Hi Hotel Limited Partnership v. Holiday Hospitality Franchising Inc. et al., 2008 ABCA 276

• Judge: Côté, Conrad and McFadyen, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: June 11, 2008
• Citations: 2008 ABCA 276;(2008), 437 A.R. 225 (CA)

Hi Hotel Ltd. v. Holiday Hospitality (2008), 437 A.R. 225 (CA);

      433 W.A.C. 225

MLB headnote and full text

Temp. Cite: [2008] A.R. TBEd. AU.022

Hi Hotel Limited Partnership (respondent/plaintiff) v. Holiday Hospitality Franchising Inc. (appellant/defendant)

Holiday Hospitality Franchising Inc. (appellant/plaintiff by counterclaim) v. Hi Hotel Limited Partnership (respondent/defendant by counterclaim) and John Torode (respondent/defendant by counterclaim)

(0801-0006-AC; 2008 ABCA 276)

Indexed As: Hi Hotel Limited Partnership v. Holiday Hospitality Franchising Inc. et al.

Alberta Court of Appeal

Côté, Conrad and McFadyen, JJ.A.

August 14, 2008.

Summary:

Hi Hotel purchased a hotel that had been operated as a Holiday Inn. Hi Hotel entered into negotiations to continue the hotel as a Holiday Inn. The franchisor provided Hi Hotel a disclosure package, which purportedly included both Ontario and Alberta information. A franchise contract was signed. For almost a year, Hi Hotel paid franchise fees. Hi Hotel failed to renovate as agreed and the franchisor threatened contractual penalties. The franchisor refused to allow Hi Hotel to cancel the franchise agreement. Hi Hotel obtained the advice of counsel and discovered that the Alberta disclosure document and a Certificate of Franchisor had not been provided by the franchisor as required by the Franchises Act and the Franchises Regulation. Hi Hotel exercised its right of rescission of the agreement by reason of the franchisor's failure to meet the statutory disclosure requirements. Hi Hotel sued for a declaration that it had validly exercised its right of rescission. Additionally, it claimed a judgment for repayment by Holiday of certain monies, compensation for loss of benefits, damages, interest and costs. Hi Hotel applied for summary judgment. Holiday cross-applied for summary judgment on the basis that the disclosure documents had included two blank, undated and unsigned certificates and that the blank certificates substantially complied with the disclosure requirements (Franchises Regulation, s. 2(4)).

A Master of the Alberta Court of Queen's Bench dismissed the applications. An appeal ensued.

The Alberta Court of Queen's Bench, in a decision reported at  436 A.R. 185, granted Hi Hotel summary judgment for an amount to be assessed and upheld the rescission of the agreement. The franchisor appealed.

The Alberta Court of Appeal dismissed the appeal.

Franchises - Topic 5

General - Legislation - Interpretation - In a case involving a franchisor's obligation to provide disclosure, the Alberta Court of Appeal, per Côté, J.A., discussed the approach to interpreting consumer or investor protection legislation and, in particular, franchises legislation - Côté, J.A., stated, inter alia, that no authority had ever put protective consumer legislation into the category of harsh or intrusive legislation to be strictly construed - On the contrary, the Supreme Court of Canada, in Proprio Direct Inc. v. Association des courtiers et agents immobiliers du Québec et al. (2008), stated that such legislation should not be interpreted narrowly or "through the lens of freedom of contract and competition" - Côté, J.A., noted that the Franchises Act mentioned neither sophisticated franchisees nor fairness - Courts therefore had to interpret the Act either (a) as applying to all franchisees and franchisors; or (b) as laying down few hard and fast rules and leaving many important topics to lengthy individual litigation about what would be fair in the facts of the case - Côté, J.A., stated that "If a court wished to preserve bargains and produce certainty for business people, method (b) might well be a cure worse than the disease." - See paragraphs 12 to 23.

Franchises - Topic 2063

Franchise agreement - Duties of franchisor - To provide statement of material facts (disclosure) - A franchisee sued for, inter alia, rescission of a franchise agreement by reason of the franchisor's failure to meet its disclosure obligations (Franchises Act, s. 13) - The franchisee sought summary judgment - At issue was whether two blank, undated and unsigned Certificates of Franchisor purportedly provided by the franchisor substantially complied with the disclosure requirements (Franchises Regulation, s. 2(4)) - Section 2(3) of the Regulation provided that the certificates "must be dated and signed" - The motions judge stated that "must" as used in the Act and the Regulations was to be construed as imperative - The most coherent and clear interpretation of s. 2(4) which followed the three stated purposes of the Act, respected the imperative use of "must", and maintained the precedence of the Act over the Regulations, was that each requirement for the disclosure document had to be met - However, technical defects in the required elements would not invalidate the disclosure so long as each required element was substantially complied with - A franchisee could not waive the disclosure requirement (Franchisee Act, s. 18) - An unsigned and undated document did not meet the signing and dating requirement - Accordingly, the Certificates were a nullity and an essential element and requirement of the disclosure document was not provided - The disclosure document was not substantially complete - The franchisee was entitled to rescission - The Alberta Court of Appeal dismissed an appeal - The legislation's mandatory language, as well as the legislative intent to provide protection for prospective franchisees, all supported the conclusion that the franchisor made a fatal error - In essence, the motions judge concluded that there was no disclosure as required by the Act unless a signed and dated certificate was included in the disclosure document - The franchisee was not required to establish that he was misled or otherwise suffered damages as a result of the failure - The certificate, signed and dated, was a mandatory part of the disclosure - Until there was substantial compliance, there was no disclosure - The time limit for rescinding provided by s. 13(a) of the Act did not start to run until there was disclosure, and was therefore inapplicable.

Franchises - Topic 2207

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

Statutes - Topic 2420

Interpretation - Interpretation of words and phrases - General principles - "Must" - [See Franchises - Topic 2063 ].

Statutes - Topic 5130

Operation and effect - Enabling Acts - Obligatory, mandatory, imperative and absolute Acts - Whether mandatory enactment is obligatory or directory only - [See Franchises - Topic 2063 ].

Cases Noticed:

A.Y.S.A. Amateur Youth Soccer Association v. Canada Revenue Agency, [2007] 3 S.C.R. 217; 367 N.R. 264; [2008] 1 C.T.C. 32; 2007 SCC 42, refd to. [para. 16].

R. v. International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771, [2005] 3 S.C.R. 425; 341 N.R. 357; 275 Sask.R. 1; 365 W.A.C. 1; 2005 SCC 70, refd to. [para. 16].

Kraft Canada Inc. v. Euro Excellence Inc., [2007] 3 S.C.R. 20; 365 N.R. 332; 282 D.L.R.(4th) 577; 2007 SCC 37, refd to. [para. 17].

Proprio Direct Inc. v. Association des courtiers et agents immobiliers du Québec et al. (2008), 375 N.R. 1; 2008 SCC 32, refd to. [para. 19].

Botiuk v. Collison (1979), 23 O.R.(2d) 677; 103 D.L.R.(3d) 322 (C.A.), refd to. [para. 38].

Love's Realty & Financial Services Ltd. v. Coronet Trust (1989), 94 A.R. 341; 57 D.L.R.(4th) 606; 65 Alta. L.R.(2d) 362 (C.A.), refd to. [paras. 48, 114].

1490664 Ontario Ltd. et al. v. Dig This Garden Retailers Ltd. et al., [2004] O.J. No. 3008 (Sup. Ct.), affd. (2005), 201 O.A.C. 95; 256 D.L.R.(4th) 451 (C.A.), refd to. [para. 51].

Pryor v. Ontario Society for the Prevention of Cruelty to Animals, [2008] O.A.C. Uned. 65; 2008 CarswellOnt 692; 2008 ONCA 108, refd to. [para. 52].

R. v. Welsford, [1967] 2 O.R. 496 (C.A.), affd. [1969] 3 S.C.R. 438; 4 D.L.R.(3d) 450, refd to. [para. 53].

R. v. Zwicker (1980), 38 N.S.R.(2d) 361; 69 A.P.R. 361; 53 C.C.C.(2d) 239 (C.A.), refd to. [para. 53].

R. v. Leslie (W.A.), [1993] 7 W.W.R. 392; 88 Man.R.(2d) 74; 51 W.A.C. 74 (C.A.), refd to. [para. 53].

R. v. Morais, [1988] 3 All E.R. 161; 87 Cr. App. R. 9 (C.A.), refd to. [para. 54].

R. v. Clarke, [2008] N.R. Uned. 084; [2008] UKHL 8; [2008] 1 W.L.R. 338 (H.L.), refd to. [para. 54].

Emerald Developments Ltd. v. 768158 Alberta Ltd. (2001), 287 A.R. 151; 2001 ABQB 143, dist. [para. 56].

Traversy v. Chia Chia Communications Inc. (1999), 241 A.R. 198; 1999 ABQB 161 (Master), refd to. [para. 68].

Rocha v. Panda Flowers (2005), 388 A.R. 145; 2005 ABQB 640, refd to. [para. 68].

MAA Diners Inc. et al. v. 3 for 1 Pizza & Wings (Canada) Inc. et al., (2003), 30 B.L.R.(3d) 279 (Sup. Ct.), affd. (2004), 43 B.L.R.(3d) 29 (C.A.), refd to. [para. 79].

Ames (A.E.) & Co., Re, [1972] O.S.C.B. 98, refd to. [para. 84].

Statutes Noticed:

Franchises Act, R.S.A. 2000, c. F-23, sect. 4(1), sect. 4(2) [para. 127]; sect. 4(3) [para. 128]; sect. 13 [para. 129].

Franchises Act Regulations (Alta.), Franchises Regulation, Reg. 240/1995, sect. 2(3)(a) [para. 130].

Franchises Regulation - see Franchises Act Regulations (Alta.).

Authors and Works Noticed:

Alboini, Victor P., and Findlay, Paul G., Securities Law and Practice (3rd Ed.) (2006 Looseleaf), pp. 15-10, § 15.4.1 [para. 102]; 15-33, § 15.7.1(a) [para. 36]; 17-46 to 17-47, § 17.2.9 [para. 85].

Condon, Mary G., Anand, Anita, and Sarra, Janis, Securities Law in Canada (2005), pp. 264 [para. 82]; 326 [para. 85]; 406 [paras. 82, 88]; 407 [para. 88].

Dillon, Peter Macrae, Annotated Alberta Franchises Act (2007 Looseleaf), pp. vii, ix [para. 85]; 6.1 [para. 103].

Johnston, David L., and Doyle Rockwell, Kathleen, Canadian Securities Regulation (3rd Ed. 2003), p. 89 [para. 60].

Counsel:

B.C. Yorke-Slader, for the respondent/plaintiff;

C.C.J. Feasby and T.R. Prince, for the appellant/defendant.

This appeal was heard on June 11, 2008, by Côté, Conrad and McFadyen, JJ.A., of the Alberta Court of Appeal. The judgment of the court was delivered on August 14, 2008, with the following opinions:

Côté, J.A. - see paragraphs 1 to 120;

McFadyen, J.A. (Conrad, J.A., concurring) - see paragraphs 121 to 137.