacDougall, being Atlas, knew Murphy was not doing any independent investigation as he did not have the ability or means to do so. MacDougall gave the material on volume and profits to Murphy. This clause is totally in. conflict with the facts of what actually happened. Atlas cannot have MacDougall on its behalf do these acts, acquire this knowledge and make these inducements and also have their drafters deny that which in fact happened." He had earlier commented: "MacDougall said he knew that Murphy did not have the resources to check out the accuracy of the Atlas projections. He said he knew Murphy was relying on them. He said he told Murphy that they 'put the resources of Atlas into the program'. He also knew Murphy had no experience in the sale of retail auto parts. He said the figures for specialty sales were 'guess work', put up arbitrarily." And further: "Murphy said he relied on the Atlas projections. He had no means to check them out nor did he have any reason to doubt the figures as he knew Atlas was owned by Esso. He said he was assured by MacDougall that Atlas had done its homework." must now consider clause 2.06 and the applicable law. have reviewed the case law cited by counsel, other cases and articles. In particular both counsel rely upon the following cases: 1. Beaufort Realties, 1980 CanLII 47 (SCC), [1980] S.C.R. 718; 2. Esso Petroleum, [1976] All E.R. 5; 3. Harry v. Kreutziger (1978), 1978 CanLII 393 (BC CA), 95 D.L.R. (3d) 231; 4. Heilbut, Symons, [1913] A.C. 30; 5. Hunter Engineering, 1989 CanLII 129 (SCC), [1989] S.C.R. 426; 6. Lister v. Dunlop (1978), 1978 CanLII 2165 (ON SC), 85 D.L.R. (3d) 321; 7. Lloyd's Bank v. Bundy, [1974] All E.R. 757; 8. Midland D. Central Trust (1985), 68 N.S.R. (2d) 103; 9. Pao On and Others, [1979] All E.R. 65; 10. Photo Production, [1980] All E.R. 556; 11. Pizza Hut v. P.M. Foods (1985), 1985 CanLII 1301 (AB QB), 61 A.R. 340; 12. Sodd Corp. v. Tessis (1977), 1977 CanLII 1415 (ON CA), 79 D.L.R. (3d) 632; 13. Kathy K., 1975 CanLII 146 (SCC), [1976] S.C.R. 802; 14. Stephenson v. Hilti (1989), 1989 CanLII 191 (NS SC), 93 N.S.R. (2d) 366. agree with appellant's counsel, the contracts considered in some cases contain no exclusionary clause and thus the conclusions reached in those cases cannot be given the weight of those where the clause is present. Historically, the common‑law sought, as far as possible, to give effect to the presumed intention of the contracting parties. There was reluctance to impugn the certainty of the written contract. Hence the so‑called parol evidence rule. "Extrinsic evidence is generally inadmissible when it would, if accepted, have the effect of adding to, varying or contradicting the terms of judicial record, transaction required by law to be in writing, or document constituting valid and effective contract or other transaction." Cross on Evidence, sixth edition, 1985 at pp. 615‑6. Exclusionary clauses are often fair and necessary. However, when evidence discloses otherwise, courts have devised various methods to avoid injustice. For example, the contra proferentum principle, collateral warranty, fundamental breach and unconscionability. Waddams, in the Law of Contracts, 1984, traced the development of the doctrine of unconscionability and its use to control exclusionary clauses which, as he said, "are commonly found in standard form printed documents" and stated at pp. 348‑9: "It is submitted that the only workable criterion is rule of unconscionability, for exclusions can be perfectly fair and limitations very unfair. ... more direct attack has come in the form of the doctrine known as 'fundamental breach'." Waddams traced the evolution of the "rule" that "an exemption clause cannot be construed to excuse liability for 'fundamental breach' of contract or for 'breach of fundamental term'" (p. 350), and suggested "a deep rooted unwillingness [on the part of courts] to enforce agreements they see as unfair". (p. 352). The Supreme Court of Canada recently considered the issue of fundamental breach in Hunter Engineering Co. Inc. v. Syncrude, 1989 CanLII 129 (SCC), [1989] S.C.R. 426. The facts there differ considerably from the instant case. This case and others are cited only for the principles contained therein. In Hunter there was an express warranty in the contract and outside the contract, statutory warranties. The contract included clause stating that the: "Provisions of this paragraph represent the only warranty...and no other warranty conditions, statutory or otherwise shall be implied". Dickson, C.J., with LaForest, J. concurring, reviewed number of English and Canadian authorities, including some will mention later, demonstrating the changes in the law over the years. He and Wilson, J. approached the doctrine of fundamental breach in different fashion. He said at pp. 455‑6: "I have had the advantage of reading the reasons for judgment prepared by my colleague, Justice Wilson, in this appeal and agree with her disposition of the liability of Allis‑Chalmers. In my view, the warranty clauses in the Allis‑Chalmers contract effectively excluded liability for defective gearboxes after the warranty period expired. With respect, disagree, however, with Wilson J.'s approach to the doctrine of fundamental breach. am inclined to adopt the course charted by the House of Lords in Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827, and to treat fundamental breach as matter of contract construction. do not favour, as suggested by Wilson J., requiring the court to assess the reasonableness of enforcing the contract terms after the court has already determined the meaning of the contract based on ordinary requiring the court to assess the reasonableness of enforcing the contract terms after the court has already determined the meaning of the contract based on ordinary principles of contract interpretation. In my view, the courts should not disturb the bargain the parties have struck, and am inclined to replace the doctrine of fundamental breach with rule that holds the parties to the terms of their agreement, provided the agreement is not unconscionable."(My emphasis) With respect to counsel, in my opinion this passage cannot be relied upon to demonstrate the sanctity of contract, for the caveat is there: the parties will be held to the terms of their agreement "provided the agreement is not unconscionable". Parenthetically add that Wilson J. in Hunter made similar comments. The chief justice commented at p. 456: "The doctrine of fundamental breach in the context of clauses excluding party from contractual liability has been confusing at the best of times. Simply put, the doctrine has served to relieve parties from the effects of contractual terms, excluding liability for deficient performance where the effects of these terms have seemed particularly harsh. Lord Wilberforce acknowledged this in Photo Production, supra, at p. 843: 1. The doctrine of 'fundamental breach' in spite of its imperfections and doubtful parentage has served useful purpose. There was large number of problems, productive of injustice, in which it was worse than unsatisfactory to leave exception clauses to operate. In cases where extreme unfairness would result from the operation of an exclusion clause, fundamental breach of contract was said to have occurred. .. Thus, even if the parties excluded liability by clear and express language, they could still be liable for fundamental breach of contract. This rule of law was rapidly embraced by both English and Canadian courts." He remarked at p. 462: "Professor Waddams makes two crucially important points. One is that not all exclusion clauses are unreasonable. This fact is ignored by the rule of law approach to fundamental breach. In the commercial context, clauses limiting or excluding liability are negotiated as part of the general contract. As they do with all other contractual terms, the parties bargain for the consequences of deficient performance. In the usual situation, exclusion clauses will be reflected in the contract price. Professor Waddams second point is that exclusion clauses are not the only contractual provisions which may lead to unfairness. There appears to be no sound reason for applying special rules in the case of clauses excluding liability than for other clauses producing harsh results. In light of the unnecessary complexities the doctrine of fundamental breach has created, the resulting uncertainty in the law, and the unrefined nature of the doctrine as tool for averting unfairness, am much inclined to lay the doctrine of fundamental breach to rest, and where necessary and appropriate, to deal explicitly with unconscionability. In my view, there is much to be gained by addressing directly the protection of the weak from over‑reaching by the strong, rather than relying on the artifical legal doctrine of 'fundamental breach'. There is little value in cloaking the inquiry behind construct that takes on its own idiosyncratic traits, sometimes at odds with concerns of fairness. This is precisely what has happened with the doctrine of fundamental breach. It is preferable to interpret the terms of the contract, in an attempt to determine exactly what the parties agreed. If on its true construction the contract excludes liability for the kind of breach that occurred, the party in breach will generally be saved from liability. Only where the contract is unconscionable, as might arise from situations of unequal bargaining power between the parties, should the courts interfere with agreements the parties have freely concluded. The courts do not blindly enforce harsh or unconscionable bargains and, as Professor Waddams has argued, the doctrine of 'fundamental breach', may best be understood as but one manifestation of general underlying principle which explains judicial intervention in variety of contractual settings. Explicitly addressing concerns of unconscionability and inequality of bargaining power allows the courts to focus expressly on the real grounds for refusing to give force to contractual term said to have been agreed to by the parties. wish to add that, in my view, directly considering the issues of contract construction and unconscionability will often lead to the same result as would have been reached using the doctrine of fundamental breach, but with the advantage of clearly addressing the real issues at stake." am inclined to similar approach in the instant case. We must explicitly address "concerns of unconscionability and inequality of bargaining power" in order to determine the force to be given to relevant clauses in the agreement and, in particular 2.06 and 18.10. As read the reasons of Dickson, C.J. in Hunter, issues of unconscionability and inequality of bargaining power are to be determined from the facts. contract may be found to be unconscionable when there is unequal bargaining power between the parties. However, unequal bargaining power is not the only situation where unconscionability may arise. The Chief Justice did not review the law of unconscionability. He concluded at p. 464: "I have no doubt that unconscionability is not an issue in this case. Both Allis‑Chalmers and Syncrude are large and commercially sophisticated companies. Both parties knew or should have known what they were doing and what they had bargained for when they entered into the contract. There is no suggestion that Syncrude was pressured in any way to agree to terms to which it did not wish to assent." What then constitutes unconscionable behaviour? The task of determining whether acts are unconscionable is at times difficult because the meaning of the word is far from precise. suggest that it cannot be determined by recourse to dictionary or precedents. Those can assist but they cannot precisely apply. The answer must be found within the particular facts of the case: the result will differ as do the facts. As explained by Fridman in The Law of Contract in Canada, second edition, 1986, at p. 303, in contractual setting there may be present features which encourage and entitle court to apply equitable principles to intervene and grant rescission: those features are the ingredients of what might be termed "equitable fraud". It is not fraud in the classical, common‑law sense, involving misrepresentations of the truth. Nor is there any improper application of pressure amounting to duress or its equitable analogue of undue influence. "Nonetheless, the conduct of one party in obtaining the assent of the other to particular contract was of such character that court might well consider that to uphold the ensuing contract would be to perpetrate an injustice and produce an unfair result. contract may be rescinded if the behaviour of one contracting party was unconscionable." He continued at p. 304: "Where bargain is held to be unconscionable, it is not the consent of the victim that is impugned, but the reasonableness of the bargain, the conscientiousness of the other party, the equitable character of the transaction. In making such decisions, court may be concerned with the internal state of mind of the party seeking rescission. But it is also concerned with external matters, the state of affairs surrounding the making of the contract, to the extent that such externalities operated on the mind of the party seeking rescission." For our purposes his following comments (pp.304‑5) distinguishing unconscionability and undue influence are useful: "Moreover finding that there had not been undue influence does not preclude decision in favour of party who also alleges unconscionable conduct. In contrast with an attack upon consent, which is what is involved in plea of undue influence, plea that bargain is unconscionable, or has been obtained by unconscionable means or methods, permits court to invoke relief against an unfair advantage gained by an unconscientious use of power by stronger party against weaker. Where such misuse of power is shown, it creates presumption of fraud, in the equitable not common‑law sense. That presumption the stronger party must repel by proving that the bargain was fair, just and reasonable. The two doctrines are closely related. Indeed the latter is obviously an offshoot of the former. But they are distinct, even though their parentage is the same." In Lloyd's Bank v. Bundy, [1974] All E.R. 757 (C.A.), Lord Denning focused his attention on inequality of bargaining power while the majority of the court focused on undue influence in the traditional sense and the fiduciary duty which was found to exist between the bank and Mr. Bundy. After commenting upon Bundy, Fridman at p. 307 said: "...the traditional view of unconscionability is that it involves conduct that is tantamount to fraud in moral, if not strictly legal sense." In the author's view: "...it may be suggested that between traditional conceptions of what is unconscionable and the reformulation of what is unjust in terms of inequality of bargaining power there is not wide gap. To judge by recent Canadian authority, the two notions appear to be almost interchangeable." Lord Scarman in National Westminster Bank v. Morgan, [1985] All E.R. 821, after discussing several cases including Lloyd's Bank v. Bundy said at p. 831: "There is no precisely defined law setting limits to the equitable jurisdiction of court to relieve against undue influence. This is the world of doctrine, not of neat and tidy rules. The courts of equity have developed body of learning enabling relief to be granted where the law has to treat the transaction as unimpeachable unless it can be held to have been procured by undue influence. It is the unimpeachability at law of disadvantageous transaction which is the starting point from which the court advances to consider whether the transaction is the product merely of one's own folly or of the undue influence exercised by another. court in the exercise of this equitable jurisdiction is court of conscience. Definition is poor instrument when used to determine whether transaction is or is not unconscionable: this is question which depends on the particular facts of the case." In DeWolfe v. Mansour et al (1986), 73 N.S.R. (2d) 110 Nunn, J. refused to set aside contract between developer and real estate agent by reason of unconscionability because the parties had received independent legal advice; the party alleging unconscionability was not forthright in his dealings surrounding the execution of the contract; and there was no unfair advantage or inequality of bargaining power between the parties. He referred to Fridman and Lord Denning's reasons in Lloyd's Bank v. Bundy and then said (p. 114‑5): "In the same case Sir Eric Sachs, whose judgment was held by the House of Lords to be the real essence of the Lloyd's Bank case in National Westminster Bank v. Morgan, [1985] All E.R. 821, stated at p. 768: 'It may in the particular circumstances entail that the person in whom confidence has been reposed should insist on independent advice being obtained or ensuring in one way or another that the person being asked to execute document is not insufficiently informed of some factor which could affect his judgment. The duty has been well stated as being one to ensure that the person liable to be influenced has formed "an independent and informed judgment", or to use the phraseology of Lord Evershed, M.R. in Zamet v. Hyman, "after full, free and informed thought"." It should be noted that in Bundy the court was discussing fiduciary relationships. However, in my view, the‑statement of Sir Eric Sachs is applicable to situation where there is an inequality of bargaining power due to one party not being informed of all of the relevant and pertinent information, keeping in mind all of the surrounding circumstances. Sodd Corporation Inc. v. Tessis (1977), 1977 CanLII 1415 (ON CA), 79 D.L.R. (3d) 632 is in many respects similar to that at bar, other than the exemption clause preceded, rather than followed, the impugned statements. The Ontario Court of Appeal, per Lacourciere, J.A. at p. 633 commented that the trial judge found: "...that the defendant was negligent in misrepresenting the quantity and value of the items included in the assets of the bankrupt advertised for sale, and that the defendant was not entitled to rely on an exemption clause in the advertisement which reads as follows: 'Tenders will be accepted on the basis that the Purchaser has inspected the assets and title thereto, and no warranty or condition is expressed or can be implied as to designation, classification, quality or condition or in any manner whatsoever.'" He continued at p. 635: "However, the present case did, in fact, involve pre‑contractual negligent misrepresentation which induced the plaintiff to submit its tender, and the defendant's liability follows on the authority of Esso Petroleum Co. Ltd. v. Mardon, [1976] All E.R. 5; see also Walter Cabott Construction Ltd. v. The Queen (1974), 1974 CanLII 1263 (FC), 44 D.L.R. (3d) 82; varied (1975), 1975 CanLII 1054 (FCA), 69 D.L.R. (3d) 542, 12 N.R. 285. In our view, the trial Judge was correct in finding that the plaintiff was not negligent in relying on licensed trustee who had caused an inventory of the stock to be taken, when the plaintiff's opportunity for inspection was, at best, limited. There is one further aspect to consider with respect to liability. While the plaintiff's claim was pleaded on the basis of contract, it was clearly presented at trial as being founded upon the tort of negligent misrepresentation, without any amendments being sought or granted. In our view, while an amendment at this stage would not be unfair, it is unnecessary inasmuch as the defendant's negligent misstatement also constituted collateral warranty inducing the plaintiff to submit its tender. The defendant's stipulation amounted, in our view, to binding promise, depriving him of the terms of the exemption. On that basis, the conclusion can be supported in contract: Couchman v. Hill, [1974] K.B. 554; Esso Petroleum Co. Ltd. v. Mardon, supra. It is clear from the cases that the defendant's representation, whether characterized as negligent misstatement or as collateral warranty, falls outside the exemption clause."(My emphasis) McIntyre, J. A. in Harry v. Kreutziger (1978), 1978 CanLII 393 (BC CA), 95 D.L.R. (3d) 231 (B.C.C.A.) after reviewing series of cases dealing with unconscionability due to the unequal bargaining powers of the parties stated at p. 237: "From these authorities this rule emerges. Where claim is made that bargain is unconscionable, it must be shown for success that there was inequality in the position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain. When this has been shown presumption of fraud is raised and the stronger must show, in order to preserve his bargain, that it was fair and reasonable. Like many principles of law, it is much easier to state than to apply in any given case. In the cases cited above the facts were such that the application of the remedy was clearly required. In the case at bar the facts do not speak as clearly. None the less, am of the view that this appeal should succeed and the contract be rescinded." He continued at p. 239: "It is true, as he (the trial judge) has pointed out, that appellant could have sought advice; he could have torn up the cheque; he could have refused to have any dealings with the respondent; but this will be true of almost any case where an unconscionable bargain is claimed. If the appellant had done these things, no problem would have arisen. The fact remains, however, he did not, and in my view of the evidence it was because he was overborned by the respondent because of the inequality in their positions and the principles of the cases cited apply." This observation by Maclntyre, J.A. is apt here. Applying that reasoning, albeit to different factual situation, if Murphy had given more thought to the specifics of the contract and had obtained legal advice or had prepared his own proposal, then the problems would not have arisen at the stage they did. However, he did not do so. He relied upon the representations made by MacDougall and MacDougall intended him to do so. As result he should not be denied consideration of the principles of unconscionability, as so urged by the appellant. The most frequently cited cases respecting the principle of unconscionability are Morrison v. Coast Finance Ltd. et al (1965), 1965 CanLII 493 (BC CA), 55 D.L.R. (2d) 710; Lloyd's Bank v. Bundy, supra; and Harry v. Kreutziger, supra. These cases represent somewhat different approaches to unconscionability, however, all of them are interrelated. In Morrison the traditional view of unconscionability (pre Bundy) was applied. As earlier mentioned, Bundy focused more on the inequality of the bargaining positions of the parties. However, all three have similar base. In Harry, Lambert, J. A. proposed community standards approach. He commented that he was not satisfied that the principle, as stated by Davey, J.A. in Morrison and by Maclntyre, J.A. in Harry, "exhausts all cases where rescission might be ordered under the rubric of unconscionable bargain". (p. 240). He then said: "I agree wholeheartedly with McIntyre, J.A., when he says that it is easier to state the principle than to apply it in given case. Indeed, to my mind, the principle is only of the most general guidance. It is not principle of the type which can be applied to facts to produce, by logical process, clear conclusion. To think of. it as such principle is to obscure the real process of consideration and judgment that leads to decision in this kind of case." He continued at p. 241: "In my opinion,questions as to whether use of power was unconscionable, an advantage was unfair or very unfair, consideration was grossly inadequate, or bargaining power was grievously impaired, to select words from both statements of principle, the Morrison case and the Bundy case, are really aspects of one single question. That single question is whether the transaction seen as whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded. To my mind, the framing of the question in that way prevents the real issue from being obscured by an isolated consideration of number of separate questions; as, for example, consideration of whether the consideration was grossly inadequate, rather than merely inadequate, separate from the consideration of whether bargaining power was grievously impaired, or merely badly impaired. Such separate consideration of separate questions produced by the application of synthetic rule tends to obscure rather than aid the process of decision."(My emphasis) In Stephenson v. Hilti (Canada Ltd.) (1989), 1989 CanLII 191 (NS SC), 93 N.S.R. (2d) 366, Hallett, J., then of the Trial Division of this court, considered bargain struck to terminate an employment contract. The parties clearly were not in an equal bargaining position. He commented at pp. 369‑70: "The courts must be very slow to set aside an agreement made between parties for valuable consideration. However, agreements that are unconscionable will be set aside. The law on the subject has been stated by Mr. Justice Jones of the Appeal Division of this court in Stevens v. Stevens (1983), 57 N.S.R. (2d) 141; 120 A.P.R. 141, at p. 145 as being 'well settled'. Mr. Justice Jones then referred to the decision of Valta v. Valta and Johansson (1979), 1978 CanLII 410 (BC CA), R.F.L. (2d) 133, where Taggart, J.A., of the British Columbia Court of Appeal quoted from decision in Morrison v. Coast Finance Ltd. as setting out the law on unconscionable transaction. In the latter decision, the court stated: '...a plea that bargain is unconscionable invokes relief against an unfair advantage gained by an unconscientious use of power by stronger party against weaker. On such claim the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of those circumstances, it creates presumption of fraud which the stronger must repel by proving that the bargain was fair, just and reasonable.' He continued at p. 370: "Professor Fridman further stated with respect to employment contracts at p. 311: 'Reading these cases, and those which have turned on the traditional idea of unconscionability; the impression is obtained that, whichever test is being utilized and applied, the basic question for the court is the same: has there been an unconscientious use or abuse of power or position by one party against the other. In the final analysis, there does not seem to be too vast difference, if any at all, between rescission for unconscionable behaviour and rescission for taking advantage of an inequality of bargaining power. Whichever test is used, however, one issue does arise. How far is it valid and desirable for courts to exercise some discretionary power over contracts that have been negotiated without fraud, duress or undue influence in the classical sense, and without there having been some kind of misrepresentation, albeit innocent, giving rise to mistake that induced the making of the contract?' In Harry v. Kreutziger (1979), 1978 CanLII 393 (BC CA), 95 D.L.R. (3d) 231, the British Columbia Court of Appeal reviewed the authorities on unconscionable transactions. Mr. Justice Lambert proposed fairly simple test for determining whether transaction was unconscionable where he stated at p. 241 that the single question is whether the transaction, seen as whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded. To put it even more succinctly, is the transaction so unconscionable that it requires the intervention of the court considering all the circumstances surrounding the making of the agreement." The approach of Lambert, J. in Harry is similar to that later expressed by Chief Justice Dickson in Hunter. Both cut through the artificial concepts surrounding this aspect of contract law. For emphasis, again refer to the statements of the Chief Justice in Hunter at p. 461‑2 earlier set forth. In Hunter Wilson, J. with L'Heureux‑Dube, J. concurring, agreed with the conclusion reached by the Chief Justice, but preferred as the test whether it would be fair and reasonable to enforce clear and unambiguous exclusion clause after breach had occurred. court must determine the boundaries of tolerable conduct. She referred (pp. 514‑5) to the decision of Anderson, J. in Davidson v. Three Spruces Realty Ltd. (1977), 1977 CanLII 1630 (BC SC), 79 D.L.R. (3d) 481 (B.C.S.C.) and his proposed criteria to ascertain whether freedom to contract had been abused so as to make it unconscionable for one of the parties (the bailee) to exempt itself from liability due to an exculpatory clause. She then said: "Anderson J.'s judgment in Davidson drew on Gillespie Brothers Co. v. Roy Bowles Transport Ltd., [1973] Q.B. 400 (C.A.), in which Lord Denning said at pp. 415‑16: The time may come when this process of 'construing' the contract can be pursued no further. The words are too clear to permit of it. Are the courts then powerless? Are they to permit the party to enforce his unreasonable clause, even when it is 'so unreasonable, or applied so unreasonably, as to be unconscionable? When it gets to this point, would say, as said many years ago: 'there is the vigilance of the common law which, while allowing freedom of contract, watches to see that it is not abused': John Lee Son (Grantham) Ltd. v. Railway Executive [1949] All E.R. 581. It will not allow party to exempt himself from his liability at common law when it would be quite unconscionable for him to do so. (Emphasis added). At pp. 509‑10 she set out the fair and reasonable test: "It is however, in my view an entirely different matter for the courts to determine after particular breach has occurred whether an exclusion clause should be enforced or not. This, believe, was the issue addressed by this Court in Beaufort Realties. In Beaufort Realties this Court accepted the proposition enunciated in Photo Production that no rule of law invalidated or extinguished exclusion clauses in the event of fundamental breach but rather that they should be given their natural and true construction so that the parties' agreement would be given effect. Nevertheless the Court, in approving the approach taken by the Ontario Court of Appeal in Beaufort Realties, recognized at the same time the need for courts to determine whether in the context of the particular breach which had occurred it was fair and reasonable to enforce the clause in favour of the party who had committed that breach even if the exclusion clause was clear and unambiguous. The relevant question for the Court in Beaufort Realties was: is it fair and reasonable in the context of this fundamental breach that the exclusion clause continue to operate for the benefit of the party responsible for the fundamental breach? In other words, should party be able to commit fundamental breach secure in the knowledge that no liability can attend it? Or should there be room for the courts to say: this party is now trying to have his cake and eat it too. He is seeking to escape almost entirely the burdens of the transaction but enlist the support of the courts to enforce its benefits." critique of Hunter is contained in an article by Robert Flannigan in (1990) 69 C.B.R. 515. To return to the instant case, in respect to clause 2.06, the trial judge held: "The wording of this (exclusionary) clause is very broad. The agreement and the forecasts were all given to Murphy at the same time or came in the same mail. The agreement attempts to create an artificial situation. MacDougall who gave the material to Murphy and discussed the projections with Murphy, also gave him copy of the Agreement. MacDougall, being Atlas, knew that Murphy was relying on that forecast. MacDougall considered it an inducement and knew that in reliance upon that inducement Murphy was signing up. find Atlas cannot divorce itself from the other material it gave out. find that in looking at all the circumstances the financial forecasts formed part of the documentary material upon which the contract was based and the inducement made. Atlas held MacDougall out as the inducer. It cannot now disassociate itself from his acts of inducement." He also found that the appellant was desirous of transferring the operation of the business to franchisees with the consequential relief of responsibilities and obligations. He found that the MacDougall projections were represented to Murphy to be factual and accurate and intended to be relied upon by Murphy to induce him to sign the contract. At the same time the appellant knew that Murphy did not have the resources or ability to check the accuracy of those projections. The trial judge found that the projections "were inaccurate as to expenses and grossly inaccurate as to retail sales and profits"; that even though MacDougall knew that Murphy had questioned the retail sales forecast, MacDougall reassured him "telling him that the resources of Atlas had gone into the forecast". It was Ritchie who produced the proforma financial outlook in detail. He concluded that "we do not have viable case for development" in Yarmouth. Ritchie's figures and his conclusion were not given to Murphy although there was ample opportunity to do so prior to the signing of the agreement. What can be said of the appellant's conduct? Was it such that it should be termed unconscionable? Counsel did not draw Hunter to the attention of the trial judge nor was the issue of unconscionability argued before him as it was before us. The trial judge had the unique opportunity to see the witnesses and evaluate their testimony first hand, perspective not given to us. It is evident from his comments that he believed the testimony of Murphy. Assessments of credibility were, of necessity, involved in the trial judge's conclusion. His various comments and findings of fact are pertinent to the issues of unconscionability. In the case at bar it is of importance to note that the franchise agreement was entered into on the one hand by large national company with international connections through its parent, Imperial Oil, and on the other by small business man who, though no neophite, had little or no retail experience. The agreement was prepared by the appellant and affords it protection including the exclusionary clause, while imposing obligations upon the franchisee. MacDougall admitted that the promotional brochure given to Murphy was not only for the purpose of informing a prospective franchisee, but of inducing and enticing such a prospect to enter into the contract. Murphy was informed that the appellant carried out an intensive and costly assessment of the market for such franchises. The MacDougall projections were given to Murphy with the intent that he rely upon them. Simply put: they should not have been relied upon. Even if MacDougall believed his own calculations, they ignored those of Ritchie which had forced Ritchie to the conclusion that the proposed operation was not viable without alterations. Indeed, MacDougall admitted that the assumption that on net earnings of $11,000.00 "there simply is no reason for the employer to get either paid for his work or to get an adequate return on his investment" was so important that he could not believe that it was not discussed with Murphy. It was not. MacDougall, in an attempt to induce Murphy to enter into the agreement gave only his financial forecast to Murphy, telling him "the resources of Atlas had gone into the forecast". He did this knowing, as the trial judge found, that "Murphy did not have the resources and ability to check out the Atlas financial forecast and that he did not do so." The MacDougall projections were based upon assumptions which could not be justified even to Ritchie. In addition MacDougall knew that, in respect to Murphy, they were false, for they were based on the rather startling proposition that the franchisee was expected to work full time without pay. Murphy was not informed of this "important assumption". Placing only the MacDougall projections forward, alleging that they had the full force of Atlas (and Imperial Oil) behind them, in these circumstances, these parties were not bargaining as equals. Not only that, but it is clear that the appellant had information which would have dissuaded any but the foolhardy to enter into the agreement and it withheld that information from Murphy. It appears to me that, having made certain statements respecting projections to Murphy, intending him to rely upon them, which statements were determinative respecting the viability of the franchise and knowing that Murphy did so rely, the appellant had an obligation to inform Murphy of the fact that MaDougall's projections were flawed to the extent that the project was not viable. Withholding that information from Murphy, deprived him of ability to then determine the extent of the flaws and if he wished to enter into the agreement. can only conclude, as did the trial judge, that "if MacDougall had been open with Murphy and told him what Ritchie thought and what Ritchie expected, the deal would never have been completed." In these circumstances, would apply the comments of Sir Eric Sachs in Bundy: the appellant should have ensured "in one way or another that the person being asked to execute document is not insufficiently informed of some factor which could affect his judgment." Business people entering into contract must have some certainty that its provisions will be applied and that courts will refrain from rewriting the contract. That proposition however is subject to the important caveat: the court will intervene, and properly so, when the party desiring to enforce its exclusionary clause has engaged in unconscionable conduct. To paraphrase Sir Eric Sachs in Bundy: Murphy reposed confidence in the appellant, for the reasons previously set out. The appellant knew that he did. The appellant also knew that by withholding the Ritchie figures and conclusion as expressed in his memo of October 23, 1985, Murphy was "not sufficiently informed of some factor which would affect his judgment". The trial judge said and repeat: "It seemed to me that if MacDougall had been open with Murphy and told him what Ritchie thought and what Ritchie expected, the deal would never have been completed. As well had MacDougall inquired into the viability of Yarmouth Equipment and passed that information on to Ritchie probably the deal would have been squelched. At no time was MacDougall up front with the defendant Murphy by telling him that the Atlas experience in latter years with Yarmouth had been bad or that he was required to marry up the franchise with an otherwise successful business.” There can be no doubt that Murphy had the agreement in sufficient time for him to have studied it and indeed he had time to give it to his solicitor for advice. However, it is equally clear, that he was relying upon MacDougall and Ritchie. In the circumstances, in my opinion, the position statements made by MacDougall and the withholding of contrary information, categorized MacDougall's projections as unconscionable. Although the principle of unconscionability should be used sparingly to avoid an exclusionary clause, this appellant should not be permitted to engage in such conduct secure in the knowledge that no liability could be imposed upon it because of the exclusionary clause or, as Wilson, J. said at p. 510 in Hunter: "...this party is now trying to have his cake and eat it too. He is seeking to escape almost entirely the burdens of the transaction but enlist the support of the courts to enforce its benefits." Employing the words of Fridman, supra, the appellant's conduct here, in my opinion, has been such that "it creates presumption of fraud, in the equitable not common‑law sense" and the appellant has not proved that "the bargain was fair, just and reasonable". To enforce the exclusionary clause in these circumstances would, in my opinion, produce an unconscionable bargain. In determining that Murphy should be discharged from his guarantee under the agreement the trial judge said: "I consider most of the debt arising from the Atlas franchise was owed to Atlas. It purchased all or nearly all of its stock from Atlas. The stock for its nuts and bolts operation was purchased through its credit arrangement with the bank. Atlas had the opportunity to have its account reduced by taking back inventory. It was not prepared to do so. Had it done so rather than expose the stock to the liquidation sale and its reduced prices the amount owing to Atlas would be less than at present. It did so to the prejudice of Murphy as guarantor. Atlas put the franchise on C.O.D. basis in January 1987. Notice of default was given on February 12, 1987. Under Article 16.05 the plaintiff had the obligation to take back the inventory at the current sale price less restocking charge. Murphy said the bank was prepared to waive its lien and the evidence disclosed no other encumbrances to 'good and marketable title'. find in failing to do so the plaintiff has acted in way which has compromised the rights of the guarantor. The details of the liquidation sale are not in evidence. The evidence was that the normal retail sales for the inventory were not there. The liquidation sale was reasonable act after the refusal of Atlas to take the inventory back. There was no suggestion that the defendants squandered the profits or the proceeds of the sales. In The Law of Guarantee, McGuinnes, Article 10.57 (page 283): 'A creditor must deal with security in reasonable manner so as to ensure that the maximum amount is derivable from it to satisfy the guaranteed debt'. find the failure of Atlas to accept the inventory was unreasonable. accept the evidence of Murphy that it was twice offered to Atlas with the bank's encumbrance waived. In the circumstances here find the defendant Murphy discharged from his guarantee. dismiss the claim against Murphy." Earlier he commented: "Murphy said he offered to return the stock to Atlas. He made arrangements with the bank that it would permit the return as the bank held some security. However, Atlas was not prepared to take the stock back. He said the stock, clear of encumbrances, was twice offered to Atlas and twice refused. This was not contradicted." study of the transcript discloses that Murphy testified that he had asked his brother, who was his lawyer, to contact Atlas and to offer all of the stock to them. There is no evidence that this was ever done. The brother did not testify. Mr. Murphy said that his bank manager had told him he was willing to let the stock go back, but no one from the bank testified. Murphy admitted in cross‑examination that he could not say that Atlas was ever told that the bank would permit the return of the inventory. He further admitted that the bank manager did not tell him "that the bank waived any claim to the proceeds of that inventory". An employee of Atlas testified that the inventory was not offered back to Atlas and that the bank had seized it. There was no admissible evidence that the inventory was offered to the appellant prior to the liquidation sale or that the bank was prepared to release its charge. The money realized from the sale of the inventory was paid to the bank to reduce its claim against Yarmouth Equipment and, as well, against Murphy under the guarantee he had given to the bank. In my opinion Murphy should not be released from his guarantee to the appellant to the extent of the value of the Atlas inventory. In all other respects Murphy should be released from that guarantee due to the unconscionable conduct of the appellant. As to the counterclaim of Murphy the trial judge said: "The defendant Murphy shall recover from the plaintiff his payment of $7,000.00 for the franchise and the sum of $16,500.00 which he paid for start‑up expenses of the franchise including renovations to meet the requirements of Atlas and the sign. accept the evidence of Murphy on these expenditures which were well detailed in his very thorough cross‑examination. He shall have pre‑judgment interest. will hear counsel orally or by letter on the relevant date and percentage." The pleadings were vague as to this claim. However evidence was produced, counsel argued and the trial judge made his findings. In the circumstances would not disturb his conclusions. In summary, I would allow the appeal in part. The appellant shall have judgment against Murphy for the value of the inventory together with pre‑judgment interest. In all other respects would dismiss the appeal. As the claim in respect to the inventory took but small portion of the argument, would divide the costs 80/20 in favour of Murphy, both here and in the court below. The contention was not pressed on appeal: there will be no costs to any party on that contention. J.A. FREEMAN, J.A.: (Concurring with separate reasons) In 1986 Yarmouth, Nova Scotia, businessman purchased an automative parts franchise from subsidiary of major multinationalcorporation and combined it with his newly established hardware business, the respondent, Yarmouth Equipment Limited. In nine months the new venture was dead with substantial losses all around. More accurately, the new venture was stillborn and collapsed after nine months of losses. It appears to have had no real chance of succeeding. The claim of the appellant, Atlas Supply, the vendor corporation, to recover its losses under guarantee signed by the businessman, the respondent Murphy, was dismissed at trial. Atlas has appealed. The failure did not result from any identified negligence or mismanagement on the part of Mr. Murphy or his company. It did not result from sudden change in the market; the vendor corporation was well aware of downtrend. The failure was the inevitable result of the inherent unsoundness of the whole enterprise. The respondents did not have the resources to identify that unsoundness. They were relying on the. appellant, which did. As part of the consideration for the franchise, Mr. Murphy signed personal guarantee to pay the losses of the appellant, Atlas Supply Company of Canada Ltd., subsidiary of the Imperial Oil Company. With the greatest respect for the reasoning of Mr. Justice Hallett, concur with the conclusions of Mr. Justice Matthews that the respondent should not be fully liable on the guarantee. These, briefly, are my reasons; have relied on the facts developed in both of the other judgments. The parties signed an agreement at the conclusion of negotiations in which the retail "nuts and bolts" business of Yarmouth Equipment came under consideration by Atlas as suitable vehicle for franchise. The agreement contained the guarantee and an exclusionary clause that the document was complete on its face with no further warranties. Mr. Murphy had the legal advice of his brother, lawyer, before he signed. No amount of legal scrutiny of the document could have uncovered the underlying weakness concealed by the flawed negotiations. Because there were no disclosures to the contrary, all parties were entitled to believe, and to believe that the other parties believed, that they were entering into the written agreement with reasonable expectations the business could succeed. If Atlas actually believed the venture could succeed, its belief was not reasonable one for national business with illustrious parentage. Mr. Murphy paid his money and signed the guarantee with the expectation that the transaction was sound within the business judgment of Atlas: that nothing in the experience and expertise of Atlas and its parent company indicated the new business could not succeed. He had, in fact, been given express assurances that Atlas considered it to be viable. The appellant's evidence is that Atlas considered that the Yarmouth franchise combined with Yarmouth Equipment would make "reasonable return." That acknowledgement, measured against the reality, discloses the measure of care and business judgment Atlas brought to its negotiations with Mr. Murphy. To large extent the facts speak for themselves. Such an early and thoroughgoing calamity, preceded by consistent losses, must have been predictable by any sophisticated modern business corporation which examined the facts. Mr. Murphy was told Atlas had done its homework. He was given no warning the venture was doomed. He committed his company and signed the guarantee. The calamity occurred. If Atlas had been unable to see the obvious, it had not done its homework. It had not exercised reasonable standard of care. It did not enter into the contract with reasonably held belief that the venture could succeed. Mr. Murphy was misled. John MacDougall, the Atlas representative, must bear much of the blame. Instead of protecting the best interests of his employer, which in the end would have protected Murphy, he assumed the role of broker between Murphy and Atlas. He overcame the valid misgivings of his superior, Mr. Ritchie, with unjustified assurances about Yarmouth Equipment based on inadequate inquiry. He overcame Murphy's concerns by assuring him that Atlas, with its substantial resources, believed in the viability of the venture on the basis of proper investigation and research. Initial projections by Atlas indicated only marginal profitability for the parts franchise. Mr. Ritchie pointed this out to Mr. MacDougall, and told him it was not viable unless it could be joined to an established business, essentially as sideline. Mr. MacDougall persuaded him that Yarmouth Equipment was suitable partner. Mr. MacDougall, and thus Atlas, should have known better. Yarmouth Equipment was new‑‑in business only two months‑‑and off to rocky start. Mr. Ritchie himself would have known that if he had made rudimentary inquiries. Atlas did not take Yarmouth Equipment's performance to the date of the agreement properly into account. It had suffered $40,000 loss. It should have been obvious to Mr. Murphy, as well, that wedding losing operation to marginal one is not formula for success. He appears to have been lulled by Mr. MacDougall's enthusiasm. After all, would Atlas and its mighty parent give their blessing to foredoomed union? As an independent broker, MacDougall's handling of information would have been questionable. As the employee who represented Atlas to Murphy, his smudging of the picture was less than conscientious. His projections for wholesale sales of Atlas parts were reasonably accurate; those for retail sales were disastrously short of the mark. The new combined operation created by his machinations, the Atlas parts business grafted to Yarmouth Equipment, fluttered weakly and fell. do not think it likely that would have happened to an enterprise founded on proper exercise of Atlas' business judgment. Mr. Murphy was entitled to expect that Atlas would not sell him franchise and enter into business relationship with him and his company without measure of care. He paid to associate himself with Atlas, its name, reputation and business acumen. Mr. Murphy did not get what he paid for: franchise operation deemed reasonably capable of succeeding in union with his own business by large corporation with access to substantial resources for market studies and great experience in the sales field. He was not entitled to expect guarantees of success or iron‑clad projections. But he was entitled to reasonable care‑‑reasonable business judgment applied to reasonably developed data. Atlas was not merely selling franchise; it was concerned with the new combined operation as an outlet for its parts. Mr. Murphy knew this. He says he was told Atlas was looking at the venture with scientific methods. He was no doubt swayed by Mr. MacDougall's unbased optimism: he needed lifeline. He was thrown an anchor. There are echoes here of the old doctrine of fundamental breach, failed consideration, mistake, breach of collateral warranty, reliance on the seller's skill and judgment. However the concept of unconscionability says it all. (See: Hunter Engineering Co. Inc. v. Syncrude, (1989] 1989 CanLII 129 (SCC), S.C.R. 426.) Atlas sold Mr. Murphy and Yarmouth Equipment on an enterprise that it should have known had no reasonable chance of success. Atlas now seeks to make Murphy pay for its losses under personal guarantee. It would have been reasonable for Murphy to sign the guarantee if he had been getting what he had the right to expect he was getting. It is not reasonable for Murphy to have to pay to protect Atlas from the effect of its own shortcomings. Atlas could afford to be careless. It knew it could not lose, whatever those shortcomings might be: as the major player it could demand guarantee from purchaser as term of doing business. It had the clout to shift the risk. Atlas could sell junk franchise and not be hurt. Only the purchaser would be hurt. In addition to paying his own losses he would have to pay any losses of Atlas. He would have to honour his guarantee. The arrangement is neat, but find it offensive to conscience. have no difficulty in finding it unconscionable that Atlas should recover from Murphy on the guarantee. would, however, find him liable to the extent that he should pay Atlas the value received for inventory received from Atlas which was sold by the bank and applied to his own debts. In the result, concur with Mr. Justice Matthews. Freeman, J.A. HALLETT, J. A.: (Dissenting) have read the reasons of Matthews, J.A., for allowing this appeal in part. With respect, cannot agree with his conclusion that the withholding of Mr. Ritchie's initial financial forecasts that the Yarmouth franchise operating on its own would only provide return of $11,000.00 was so unconscionable as to warrant the Court's refusal to enforce the clauses in the franchise agreement that sales volumes and profit projections were not warranted by the appellant. As the essential facts in the case are set forth in some detail in his decision, there will be no need for me to refer to the facts except with respect to the specific points that are relevant to my reasoning for allowing this appeal in full. The franchise agreement (the "franchise agreement") entered into between the appellant and the respondents, Yarmouth Equipment Limited and Mr. John M. Murphy as guarantor, was business contract negotiated between parties experienced in business. The terms of the franchise agreement were clear; there were no representations or warranties by the appellant respecting sales volumes or profitability of the franchise. The franchise agreement was stated to be the entire agreement between the parties. It was signed by Yarmouth Equipment Limited as the franchisee and signed by the respondent Murphy as the guarantor of Yarmouth Equipment Limited's obligations. Parties must be bound by the terms of their written contracts unless there was some form of fraud or duress that induced the making of the contract or the contract was so unconscionable that the weaker party could satisfy Court that the contract should not be binding upon the parties. There are no allegations of fraud or duress. In my opinion, the terms of the franchise agreement were reasonable and exactly what one would expect that is, that sales volumes and profitability were not guaranteed or warranted. These terms are not unconscionable in the circumstances of this case. THE TRIAL JUDGE'S FINDINGS In my opinion, the learned trial judge was in error when he found, despite the terms of the written agreement stating that there were no warranties respecting sales volume or profitability of the franchise, that certain projections by the appellant's representative with respect to both, which were presented to the respondents prior to the signing of the franchise agreement, were binding collaterial warranties. On the appeal, the respondents' principal argument was that the exculpatory clauses in the franchise agreement were unconscionable. However, will say word about the key cases relied on by the respondents to support the trial judge's findings that there was collateral warranty. The first is decision of the Ontario Court of Appeal in Sodd Corporation Inc. v. Tessis (1977), 1977 CanLII 1415 (ON CA), 79 D.L.R. (3d) 632, relied on to support the argument that the collateral warranty found by the learned trial judge to have been given by the appellant to the respondents with respect to the sales projections and profitability of the franchise continued to exist notwithstanding the clause in the franchise agreement stating that there were no such warranties. review of the Sodd decision shows it turned on the fact that the defendant, professional accountant, was in special relationship that created duty of care to the plaintiff. The accountant was negligent in the representation made to the plaintiff concerning the retail value of the stock that the defendant was selling in connection with liquidation of business. That case is distinguishable from the present appeal as the representation in the Sodd case was made after the advertisement for the sale of the goods appeared in the newspaper. The advertisement contained the statement that there were no warranties respecting the condition of the goods. In the present case, the franchise agreement between the appellant and the respondents was executed after the so‑called collateral warranties had been made; the terms of the franchise agreement stated there were no such warranties. Therefore, it ought to have been clear to the respondent Murphy at the time of execution that whatever he may have thought were representations or warranties respecting sales and profit projections were not to be part of the agreement. Secondly, the disclaimer in the advertisement in the Sodd case was vaguely worded whereas the franchise agreement in the case under appeal clearly stated the projections were not warranties. Thirdly, there was no special relationship between the appellant and the respondents; both were experienced in business and were. entering into standard business contract. would add that there does not appear to be any evidence supporting finding that the sales and profit projections had been warranted by the representative of the appellant in discussions between the parties. The projections, although found to have been made to induce the signing of the contract, were never put forward as being guaranteed. The parties subsequently agreed in the written franchise agreement that the projections were not warranted or guaranteed. In short, the terms of the franchise agreement represent the intention of the parties at the time the contract was made. Under these circumstances, subject to any finding of unconscionability, the Court must give effect to the contractual terms. Jirna Limited v. Mister Donut of Canada Ltd., 1971 CanLII 42 (ON CA), [1972] O.R. 251, and affirmed by the Supreme Court of Canada in [1975] S.C.R. 2. would note that the Jirna case involved franchise agreement and the circumstances were not unlike those presented in this case. In arriving at his decision, the learned trial judge stated that this case is very similar to Esso Petroleum Co. Ltd. v. Mardon, [1976] All E.R. 5. With respect, there is very basic difference between the two cases. In Esso Petroleum v. Mardon there was no clause in the written contract stating that there were no representations or warranties with respect to projected sales; in this case, there was such clause. It also appears that the learned trial judge relied on the following obiter statement by Lutz, J., in P. M. Foods Ltd. et. al. v. Pizza Hut Inc. et al. (1985), 1985 CanLII 1301 (AB QB), C.P.R. (3d) 330 at p. 358: "It is true that disclaimer clause does not affect liability where the representation complained of is to an overriding or collateral matter." That is too broad statement and cannot be applied to the facts of this case where the written contract very specifically states there were no representations or warranties respecting sales projections or profits. The learned trial judge seems to have taken the view that since all the material, including the projections and the draft of the franchise agreement, were presented to the respondents by the appellant, the appellant could not divorce itself from the projections and rely on the franchise agreement. With respect, that is exactly what the appellant could do. In my opinion, the learned trial judge was in error in reaching this conclusion in face of the clear written terms of the contract subsequently signed between the parties which provided that there were no warranties respecting projected sales or profits. The projections were just that, "projections." Mr. Murphy, an experienced businessman, would not have considered them to be anything else and the evidence indicates that he did not consider them to be anything other than "projections" even if the projections induced him to enter the franchise agreement. The franchise agreement was the contract between the parties and its terms must be given effect unless unconscionable: The learned trial judge did not give effect to the terms of the franchise agreement and therefore erred in finding there was collateral warranty. UNCONSCIONABILITY At trial, the respondents did not plead or raise the issue that the franchise agreement should be set aside as being unconscionable but on appeal that was the principal issue argued by the respondents' counsel. Counsel for the appellant agreed the Court could deal with the issue. The Court allowed the appellant to file supplemental factum. Argument was adjourned for week. Courts should be very slow to set aside contract on the ground of unconscionability, particularly where it is business contract made by experienced business people. That the respondent Murphy was an experienced businessman is clear from review of his business career which began in 1968, after he had been an insurance agent for some four years. In 1968, he became partner in Shell Service Station and part owner of used car business. In 1975, he started construction company and became its President. In the same year, he acquired family business, Murphy Boat Shop Limited, which was in the business of buying and selling fishing boats. In 1978, he became involved in real estate sales with Central Trust and Roy Andrews Realty in Yarmouth. In 1979, he started Millworks Limited to operate wholesale and retail supply business. As it would be in competition with the customers of the boat business, he ceased to operate the boat business. Millworks Limited was still in business at the time of the trial and Dun Bradstreet Business Information Report tendered at the trial shows this company in 1986 to have had annual sales of approximately $1.2 million and equity in excess of $200,000.00. In 1984, he acquired the majority interest in 1761 Realty Limited. By 1985 he had acquired eight small apartment buildings that he managed up until that time when he turned them over to real estate management firm. In 1985, he established Yarmouth Equipment Limited and became its President. He began this business because he felt from his experience there was need for such "nuts and bolts" business, as he described it, in that area of the province. In 1986, he decided to start an Atlas franchise to be operated with the existing Yarmouth Equipment Limited business. The principal focus of Mr. Justice Matthew's reasoning in concluding that the so‑called exculpatory clauses in the franchise agreement cannot be enforced on the grounds of unconscionability revolves around the fact that Mr. MacDougall, as the appellant's representative, had advised Mr. Murphy in December, 1985, or January, 1986, that the appellant had projected annual profits at $33,000.00 but did not bring to Mr. Murphy's attention an October 23, 1985, memo from Mr. Ritchie, the National Sales Manager, expressing his view to Mr. MacDougall, the Atlantic Regional Manager, that franchise in Yarmouth was not "viable". Mr. Ritchie had projected profit of $11,000.00 unless the business could be operated with an existing business. At that time (October, 1985), Mr. Ritchie was considering franchise in the Yarmouth area that would be operating on its own rather than in combination with another business. Mr. MacDougall, the Atlantic Regional Manager, was more optimistic about sales. He testified that with good businessman as the franchisee, the appellant would recover good part of its lost share of the market in that area. He projected that with two employees and an investment of about $100,000.00 the Yarmouth franchise would provide return of $33,000.00 to the franchisee for his full time work and his investment. Mr. MacDougall's projection of wholesale sales of $550,000.00 was not proven to be that far off the mark as evidenced by report will refer to later. However, the retail sales were far below those projected. In early January, 1986, Mr. Ritchie, after considering Mr. MacDougall's projection of profit of $33,000.00 for stand alone franchise in Yarmouth and taking into consideration the fact that the franchise would be operated in conjunction with Yarmouth Equipment Limited's existing business, revised his original projection of an $11,000.00 annual profit for the Yarmouth franchise to $19,000.00. His expense projections for the franchise allowed for three employees. This is significant because the evidence indicates the franchise required three persons to operate efficiently. Mr. MacDougall had assumed the franchise would be manned by the franchisee and two employees and would make profit of $33,000.00 if the franchisee did not take salary. Therefore, the revised Ritchie profit projection was not that much different from Mr. MacDougall's original projection as Ritchie provided for the expense of an additional employee to recognize that Mr. Murphy would not be working full time as he had other business interests. Counsel for the respondents takes the position and Mr. Justice Matthews has agreed that as Ritchie's initial opinion of an $11,000.00 projected profit for the Yarmouth franchise was not passed on to Mr. Murphy, coupled with the fact that the subsequent projections prepared by Mr. MacDougall of profit per year of $33,000.00 was used to induce Mr. Murphy to enter the franchise agreement and that Mr. Murphy was not advised he would personally have to work full time to meet that projection if there were only two employees as was the basis of MacDougall's projections, the appellant acted in such an unconscionable manner in inducing Mr. Murphy to enter the franchise agreement that the exculpatory clauses are not enforceable. With respect, this reasoning does not give due consideration to number of factors. Mr. Murphy became interested in taking on the franchise and operating it in conjunction with his existing Yarmouth Equipment Limited business. The trial judge's decision makes it clear that both Mr. Ritchie and Mr. MacDougall were very impressed with Mr. Murphy's ability as businessman. After meeting with Mr. Murphy in late January, 1986, Mr. Ritchie reviewed the MacDougall projections and made some adjustments, including providing for three employees; reduced the royalty payable by Yarmouth Equipment Limited to the appellant from 3% to 2% as agreed and increased projected "specialty" sales from $20,000.00 to $30,000.00 per year, ending up with projected profit of $19,000.00 for Yarmouth Equipment Limited (roughly 18% on investment). These projections recognize that Mr. Murphy would not be working other than providing supervision. In late January, 1986, it was agreed that Yarmouth Equipment Limited be made the franchisee for the area. The franchise agreement was signed on February 28, 1986. It seems to me that once the appellant was considering granting the franchise on the basis that it be operated in conjunction with Yarmouth Equipment Limited's existing business, the situation was so altered that Ritchie's initial income and expense projections for Yarmouth franchise operating on its own which showed return of $11,000.00 for work and investment were no longer relevant. But most important is the fact that these sales volumes and profit projections were never more than simply projections. Mr. MacDougall was of different opinion on the wholesale sales potential of the Yarmouth franchise. His projection of $33,000.00 return to the franchisee was not misleading; it showed two employees and he never represented that included in the expenses was salary for the franchisee. MacDougall's projections were prepared before he was in touch with Mr. Murphy. do not think Mr. MacDougall had duty to beat Mr. Murphy over the head to let him know that if he did not work, his profit would be reduced or any obligation to beat him over the head to show $33,000.00 was marginal return for the investment and the work of the franchisee. That aside, it was for Mr. Murphy to assess what return was acceptable to him and what his manpower requirements were in operating the combined businesses and for him to assess what time he would have to spend in supervising the combined businesses. also find it hard to conceive that the appellant had some obligation to the respondents to check out Yarmouth Equipment's business to make sure it was operating successfully before franchising it as inferred by the trial judge and referred to by Mr. Justice Matthews. Mr. Murphy appeared to be successful businessman and had made favourable impression on both Mr. MacDougall and Mr. Ritchie. THE EVIDENCE As the respondents did not allege at trial that the franchise agreement was unconscionable, Mr. Justice Grant did not address that issue. It is therefore appropriate to look at the evidence in relation to this issue. Mr. Murphy testified respecting the sales forecasts prepared by Mr. MacDougall. His evidence on direct examination about his reliance on the sales and profit projections of the appellant is in marked contrast to that which he had given at prior discovery. The direct examination went as follows: "Q. So he presented you with that blue book from Atlas on franchise agreements, what discussion was there about the contents of that or anything else? Just relate for His Lordship whatever you recall of your discussions with him that day. A. Well at that time we sat down and Andy Fitzgerald, Wayne Nickerson and myself quickly looked at projections and that they had projected for the Yarmouth area and raised some concerns immediately to retail sales. Q. Yeah, let's go to those projections and now think they're found at page 11 of tab one My Lord. What discussion was there about the projections then Mr. Murphy? A. We asked Mr. MacDougall how they arrived at that figure of $93,000 because there was no retail sales of Atlas never before in Yarmouth and we knew that, and Mr. MacDougall quickly went to this population. Q. Yes? That's page 16 My Lord. That's the one headed Franchise Program Yarmouth, Bridgewater, Kentville,...population. A. That's the one yes. And he assured us that these figures and the projections were all done scientifically through believe himself, or head office at Toronto and that it was based on figures that they had received from competitors of theirs that 20% of the wholesale business should be retail and from there relied, we relied on his projections, Atlas's projections. Q. Did you have any way or any means yourself to check or confirm or not, the projections that were made? A. had no reason to doubt these figures because know Atlas is wholly owned subsidiary of Esso and Mr. MacDougall was representing Atlas so at that time when they tell me they've done their homework, was assured and had no reason to further check. Q. You at first did doubt the validity or accuracy of that figure though? A. At first yes we questioned it. Q. Did you have any basis for doubting it other than some instinct? A. None whatsoever, just that gut instinct felt that it was high. Q. Alright, was there any other discussion of anything, these projections or anything else during that second meeting? A. Not that can recall...." (my italics) This testimony makes it clear that there was never another discussion respecting the financial projections. It is to be noted that he was not sure whether the projections had been prepared by head office or Mr. MacDougall personally. Furthermore, he was told how the retail sales projections were estimated (on information, from others in similar businesses, that one could expect retail to be about 20% of wholesale). Mr. Murphy knew the appellant had never been in the retail sales business. Therefore, one should not put lot of stock in his assertion that he relied on having been told that the projections were "scientifically" done. Mr. Murphy, when asked in cross‑examination whether he disputed the accuracy of any of the projections, reiterated his evidence in direct examination that Mr. John MacDougall assured him that the retail sales should be 20% of wholesale. It is to be noted MacDougall's projections were based on more conservative figure of about 13%. He went on to say that Mr. MacDougall assured him that was all done from Toronto and that they had checked on the industry and that is "exactly right and he laid any fears had to rest." He was then asked if he "discounted" the information. He responded that he could not say that he did. He was then pressed on this matter with respect to the projected retail sales of $60,000.00 to $73,000.00.. He acknowledged that at the time he felt they were bit high. He was then asked if he discounted Mr. MacDougall's retail sales projections and he responded not totally. He was then asked whether he considered that if there was any shortfall he could make it up in his nuts and bolts business. He responded “I can’t say for sure that did, no." After these self‑serving responses, he was then asked if he recalled giving evidence on discovery. He was confronted with the following: "Q. Examination of these proceedings, 28th day of March, 1989 and do you recall page 35 of the transcript? I'll go back bit further, at page 31 being asked the question line 10 What was your reaction to those projections, did you make any comment? Answer: Such as? Question: Did you look at them at all? Answer: Oh yes, certainly. Question: Did you have them reviewed by anybody? Answer: Yes Wayne Nickerson who was former employee of Atlas and myself and Andy Nickerson who is an employee of Atlas, we all sat down and went over the figures. Question: And you felt they were acceptable? Answer: Yes. Question: Did you have any concerns about any of the numbers that were provided to you by Atlas? Answer: think we had concerns with the retail sales. Question: Did you express those concerns? Answer: can't say for sure. Question: So you may not have expressed those concerns? Answer: I'm sure we discussed it but to what length can't remember, okay. Question: Did you discuss it with Mr. MacDougall? Answer: Yes sir. Question: And your concerns is that because you felt the retail sales were too high or too low? Answer: Too high. Question: And what response if any do you recall if any that you got from Mr. MacDougall when you raised those concerns? Answer: can’t remember. Question: You don’t recall any response that he made? Answer: No don’t really. And further at page 33, line 7, Okay did you make any suggested changes in the numbers? Answer: No sir. And further at page 35 Question: So take it that in your own mind then that you discounted somewhat kind of revenue that was shown here for that part of the business? Answer: would guess that probably figured could make it up with my nuts and bolts. Question: Right, so that when you analysed or you saw what was coming you said that what's shown for wholesale looks reachable by yourself or obtainable? Answer: Yes sir. Question: What's shown for retail is too high but you would make it up on your other business? Answer: Yes. Question: So that in the bottom line it would work out to about what you have here? Answer: Close to what's here." (My italics) It is clear that at the time of his discovery he could not remember what response Mr. MacDougall had given him when he raised concerns about the retail sales projections being too high. However, by trial, in his direct evidence and initial cross‑examination he seemed to have recalled in detail this conversation which has now taken on so much importance as to his reliance on Mr. MacDougall's assurance that the sales projections were reliable, had been done in the head office and that these assurances induced him to enter the franchise agreement. The trial judge does not make any reference to this cross‑examination.This is very relevant on the issue of unconscionability. Mr. Murphy finally acknowledged under cross‑examination, after being confronted with his discovery evidence, that he did discount the retail sales figures somewhat and acknowledged that he was confident at the time that he could have made up any shortfall in retail sales from his nuts and bolts business. He acknowledged that he had not done any studies himself about the retail side of the Atlas business and that he never raised the matter of the projections again with either Mr. MacDougall or Mr. Ritchie. Considering these extracts from Mr. Murphy's testimony, it is clear Mr. Murphy had reservations about the retail sales projections based on his experience and that of his associates. They were able to assess and did make their own assessment that the retail sales figures were high. Furthermore, Mr. Murphy ought to have realized from what Mr. MacDougall stated that there was not much "science" in the appellant's projection of retail sales. The appellant was relying on data from competitors and population statistics to make its projections and Mr. Murphy was so advised. would infer from the cross‑examination that Mr. Murphy was not particularly concerned about the retail sales as he felt any shortfall could be made up from his nuts and bolts business. He also testified that he had not given any thought to the manpower requirements of the business. He and his employees felt the wholesale sales were obtainable; they were former employees of Atlas' Yarmouth operation and would have been aware of any problems associated with that business and have feel for the manpower requirements. Mr. Murphy was not without resources to assess the merits of the proposed franchise. Assuming the conversation between Mr. Murphy and Mr. MacDougall took place as he testified in his direct examination, notwithstanding his direct evidence appears suspect as result of the cross‑examination, Mr. Murphy would have been aware that the figures for projected retail sales were simply based on population counts and information from competitors and should have realized their possible unreliability. will now deal in more detail with projections of profitability as it relates to the issue of unconscionable conduct. Mr. MacDougall as the Atlantic Regional Manager worked out projections that showed the Yarmouth franchise operating by itself could make return of $33,000.00 year. Mr. Murphy was given the $33,000.00 projection. In January, 1986, after talks had been initiated with Mr. Murphy to grant him the franchise to be operated in conjunction with Yarmouth Equipment Limited, Mr. Ritchie revised his projections and, based on three‑man operation in Yarmouth, calculated profit of $19,000.00 on retail sales of $60,000.00 and wholesale of $550,000.00. This is not at all that far off the return of $33,000.00 per year as projected by Mr. MacDougall with the franchisee working full time. The investment required to set up in Yarmouth was $106,000.00. When considered in relation to the sales volume required to generate these various profit projections, there is not significant variance between any of the profit projections and it does not seem to me that very much should turn on the failure of Mr. MacDougall to have shown Mr. Murphy the original projection of Mr. Ritchie of profit of $11,000.00, particularly where Mr. Ritchie had revised his projection of profit to $19,000.00 plus the fact that the situation had altered so much since that figure was initially calculated as the franchise was to be operated with an existing business. The appellant had no experience in retail sales. Mr. Murphy knew this. He was advised how Mr. MacDougall arrived at his projections. As businessman, he ought to have realized, and in my opinion from review of his testimony did realize, the possible unreliability of these sales forecasts. The appellant was not an established franchisee operator; Mr. Murphy knew this was new venture for the appellant. Business involves risks and sales forecasts are always speculative. Mr. Murphy himself had projected substantial profit on his nuts and bolts business. As it turned out, he too was very wrong. No doubt Yarmouth Equipment Limited failed for number of reasons. Some insight as to the failure of Yarmouth Equipment Limited can be gleaned from review of proposal made on January 26, 1987, by R. W. Murphy, the then Atlantic Regional Manager of the appellant, to his head office. He proposed that because of the financial difficulties of Yarmouth Equipment Limited, the appellant should forego interest charges on Yarmouth Equipment Limited's overdue accounts payable. In his proposal, he set out the justification for this request and, in doing so, commented on the operation of Yarmouth Equipment Limited over the previous year. He stated: "In April 1986, Jack Murphy owner of Yarmouth Equipment Limited became the Atlas Franchisee for the Yarmouth area. Yarmouth Equipment handles industrial hoses nuts and bolts and it was felt this business and the Atlas franchise would complement each other. The Yarmouth Atlas franchise with its low volume was marginal and it was felt the two businesses combined would make reasonable return. Mr. Murphy is very well‑known in the area and this was obvious by the sales improvements seen after he took over. Unfortunately, for personal reasons, Mr. Murphy had to move to Ottawa in August and has been an absentee owner since then. His staff however is very competent (ex‑Agent and ex‑Agency counterman) thus the strong sales have continued. Surprisingly, an income statement for Yarmouth Equipment for the year ending October 31, 1986 revealed the company had lost $85,685 in its first 12 months (see attached). On review of these statements it was realized that Yarmouth Equipment had lost approximately $40,000 prior to becoming an Atlas Franchise and these losses continued to grow to year end. When the writer reviewed the statements on December 15, it was found that the nuts and bolts operation had yielded only $65,000 in sales versus annual projections of $250,000. The Atlas wholesale sales volume for the first seven months totalled $321,000 or $500,000 annualized which was slightly short our pro forma projections of $550,000 but 25% greater than 1985. The retail side of the business fell horrendously short of sales projections at $3,200 for seven months versus $35,000." (my italics) It is to be noted that it had been the appellant's view that the Yarmouth franchise, when combined with Yarmouth Equipment Limited's nuts and bolts business, would make "reasonable return" rather than simply marginal one. This is significant because the learned trial judge seems to imply in his decision that the appellant, seeing that Mr. Murphy had some means, duped him into taking on its failing Yarmouth business and if it failed, Murphy would be liable. This report shows the appellant expected the franchise would make reasonable return. It is also of great significance that Mr. Murphy's projected sales for the nuts and bolts business of $250,000.00 were never met; in fact, the shortfall was almost $200,000.00 for the year ending October 31, 1986. The shortfall in projected retail sales for the franchise operation for the seven months was just over $30,000.00. It is obvious that sales in both businesses never reached projected levels; that is not uncommon. However, Mr. MacDougall's projection of wholesale sales, which was more optimistic than Mr. Ritchie's initial projection of October, 1985, was as accurate as Mr. Ritchie's initial projection which showed Ritchie projected an increase from $445,000.00 wholesale to $464,000.00. MacDougall projected increases to $550,000.00. Based on the seven month figures, the annual sales would have worked out to about $500,000.00. Projecting sales is difficult even in business one knows, let alone new business. Mr. R. W. Murphy, in his report, pointed to several causes of Yarmouth Equipment Limited's financial problems, including "poor sales on the equipment side"; "the lack of well planned business strategy and operating guidelines had left the business rather vulnerable in Mr. Murphy's absence" and "inefficient accounting". The major problem in Yarmouth Equipment Limited was the fact that the sales of the nuts and bolts business were so far below the projections of the respondent Murphy. Not only could the sales from the nuts and bolts business not supplement the marginal profits of the franchise business as Mr. Murphy had anticipated, but were resulting in substantial losses in Yarmouth Equipment. The respondent Murphy was apparently unaware of this when he entered into the franchise agreement. It would appear his business was not well run. The fact is that Mr. Murphy had entered into two new ventures and it would appear in hindsight that he made two bad business judgments. As. to the conduct of the appellant, it does not seem to me that deficient judgment in projecting sales and profits for new ventures or the failure to put before Mr. Murphy all their projections before he signed the franchise agreement can be equated with unconscionability. By the time the appellant began to talk to Mr. Murphy, the Ritchie projection of $11,000.00 profit was obsolete as it was made on the basis of franchise operated on its own and on the basis of wholesales estimated by Mr. Ritchie which, as it turned out, were below what was achieved over the first seven months. Furthermore, Mr. Ritchie in January, 1986, had revised the return on investment to $19,000.00. The trial judge found "the projections of MacDougall were inaccurate as to expenses and grossly inaccurate as to retail sales and profits." As have previously noted, deficient judgment in forecasting of sales does not equate with unconscionability. Furthermore, the fact that the business lost money was not solely related to the inaccurate retail sales forecast for the franchise operation. The trial judge found that MacDougall knew that Murphy was relying on the financial forecasts and that MacDougall intended that he do so. Again, in my opinion, that does not constitute conduct which can be equated with unconscionability. Mr. Murphy was businessman familiar with the Yarmouth area. The retail sales were but small percentage of the total franchise business which was primarily focused on wholesale. Mr. Murphy had in his employ two former employees of Atlas who would be familiar with the wholesale side. It was the shortfall in sales of the nuts and bolts business that appears to have been the primary cause of the failure of Yarmouth Equipment Limited. There was never any suggestion by the appellant's representatives that the projections of sales and profitability were guaranteed; projections never are and every businessman knows how unreliable projections can be. do not attach any significance to the fact Mr. Ritchie did not testify as the respondents had merely alleged "collateral warranties" at trial. Certainly, Mr. Ritchie, who had met Mr. Murphy only once, had not made any such warranties. Therefore, there was no particular reason to call him in view of the fact the appellant had written agreement stating there were no such warranties. Nor do attach great deal of significance to the fact that Mr. MacDougall was more optimistic in his projection of wholesale sales than Mr. Ritchie. His projections turned out to be at least as accurate as Mr. Ritchie's. Nor do consider it significant that the projections of retail sales, about 13% of wholesale, were little more than guesses as the appellant had not been in the retail sales and was relying on information from others and, most importantly, this was known to Mr. Murphy. do not consider it significant that Mr. MacDougall's projection of $33,000.00 profit did not provide in the expenses for salary for the franchisee, even though it was anticipated he would work full time. There was no suggestion made to him that he would not have to work. do not consider it significant or, for that matter, relevant that Mr. MacDougall did not advise Mr. Murphy what Mr. Ritchie had initially projected as profit as this projection was based on conservative wholesale sales volumes and on the basis of the franchise being operated by itself. do not attach any significance to the fact that MacDougall did not tell Mr. Murphy that sales in the Yarmouth agency had been declining in recent years. Mr. Murphy's employees would have known this and Mr. Murphy discussed this with them and they collectively thought the MacDougall wholesale sales projections were attainable. It is neither significant nor relevant that Mr. Ritchie did not question if Yarmouth Equipment's existing business was, to use that vague phrase, "viable". It is of no great significance that the material in the brochure prepared by Mr. MacDougall was intended to induce persons to enter franchise agreement. There was nothing fraudulent about the information; it was MacDougall's forecast of what was attainable in sales and profits and as subsequently shown was not out of line with Mr. Ritchie's revised projection of $19,000.00 profit with three employees. With respect, differ with those who attach significance to the foregoing points. The projections were never put forward as anything but projections. As to their having been prepared scientifically in the head office, Mr. Murphy in testifying on this subject stated he was not sure whether Mr. MacDougall had told him the projections had been prepared by himself or head office. Whether prepared by Ritchie or MacDougall before the franchise agreement was signed, both had come to the same conclusion that the franchise, operated in combination with Yarmouth Equipment, could make reasonable return. As it turned out, they were wrong in their forecasts for the franchise agreement just as Mr. Murphy was wrong in his forecast for the nuts and bolts business. The respondent Murphy had an opportunity to review the franchise agreement as he had received it month before it was executed. He had an opportunity to consult with his lawyer respecting its terms which, as have noted before, were very clear. His lawyer, who happens to be his brother, witnessed the execution of the franchise agreement. In short, Mr. Murphy was an experienced businessman familiar with the Yarmouth area and it is reasonable to infer he knew that the projections of the appellant respecting sales were just that, "projections." He knew the appellant, having previously been only involved in the wholesale business, had no prior experience in retail sales of its products. Most importantly, the respondent Murphy was under no pressure to sign the franchise agreement as presented; he could have walked away from the transaction. He did not request that the projections of sales and profits be incorporated as warranties or guarantees into the franchise agreement. He had full freedom of contract. Sales and profit projections made by the franchisor are not normally warranted by the franchisor. On its facts, the case is not unlike that of 447927 Ontario Ltd. v. Pizza Pizza Ltd. (1987), 1987 CanLII 4332 (ON SC), 44 D.L.R. (4th) 366. In that case, the learned trial judge dismissed the franchisee's claim for breach of collateral warranty re sales forecasts by the franchisor. He stated at p. 375: "This clause must be considered in deciding whether warranty should be found (quite apart from any result the clause might have upon the right to enforce warranty, if one were found). It seems to me more difficult to conclude that collateral oral warranty was intended, when, after it was alleged to have been made, formal written agreement was submitted for consideration by the plaintiff, was negotiated and amended, and ultimately executed, containing clause flatly asserting that no warranty had been made. It is significant that in Esso the agreement contained no such clause. Had it done, in the light of what was said by Shaw L.J. at p. 833 supra, the result might have been different." Counsel for the respondents focuses on the inequality of the parties large national company with international connections versus small businessman and failure of MacDougall to have advised Mr. Murphy that Mr. Ritchie initially had estimated that the Yarmouth franchise would only produce profit of $11,000.00. For the reasons have set out, this information had become irrelevant before the franchise agreement was signed. There is always degree of inequality in the bargaining position of parties to contract; that is insufficient reason standing alone to set aside business contract on the ground of unconscionability. If that were the case, business would become impossible. The Courts have always required more; there must be something that would make it unconscionable to enforce the right of the stronger party. Before Court should refuse to enforce clear terms of contract on the ground of unconscionability, there not only must be marked inequality in the bargaining position of the parties due to ignorance or distress of the weaker but the contract must be "substantially unfair" and the stronger party has taken such advantage of the situation that it would be "unconscionable" to enforce it. Morrison v. Coast Finance Ltd. et al. (1965), 1965 CanLII 493 (BC CA), 55 D.L.R. (2d) 710. The respondents' position is that the appellant's conduct in putting forward the MacDougall sales and profit projections while not advising Mr. Murphy about Ritchie's initial projections was unconscionable to the point that the clauses in the franchise agreement stating there were no such warranties should be set aside. This leads to the question what was the conduct of the appellant that should require this Court to refuse to enforce the clear terms of the franchise agreement. Was it the fact that the appellant's representatives did not advise Mr. Murphy of Mr. Ritchie's initial doubts about the profitability of the franchise operating alone? In my opinion, clearly not. have dealt with this issue. Was it the fact the representatives did not advise Mr. Murphy that, in their opinion, for the franchise agreement to be "viable" (whatever that means), it required the full time participation of the franchisee? That cannot be the case; it would have been apparent, from the face of the projections which showed two employees were required. No one represented to Mr. Murphy he would not have to work to earn the $33,000.00 profit MacDougall projected. Mr. Ritchie's revised figures showed the franchise would produce $19,000.00 annual profit while allowing for three employees; reasonable return on an investment of $106,000.00. This would provide for the hiring of the three persons needed to operate the business while Mr. Murphy could provide some overall supervision. Was there an obligation to advise Mr. Murphy that Mr. Ritchie had revised his figures to reflect the reality of the deal being struck with Mr. Murphy which showed profit of $19,000.00? think not; this was reasonable return on investment for Mr. Murphy and not out of line with MacDougall's projection of return of $33,000.00 with the franchise participating full time. In short, the appellant, prior to signing the franchise agreement with the respondents, had come to the conclusion that the franchise agreement, operating in combination with the existing business, could provide reasonable return to the franchisee. Was it the fact that the appellant's representatives did not tell Mr. Murphy the business may not have been very profitable as stand alone? No, because it was not going to operate as stand alone business. Was it unconscionable not to have advised Mr. Murphy that the projected profit of $33,000.00 as made by Mr. MacDougall was higher than that initially projected by Mr. Ritchie. think not. Who is to say that Mr. Ritchie's initial opinion sitting in the head office in Toronto was more valid than the Atlantic Regional Manager's. They were just opinions and never put forward as anything but opinions. In fact, after meeting Mr. Murphy, his revised projection showed return of about 18% on investment for Yarmouth Equipment. Was it unconscionable not to suggest to Mr. Murphy that whether the return was $11,000.00, $19,000.00 or $33,000.00, it may not have been particularly good return considering the risks and the investment of time and money. The answer must be no. Mr. Murphy could assess that for himself. Was it unconscionable not to advise Mr. Murphy that he should question the retail sales forecasts? The answer must be no. Mr. Murphy, being an experienced businessman, would know that such forecasts are not always reliable and knew the potential unreliability of the retail sales forecasts as based on information from competitors. Also, he felt any shortfall could be made up from the nuts and bolts business so he was not concerned. These were assessments Mr. Murphy had to make. Finally and most importantly, was it unconscionable to have provided in the franchise agreement that the sales and profit projections were not warranted when no such warranty had been given during the discussions between the appellant's representatives and Mr. Murphy prior to signing the franchise agreement? The answer must be no; the projections were merely estimates of what the representative of the appellant felt the business if operated properly could achieve. No reasonable person would consider them to be anything but estimates. The franchise agreement was not unusual in not guaranteeing projections of sales or profits and in stating that it constituted the entire contract between the parties. This was standard commercial franchise agreement and, applying the test developed by Lambert, J.A., in Harry v. Kreutziger (1979), 1978 CanLII 393 (BC CA), 95 D.L.R. (3d) 231, the transaction was not sufficiently divergent from community standards of commercial morality that it should be set aside. An intervention by the Court in this case would not on this test appear to be warranted. At the time the franchise agreement was signed, there did not exist on the facts of this case what Robert Flannigan in an Article entitled "The Judicial Regulation of Exculpatory Clauses" in (1990), 69 .C.B.R. 514 referred to as "severe situational disability". The respondents cannot, on the facts of this case, come close to meeting any of the tests for setting aside contracts on the ground of unconscionability as set out in the cases referred to in Stephenson v. Hilti (Canada) Ltd. (1990), 1989 CanLII 191 (NS SC), 93 N.S.R. (2d) 366. Mr. Murphy was an experienced businessman; he knew the basis upon which the "projections" were made; there was no compulsion to sign and the terms of the agreement were clear. Applying another recognized test although there was degree of inequality between the parties, there was nothing "substantially unfair" about not guaranteeing sales volumes or profits. No one would expect sales and profit projections to be guaranteed by the franchisor and it is perfectly reasonable for franchisor to provide that such projections are not warranted as success of the franchise depends on the way in which the franchise is operated. The failure to advise Mr. Murphy of Mr. Ritchie's initial projections was not unconscionable under the circumstances. In summary, and with respect, the learned trial judge was in error in finding collateral warranty on the evidence and in face of the clear terms of the franchise agreement that there were no such warranties. Secondly, in my opinion, considering all the circumstances of this case, the respondents have fallen far short of proving the franchise agreement was unconscionable. THE RESPONDENT MURPHY'S GUARANTEE The learned trial judge found that Yarmouth Equipment Limited was liable to the appellant for the sum of $206,344.00 but found the respondent Murphy, despite the broad terms of the guarantee that he signed as part of the franchise agreement, was not liable. The terms of the guarantee signed by the respondent Murphy for the obligations of Yarmouth Equipment Limited to the appellant were, as one would expect, comprehensive. Those provisions relevant to the issues raised on this appeal are contained in paragraph 15.04 of the franchise agreement, subparagraphs (a), (b), (c) and (f) of which set out as follows: "15.04 Guarantee In consideration of the sum of Two ($2.00) Dollars and good and other valuable consideration now paid by ATLAS to the Guarantor, the receipt of which and the adequacy of which is hereby expressly acknowledged by the Guarantor, and in consideration of ATLAS entering into this Agreement at the specific request of the Guarantor, to the extent that the Guarantor shall become primarily liable under the provisions hereof to ATLAS as if it were the Franchisee in this Agreement, the Guarantor hereby agrees as follows: (a) Guarantor guarantees to ATLAS the due payment by the Franchisee of all monies payable under this Agreement by the Franchisee to ATLAS at the time or times appointed therefor, and the due observance and performance by the Franchisee of all the covenants, terms, provisions, stipulations, agreements and conditions contained in the Agreement and on the part of the Franchisee to be observed and performed; (b) this shall be continuing guarantee and shall be binding upon the Guarantor as well after as before default until all monies due under this Agreement have been fully paid and satisfied, and all covenants, terms, provisions, stipulations, agreements, and conditions have been fully observed, performed, and carried out; (c) ATLAS shall not be bound to exhaust its recourse against the Franchisee before requiring payment of any monies or the observance or performance of any obligation by the Guarantor; (f) neither release or releases, indulgence or extension of time or waiver granted by ATLAS to the Franchisee with respect to the observance or performance of this Agreement, or any defaults or breaches thereunder on the part of the Franchisee, nor any dealings between ATLAS and the Franchisee shall in any way prejudice ATLAS or modify, alter, diminish or affect the liability of the Guarantor under this Agreement; ..." The learned trial judge not only concluded that the respondent Murphy was discharged from his guarantee, despite finding Yarmouth Equipment Limited liable, but went on to find that the appellant was liable in damages to the respondent Murphy for the sum of $23,500.00 to reimburse him for $7,000.00 franchise fee paid to the appellant and $16,500.00 incurred as franchise start‑up expenses. This finding was made even though there was no counterclaim for reimbursement of these expenses. Furthermore, the pleadings did not allege that the appellant had breached the franchise agreement in its dealings with Yarmouth Equipment Limited's inventory after the decision was made to close out Yarmouth Equipment Limited because of the losses it was suffering in both operations. In order to deal with this issue, it is necessary to set out in full that part of the learned trial judge's decision relating to these findings. He dealt with these issues starting at p. 29 of his decision under the heading of Damages: "DAMAGES: find the measure of damages to be the loss suffered by the parties. THE DEFENDANT YARMOUTH EQUIPMENT: It operated about two months before the Atlas franchise came on. It was thought that it would probably have loss in the first year. Instead of modest loss, as forecast, it was massive. It may be that too much effort was made by staff to start up the Atlas franchise thus depriving it of the attention it would have had if Atlas was absent. The projections for the Company may have been overly optimistic. The months prior to Atlas were not successful. In fact Robert Murphy said the losses were $40,000.00 (Tab 9). That being the case it was doomed to failure regardless of Atlas. The proceeds of the liquidation sale were used to pay down the bank indebtedness. Even with that Murphy was required to honor his personal guarantee to the tune of $70,000.00. Personnel of Atlas attended the sale. [p. 30] Atlas was not interested in taking the stock back. The bank had security which it was prepared to waive to permit Atlas to take the stock back. As of December 31, 1986 the Company had total assets of $174,700.00 including inventory of $90,000.00. This defendant cannot put the plaintiff back in its original position as it cannot now return the inventory. It had the inventory and had the use of it. It would not be reasonable or conscionable to permit it to retain the inventory without compensating the plaintiff for that inventory. The value of the inventory as realized from the liquidation sale was used for the credit of this defendant at the Bank. This defendant had its statements merged with Atlas and cannot accurately tell what it owed the bank for the 'nuts bolts' operation. The amount of the plaintiff's claim is not in issue. am unable to say that the loss of the Yarmouth Tourist Association loan was solely attributable to the plaintiff. The plaintiff shall recover judgment against this defendant for $206,344.00 (the sum agreed upon by counsel). LOSS TO THE DEFENDANT MURPHY: [p. 31] Murphy was required to pay out on his personal guarantee to the Bank. This entailed $73,640.00 raised by mortgage and cash. The defendant submits that it was the merger with Atlas which brought Yarmouth Equipment down. do not believe that was the case. consider Yarmouth Equipment was not viable before the merger and of course less viable after the merger. consider most of the debt arising from the Atlas franchise was owed to Atlas. It purchased all or nearly all of its stock from Atlas. The stock for its nuts and bolts operation was purchased through its credit arrangement with the bank. Atlas had the opportunity to have its account reduced by taking back inventory. It was not prepared to do so. Had it done so rather than expose the stock to the liquidation sale and its reduced prices the amount owing to Atlas would be less than at present. It did so to the prejudice of Murphy as guarantor. Atlas put the franchise on C.O.D. basis in January, 1987. Notice of default was given on February 12, 1987. Under Article 16.05 the plaintiff had the obligation to take back the inventory at the current sale price less restocking charge. [p. 32] Murphy said the bank was prepared to waive its lien and the evidence disclosed no other encumbrances to 'good and marketable title'. find in failing to do so the plaintiff has acted in way which has compromised the rights of the guarantor. The details of the liquidation sale are not in evidence. The evidence was that the normal retail sales for the inventory were not there. The liquidation sale was reasonable act after the refusal of Atlas to take the inventory back. There was no suggestion that the defendants squandered the profits or the proceeds of the sales. In The Law of Guarantee, McGuinnes, Article 10.57 (page 283): 'A creditor must deal with security in reasonable manner so as to ensure that the maximum amount is derivable from it to satisfy the guaranteed debt'. find the failure of Atlas to accept the inventory was unreasonable. accept the evidence of Murphy that it was twice offered to Atlas with the bank's encumbrances waived. In the circumstances here find the Defendant Murphy discharged from his guarantee. dismiss the claim against Murphy. COUNTERCLAIM OF MURPHY: [p. 33] The defendant Murphy shall recover from the plaintiff his payment of $7,000.00 for the franchise and the sum of $16,500.00 which he paid for start‑up expenses of the franchise including renovations to meet the requirements of Atlas and the sign. accept the evidence of Murphy on these expenditures which were well detailed in his very thorough cross‑examination. He shall have pre‑judgment interest. will hear counsel orally or by letter on the relevant date and percentage. COSTS: The plaintiff shall have its costs of the action against the defendant Yarmouth Equipment. The defendant Murphy shall have his costs of his defence of the plaintiff's claim and on his own counterclaim." (my italics) The appellant argues that the learned trial judge misconstrued the evidence in reaching his conclusions that the respondent Murphy was not liable on the guarantee of Yarmouth Equipment Limited's debts to the appellant. In addition to the part of the learned trial judge's decision have just set out, the learned trial judge had stated at p. 15 of his decision: "Murphy said he offered to return the stock to Atlas. He made arrangements with the bank that it would permit the return as the bank held some security. However, Atlas was not prepared to take the stock back. He said the stock, clear of encumbrances, was twice offered to Atlas and twice refused. This was not contradicted." (my italics) The learned trial judge found that under Article 16.05 the appellant had an obligation to take the inventory back. Clause 16.05 provides: 16.05 Purchase of Identified Inventory Within ten (10) days from the expiration or other termination of this Agreement and provided the Franchisee can pass good and marketable title to ATLAS, the Franchisee agrees to sell and ATLAS agrees to purchase the Franchisee's fully paid inventory of Automotive Products at ATLAS' then current sale price to the Franchisee plus applicable taxes less any restocking fee in effect at the time and freight costs on the purchased inventory. ATLAS' obligation to purchase the Franchisee's inventory of Automotive Products shall extend only to those products which were previously purchased from ATLAS and, in ATLAS' discretion, are in saleable condition at the time of the expiration or other termination of this Agreement (the 'Identified Inventory'). ATLAS may exclude from such assets to be purchased hereunder any assets which in the sole opinion of ATLAS are obsolete, damaged or otherwise not in marketable or useable condition. The Franchisee covenants and agrees that ATLAS shall have thirty (30) days from the date of the delivery of the Identified Inventory in which to make the payment contemplated above. ATLAS has the right to set‑off this payment obligation against any other indebtedness owed to ATLAS by the Franchisee, and ATLAS shall be entitled to enter the Premises of the Franchisee and perform any audit and inspection of the inventory it deems necessary to protect its rights herein. Any transfer and sale of the Identified Inventory shall include such instruments of conveyance and transfer as may be effective to vest good and marketable title in ATLAS free from all liens, charges and encumbrances. The Identified Inventory shall not include any inventory that should have been previously cleared in accordance with ATLAS' exchange and return policies. Any purchase and sale completed by ATLAS pursuant to this Section 16.05 shall be completed in accordance with applicable bulk sales legislation." (my italics) In summary, under this clause the parties agreed that on the termination of the franchise agreement, the respondent Yarmouth Equipment Limited would sell, and the appellant would purchase, the inventory provided Yarmouth Equipment Limited could transfer the inventory free from encumbrances. There is no dispute that the inventory had been pledged to Yarmouth Equipment Limited's bankers to secure its substantial bank loan. After finding that the bank was prepared to waive its lien, the learned trial judge concluded that in failing to purchase the inventory under Clause 16.05 of the franchise agreement, the appellant acted in way that compromised the guarantor. The learned trial judge then stated that the liquidation sale which Mr. Murphy decided to have was reasonable act after the appellant's refusal to take the inventory back. The learned trial judge concluded this issue by finding the appellant's failure to accept the inventory was unreasonable and that he accepted the respondent Murphy's evidence that the inventory was "twice offered to Atlas with the bank's encumbrance waived." The learned trial judge then found that, in the circumstances, the respondent Murphy's guarantee of the Yarmouth Equipment Limited debt was discharged. review of the transcript of evidence reveals the fact findings which formed the basis for discharging the respondent Murphy from his guarantee are not supported by the evidence. On the contrary, the evidence leads to only one inference: the appellant was never advised the bank was prepared to waive its charge on the inventory and thus enable the respondent Yarmouth Equipment Limited to sell the inventory to the appellant pursuant to Clause 16.05. During the cross‑examination, Robert W. Murphy, the Atlantic Regional Manager of the appellant who was responsible for the dealings of the appellant with Yarmouth Equipment Limited at the time it ceased to do business, having succeeded Mr. MacDougall, was asked about the liquidation sale being held by Yarmouth Equipment Limited: "Q. In fact he was holding liquidation sale wasn't he? A. Yes. Q. And he, at one point, offered to deliver this inventory back to Atlas didn't he? A. No, no the bank had taken that sir. Because I, in fact, in one of my communications, asked to let us know if he wanted to exercise his right to take it back. We wouldn't be out $100,000 today. We would have wanted to take the inventory. The bank seized it, it was my understanding." (my, italics) In light of this evidence, the learned trial judge was in error when he stated at p. 15 and p. 32 of his decision that there was uncontradicted evidence that the inventory was twice offered to the appellant free from encumbrances and twice refused. During direct examination of the respondent Murphy, he was asked the following line of questions regarding whether he had offered to sell the inventory back to the appellant: "Q. Alright, in March then you say you made the decision to come down and close the business out and you informed Mr. Murphy. What were the next steps you then took to liquidate the business? A. Well started an advertising. put an ad in the paper that we were going out of business sale and that we were selling goods at cost or below cost. Q. Do you recall whether you or someone on your behalf, ever offered to sell the stock back to Atlas? A. Yes. Q. What happened there? A. advised my lawyer, at least on two occasions, to contact Atlas and to offer all the stock to them; that would have been much much easier for me than to go down and have liquidation sale. So offered whatever was left, to Atlas, on, believe, two occasions and they refused. Q. This was your brother Rick was it that did that? A. That's correct. Q. Alright, was this, take it from what you say, was before the liquidation sale was it? A. This was just before the liquidation sale, yes. Q. Alright, so in any event, you liquidated it and closed the premises down and that was the end of it was it? A. That's correct." This evidence that the inventory had been twice offered to the appellant and refused by it was, of course, hearsay but it indicates the inventory was supposedly offered to the appellant before the liquidation sale and the appellant supposedly refused. The respondent Murphy's lawyer was not called by the respondents to testify on this matter. On cross‑examination, the respondent Murphy's evidence on this subject was far from persuasive. He was asked: "Q. Your direct evidence believe was, you requested your lawyer, your brother, ... A. Yes. Q. ...to see if Atlas would take the product back? Q. Did you receive any confirmation that such request had been made? A. No other than the fact that my brother told me that they said they couldn't take it back guess. Q. They couldn't take it back? A. That's right. Q. And, guess that would indeed be, be correct would it not, Atlas could not legally take it back? A. Sure they could. Q. You had given an account, assignment of inventory to your bankers? A. That's right. Q. This was your inventory? Q. And what makes you say sir that he could have given the inventory back to Atlas? A. Because I, had talked to the Bank Manager and he said it was my inventory and he was willing to let it go back. There was no, he was not going to put hold onto it. That's why offered to send it back. Q. So you went to your Bank Manager? A. But obviously, from what got from my brother was, it was Atlas's opinion that they could not take it and that's why they would not take it. Q. Did you, did you tell Atlas that your Bank Manager had agreed to give it up? Give any claim it had on it? A. I'm not sure if did, no. At that point it was my brother that was talking to Atlas. Q. Alright. Did you tell your brother to make sure that Atlas was told that, that the bank had no problems? A. can't say that did no. Q. And Mr. Murphy was in there during the, the close‑out sale? Q. And you didn't mention it to him? A. No. No. mean we were too far along guess in the close‑out sale at that point. Q. Mr. Murphy took back the, the defective products? Q. He had no problems with that? No. Q. And, did you have anything in writing from your Bank Manager that it could be released to Atlas without any claim? Q. But the assignment of inventories that signed with the bank as shown in your financial statements was still, actually in place? A. would imagine yes." (my italics) It is clear from this evidence that the respondent Murphy could not even say if he had told his brother, who was dealing with the appellant, that the bank had agreed to give up its charge on this inventory. It will become apparent from the following testimony that the respondent Murphy was not at all sure the bank manager was prepared to forego the bank's claim on the inventory: "Q. Did he tell you that the bank waived any claim to the proceeds of that inventory? A. I, don't think so. Q. He just said you could send it back to Atlas? Did he say that the assignment of inventories the bank had under the Bank Act was waived? A. can't recall if he said, you know like that. Q. Or released? No. Q. And, by you having that product and receiving some, some monies, meant that you were able to reduce your indebtedness to the bank? A. guess that's what he was relying on because as sold product brought the money to the bank." (my, italics review of this evidence reveals that Yarmouth Equipment Limited held liquidation sale and the money realized was applied against the bank debt that was secured by Yarmouth Equipment Limited's inventory. There is no admissible evidence that the inventory was ever offered to the appellant before the liquidation sale or at any time, let alone twice as found by the learned trial judge. There is no evidence that the appellant was advised the inventory would be offered to the appellant free from the bank's charge; on the contrary, the respondent Murphy testified he did not know if the bank was prepared to release its charge. In fact, the money realized from the sale of Yarmouth Equipment Limited's inventory was paid to the bank, thus reducing the respondent's liability under the guarantee he had given to the bank. There was no admissible evidence that permitted the learned trial judge to find as he did that the inventory, clear of encumbrances, was twice offered to the appellant and "twice refused" before the liquidation sale. The evidence points conclusively to decision by the respondent Murphy to have liquidation sale and pay down Yarmouth Equipment Limited's bank loan which he had guaranteed. Had the bank waived its lien and the inventory returned for credits against the respondents' debt to the appellant, the respondent Murphy would have been liable for an even greater amount than he was required to pay to Yarmouth Equipment Limited's bankers under his guarantee of its debt to the bank. The learned trial judge apparently accepted the hearsay evidence of the respondent Murphy that his brother had offered the appellant the inventory notwithstanding it was hearsay and notwithstanding the doubts the respondent Murphy had as to whether he even told his brother the bank was prepared to waive its charge against the inventory. His doubt is easily understood as the respondent Murphy acknowledged under cross‑examination that he did not know if the bank was prepared to waive its charge on the inventory. In fact, the bank took all the money realized from the sale of the Yarmouth Equipment Limited inventory. Both the appellant and the respondents knew the bank had charge on the inventory and that Yarmouth Equipment Limited was not in position to offer the inventory to the appellant unless the bank waived its claim. There is no evidence that this ever happened, yet the learned trial judge made such finding at several points in his decision and, most particularly, immediately before he stated at p. 32 of his decision that in the circumstances the respondent Murphy was discharged from his guarantee. The duty of an Appeal Court where the appellant asserts that the findings of fact made by the trial judge are not supported by the evidence is described by Ritchie, J., in Stein v. The Ship "Kathy K", 1975 CanLII 146 (SCC), [1976] S.C.R. 802, at p. 808: "These authorities are not to be taken as meaning that the findings of fact made at trial are immutable, but rather that they are not to be reversed unless it can be established that the learned trial judge made some palpable and overriding error which affected his assessment of the facts. While the Court of Appeal is seized with the duty of re‑examining the evidence in order to be satisfied that no such error occurred, it is not, in my view, part of its function to substitute its assessment of the balance of probability for the findings of the judge who presided at the trial." The trial judge's findings on this issue are not supported by the evidence and therefore cannot stand. Under the terms of Clause 16.05, the appellant had an obligation to purchase the inventory on termination of the franchise agreement, provided the inventory could be transferred to the appellant free from encumbrances. The respondents could not comply with the terms of Clause 16.05 without obtaining release of the bank's charge; that was not done. The respondent Murphy elected to liquidate the inventory and pay down Yarmouth Equipment Limited's bank loan which he had guaranteed. Under the circumstances, there was no obligation on the appellant to purchase the inventory. Therefore, with respect, the learned trial judge was in error when he found, based on his finding that the appellant had acted unreasonably in not accepting the inventory, that the respondent Murphy was discharged from his guarantee to the appellant of the Yarmouth Equipment Limited's debt. It is not necessary to deal with other provisions of the guarantee which clearly state that the guarantor Murphy was not relieved of his obligations under the guarantee, notwithstanding how the appellant dealt with Yarmouth Equipment Limited. The terms of the guarantee are very clear. The respondent Murphy is liable for the full amounts owing by Yarmouth Equipment Limited to the appellant under the franchise agreement. The respondent Murphy is therefore liable for the amount the parties agreed was owing by Yarmouth Equipment Limited, $206,344.00. The Order of the trial judge should be set aside. There was no basis for the trial judge finding the appellant was required to repay to Murphy the amount he paid for the franchise and start‑up expenses totalling $23,500.00. The Order granted after trial provided that the appellant would have judgment against the respondent Yarmouth Equipment Limited in the amount of $206,344.00. This figure had apparently been agreed to by the parties. The Order is dated June 14, 1990. would assume that it would be inclusive of pre‑judgment interest as there was no reference in the Order to pre‑judgment interest other than in respect to the respondent Murphy's counterclaim. The appeal should be allowed and the appellant should have judgment against the respondent Murphy in the amount of $206,344.00 with interest in accordance with the Interest on Judgments Act, R.S.N.S. 1989, c. 233, from June 14, 1990. The appellant should have its costs at trial and on appeal against both Yarmouth Equipment Limited and John M. Murphy. Hallett, J.A. 1987 S.H. No. 61042 IN THE SUPREME COURT OP NOVA SCOTIA TRIAL DIVISION BETWEEN: ATLAS SUPPLY COMPANY OF CANADA LIMITED, body corporate, and YARMOUTH EQUIPMENT LIMITED, and JOHN M. MURPHY, Defendants HEARD: at Halifax, Nova Scotia, before the Honourable Mr. Justice William J. Grant, Trial Division, on January 10, 11, and February 9, 1990. DECISION: April 4, 1990 COUNSEL: P. McLellan, Esq., B. Miller, Esq., for the plaintiff D. A. Caldwell, Q.C., D. J. James, for the defendants S.C.A. No. 02318 IN THE SUPREME COURT OF NOVA SCOTIA APPEAL DIVISION BETWEEN: ATLAS SUPPLY COMPANY OF CANADA LIMITED, body corporate and YARMOUTH EQUIPMENT LIMITED, and JOHN M. MURPHY Respondent REASONS FOR JUDGMENT BY: MATTEWS, J.A.
The appellant, which was a wholly owned subsidiary of a major international company, induced the respondent to enter a franchise agreement by making representations as to the viability of the venture. The appellant sought to recover its losses from the respondent and relied on an exclusionary clause. Allowing the appeal in part, that (1) the agreement was unconscionable, having regard to the unequal bargaining power of the parties, the fact that the agreement was prepared by the appellant, and the fact that the appellant induced the respondent with its promotional brochure and its verbal representations as to the venture's viability to enter the franchise agreement; (2) the appellant cannot rely on an exclusionary clause given its unconscionable conduct; and (3) the appellant's claim for the value of the inventory together with pre-judgment interest was payable by the respondent. In a dissenting opinion, it was held that neither the appellant's conduct nor the franchise agreement was unconscionable; rather the respondent was an experienced businessman and the representations as to the venture's viability were mere projections, which he should have realized were unreliable.