A broker who sued his franchiser over a dispute involving "exclusive territory" has been awarded more than $174,000 by the Ontario Superior Court of Justice.

Mincom Realty Systems Inc. was ordered to pay the sum to Andrew Ielasi, who operated Mincom Corona Realty of Hamilton, Ont. The amount includes $7,500 for repayment of the licence fee; more than $36,000 for royalty fees; more than $55,000 for advertising and promotional expenses; $50,000 for "loss of profits or encroachment loss"; and $25,000 for punitive damages.

Mincom Realty Systems, which says it has about 40 offices in Ontario, Alberta and two U.S. states, has launched an appeal of the judgment. Ielasi is now the broker of a Prudential office.

At issue in the case was wording in the franchise agreement concerning the exclusive rights to use the Mincom name in Burlington, a community east of Hamilton. Both cities are served by the same real estate board.

When Ielasi signed with Mincom in 1996, he wanted Mincom Corona to have exclusive rights to the name in Burlington, but Mincom Realty Systems' president Ken Thompson said he was in negotiations with a third party for the Burlington territory. After some negotiations, both parties signed a document that stated, "If within six (6) months of signing of this Agreement the excluded Burlington territory is still open, then Mincom agrees to add this area to the Licensed Territory of the Agreement for Corona Realty Inc."

Evidence at the trial showed that after six months had elapsed, Corona assumed that Burlington was part of its exclusive area and proceeded to increase its spending on advertising and promotions. Corona intended to open a Burlington office after establishing a strong Hamilton base, court was told.

But in 1998, Ielasi learned that the Burlington area had been sold to someone else, 14 months after the six month "open" clause had expired. Corona then reduced its advertising expenditures, and after the five-year term of the Agreement expired, it ended its relationship with Mincom. Corona sued Mincom for breach of contract.

In his judgment, Justice Fedak wrote that "Ken Thompson takes the position that the wording used was ambiguous as to the meaning of 'open' and that it was 'purposely left that way.' Reference to six months meant Burlington would remain 'open' for as long as Mincom was negotiating with anyone for Burlington, even if Mincom kept negotiations going 'forever'.

"The court adopts Corona's position that there is no ambiguity or confusion as to the meaning of 'open'…"

Justice Fedak said, "By 'purposely' choosing the ambiguous wording ... Mincom acted in bad faith. I find that its conduct was contrary to standards of honesty, reasonableness and fairness.

"Selling a franchise ... some 14 months after the six month 'open' period ... was an act of bad faith, and reveals Mincom's attitude that it was not bound by its obligations under the agreement, 'unless it suited its purpose to do so'."

The judge rejected Mincom's position that Corona was in breach of the agreement because it was consistently late in remitting forms, payments and statements, and that consequently, Mincom was free to enter into a franchise agreement with someone else.

He concluded, "Mincom's conduct was reprehensible, oppressive and high-handed. I find that an award of punitive damages, in an amount that would 'negate the benefit acquired by Mincom through its wrong doing', is justified."

Thompson says the case is being appealed because Mincom believes the court erred in its judgment. "We're confident this decision will be overturned," he says. "The territory in question was never granted to them."

Ielasi says he is pleased with the court's ruling, but notes that court battles such as this provide an advantage to larger companies that have the financial resources to spend on legal fees.