If the claim is for, say, between $60,000 and $100,000, it’s probably too much money for a plaintiff to reduce to fit within Small Claims Court’s monetary jurisdiction, but too little to justify the time and expense of full-blown trial in the higher courts, although there are expedited procedures in certain provinces that are meant to deal with these kinds of claims.
When amount of the claim is high (say, for argument’s sake, $300,000 or more), the plaintiff may think it makes economic sense to pay his or her lawyer vast sums of money to go to trial. And frankly, it may.
So legal economics, and what a plaintiff expects to “win” if successful, has a bearing on how much it uses its lawyer. And just because one side “wins” doesn’t mean that’s the end of it. The judgment could be appealed. And any judgment could be hollow, in the sense that the defendant may have little or no money to pay it.
But as much as you should see a lawyer when you get these sorts of letters, you have to put things into perspective. A few months ago I had a panicked meeting with a client who wanted to leave her franchise in year four of a five-year deal. She wasn’t making much money but she was paying monthly royalties to a franchisor that she believed wasn’t providing much value.
There wasn’t a lease to worry about, but she had received a very nasty letter from the franchisor’s lawyer threatening monumental damages if the client breached her contract (“we’ll sue you for everything you have” or words to that effect, were used). She was terrified of losing her house and her savings.
After I learned she had one year left in the contract, and that she only paid about $900 a month to her franchisor in royalties, I asked her if she had ever read any books by Douglas Adams. “Don’t panic,” I said, quoting from the Hitchhikers Guide to the Galaxy.
I told her she probably owed him something, as her grounds to get out of the deal weren’t that strong. But I told her all the franchisor could sue her for were the royalties he would have received for the 12 months left in the contract (his “damages”), which totalled around $10,000. This was the maximum amount of his claim against her, putting it solidly into the jurisdiction of Small Claims Court in B.C.
Better yet, the franchisor was in Ontario, and was required by law to bring the claim in Vancouver. So he’d likely have to fly to B.C. to participate in our Small Claims Court’s compulsory mediation program before trial, which might happen in a year or more. And he might well have to come to B.C. for the trial in any event and hire a local lawyer to deal with B.C. law.
So when I factored his costs to pursue such a small claim against the client, including his airfare, hotel and legal costs, time away from the office, inherent delays, the possibility the franchisor might not prevail, and the fact that even if there was a judgment, the franchisor still had to collect from my client, it seemed that the lawyer’s letter that brought my client in to see me was overstated, to say the least.
I said to her to send him a message: “So sue me.”
Although the franchisor was owed around $10,000, I suggested she offer $2,000 in exchange for him not having to sue her and for the “certainty” a settlement gave her. But rather than using me, she handled it all herself and agreed to pay the franchisor $5,000 over time, proving the old adage that 50 per cent of the time 50 per cent of the people will settle for 50 per cent of the money.
So the moral of the story is this: don’t be intimidated by lawyer’s letters and don’t be afraid to say to the writer “so sue me.” With the high cost and uncertainty of litigation, suing you might not be worth it.
But do see a lawyer, just in case it is.
Special to the Globe and Mail
Vancouver franchise lawyer Tony Wilson is the author of Buying A Franchise In Canada – Understanding and Negotiating Your Franchise Agreement and he is ranked as a leading Canadian franchise lawyer by LEXPERT. He is head of the Franchise Law Group at Boughton Law Corp. in Vancouver and acts for both franchisors and franchisees across Canada, many of whom are in the food services and hospitality industry. He is a registered Trademark Agent, an Adjunct Professor at Simon Fraser University and he also writes for Bartalk and Canadian Lawyer magazines.
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