2189205 Ontario Inc. et al. v. Springdale Pizza Depot Ltd. et al.

• Jurisdiction: Ontario
• Court: Court of Appeal (Ontario)
• Judge: Sharpe, Gillese and Karakatsanis, JJ.A.
• Citation: 2011 ONCA 467,(2011), 283 O.A.C. 55 (CA)
• Date: 23 March 2011

2189205 Ont. v. Springdale Pizza Depot (2011), 283 O.A.C. 55 (CA)

MLB headnote and full text

Temp. Cite: [2011] O.A.C. TBEd. JN.027

2189205 Ontario Inc., Parminder Mutti, and Navjot Kaur Chandi (respondents) v. Springdale Pizza Depot Ltd., Ranjit Singh Mahil, Dilawar Singh Khakh (appellants)

(C52462; 2011 ONCA 467)

Indexed As: 2189205 Ontario Inc. et al. v. Springdale Pizza Depot Ltd. et al.

Ontario Court of Appeal

Sharpe, Gillese and Karakatsanis, JJ.A.

June 22, 2011.

Summary:

Franchisees purchased an existing franchise. The franchisor did not provide the disclosure documentation required under the Arthur Wishart Act (Franchise Disclosure) (Ont.). After operating the business for several months, the franchisees served the franchisor with a notice of rescission. The franchisees applied for partial summary judgment, seeking a declaration that they had validly rescinded their franchise agreements.

The Ontario Superior Court, in a decision reported at [2010] O.T.C. Uned. 3695, held that the franchise agreements were validly rescinded and the franchisor was liable to pay damages. The franchisor appealed.

The Ontario Court of Appeal dismissed the appeal.

Franchises - Topic 5

General - Legislation - Interpretation - Franchisees purchased an existing franchise - The franchisor did not provide the disclosure documentation required under the Arthur Wishart Act (Franchise Disclosure) (Ont.) - After operating the business for several months, the franchisees served the franchisor with a notice of rescission - A summary motion judge found that the "resale" exemption from disclosure requirements in s. 5(7)(a)(iv) of the Act did not apply - The franchise agreements were validly rescinded and the franchisor was liable to pay damages - The Ontario Court of Appeal, in dismissing the franchisor's appeal, discussed the purpose and effect of the Act - Disclosure was intended to provide a prospective and often inexperienced franchisee with sufficient and readily accessible information to make informed decisions - The remedies for failure to comply with the strict disclosure requirements were also intended to remedy abuses by franchisors - Section 5 of the Act set out the specific disclosure obligations for franchisors and s. 6 provided the consequences for failure to strictly comply - Exemptions from the disclosure requirements were set out in ss. 5(7) and 5(8) - While s. 5(7)(a) exempted a franchisor from the disclosure obligations when the grant of the franchise was directly from a franchisee, the provisions limited the role that the franchisor could play in such a grant without triggering the disclosure obligation - The disclosure exemption was not available where the grant of the franchise was from the franchisee, but was "effected by or through the franchisor" - Section 5(8) provided that "a grant is not effected by or through a franchisor merely because ... the franchisor has a right, exercisable on reasonable grounds, to approve or disapprove the grant" or because the franchisor might charge a reasonable fee for its approval - Given the purpose and context of the Act, the exemptions to disclosure set out in ss. 5(7)(a)(iv) and 5(8) had to be narrowly construed - See paragraphs 21 to 40.

Franchises - Topic 2063

Franchise agreement - Duties of franchisor - To provide statement of material facts (disclosure) - [See Franchises - Topic 5 ].

Franchises - Topic 2063

Franchise agreement - Duties of franchisor - To provide statement of material facts (disclosure) - Franchisees purchased an existing franchise - The franchisor did not provide the disclosure documentation required under the Arthur Wishart Act (Franchise Disclosure) (Ont.) - After operating the business for several months, the franchisees served the franchisor with a notice of rescission - A summary motion judge found that the "resale" exemption from disclosure requirements in s. 5(7)(a)(iv) of the Act did not apply - The franchise agreements were validly rescinded and the franchisor was liable to pay damages - The Ontario Court of Appeal dismissed the franchisor's appeal - Section 5 of the Act set out specific disclosure obligations for franchisors - Section 5(7) exempted a franchisor from those obligations in certain situations, including, in s. 5(7)(a)(iv), where the grant of the franchise "is not effected by or through the franchisor" - Here, there was uncontradicted evidence that the franchisor did not simply play a passive role in the resale, limited to the specific requirements required for its consent under the franchise agreement - Instead, the franchisor directed the prospective vendor to the business - The franchisor had detailed financial information about all franchises and the right of first refusal - Further, the franchisor had some involvement in the negotiations for the agreement of purchase and sale - All of the parties negotiated together - The agreement of purchase and sale required the franchisees to obtain the consent of the franchisor and, thus, deal directly with the franchisor - Finally, the franchisor did not merely demand execution of the franchise agreement and related documents as required in the agreement, but required two additional documents - The motion judge had not erred in concluding that the grant from the franchisee was effected by or through the franchisor and did not fall within the disclosure exemption in s. 5(7)(a)(iv) - See paragraphs 41 to 48.

Franchises - Topic 2207

Franchise agreement - Termination - Rescission - [See second Franchises - Topic 2063 ].

Practice - Topic 5708

Judgments and orders - Summary judgments - Bar to application - Existence of issue to be tried - Franchisees purchased an existing franchise - The franchisor did not provide the disclosure documentation required under the Arthur Wishart Act (Franchise Disclosure) (Ont.) - After operating the business for several months, the franchisees served the franchisor with a notice of rescission - A summary motion judge found that the "resale" exemption from disclosure requirements in s. 5(7)(a)(iv) of the Act did not apply - The franchise agreements were validly rescinded and the franchisor was liable to pay damages - The Ontario Court of Appeal dismissed the franchisor's appeal - The court rejected the franchisor's argument that the motion judge had erred in finding that there was no genuine issue for trial - The motion judge considered her powers under Rule 20 and acknowledged the court's new powers of weighing evidence and drawing any reasonable inference from the evidence - The relevant evidence was not in dispute - There were no cross-examinations on the affidavits - The motion judge decided whether there was a genuine issue requiring a trial on the basis of uncontested evidence and the relevant provisions of the statute - Her findings were consistent with decisions interpreting the relevant provisions of the statute - See paragraphs 15 and 16.

Statutes - Topic 8506

Remedial statutes - General principles - Interpretation - [See Franchises - Topic 5 ].

Cases Noticed:

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1, refd to. [para. 21].

Bristol-Myers Squibb Co. et al. v. Canada (Attorney General) et al., [2005] 1 S.C.R. 533; 334 N.R. 55, refd to. [para. 21].

Salah et al. v. Timothy's Coffees of the World Inc. (2010), 268 O.A.C. 279 (C.A.), refd to. [para. 23].

1490664 Ontario Ltd. et al. v. Dig This Garden Retailers Ltd. et al. (2005), 201 O.A.C. 95; 256 D.L.R.(4th) 451 (C.A.), refd to. [para. 24].

MAA Diners Inc. et al. v. 3 for 1 Pizza & Wings (Canada) Inc. et al., [2003] O.T.C. 105; 2003 CanLII 10615 (Sup. Ct.), affd. [2004] O.A.C. Uned. 71; 2004 CanLII 19240 (C.A.), refd to. [para. 35].

1518628 Ontario Inc. et al. v. Tutor Time Learning Centres LLC et al., [2006] O.T.C. 675; 2006 CanLII 25276 (Sup. Ct.), refd to. [para. 36].

Statutes Noticed:

Arthur Wishart Act (Franchise Disclosure), S.O. 2000, c. 3, sect. 5(7), sect. 5(8) [para. 27].

Authors and Works Noticed:

Driedger, Elmer A., Construction of Statutes (2nd Ed. 1983), p. 87 [para. 21].

Counsel:

David S. Altshuller and Kristina Davies, for the appellants;

Allan D.J. Dick, for the respondents.

This appeal was heard on March 23, 2011, by Sharpe, Gillese and Karakatsanis, JJ.A., of the Ontario Court of Appeal. On June 22, 2011, Karakatsanis, J.A., released the following judgment for the court.