The Ontario Superior Court of Justice decision in Caffe Demetre v. 2249027 Ontario Inc., 2014 ONSC 2133, involved a partial summary judgment motion to dismiss the franchisee’s rescission claims (in its counterclaim) under the franchise disclosure legislation in Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 (the “Act”). The Act provides the franchisee with the extraordinary right to rescind the franchise agreement: (i) within 60 days after receiving the disclosure documents; or (ii) within 2 years after entering in to the franchise agreement if the franchisor never provided the disclosure documents.
The issue arose when the franchisee received the disclosure documents but attempted to rely on the 2 year rescission period, arguing that the disclosure documents contained “stark and material deficiencies” so as to be amount to no disclosure at all. The franchisee alleged that the franchisor failed to disclose material facts including ongoing litigation against the previous franchisee, implementation and amendment of operational policies, and the cost of remodelling and renovations.
Following on the guidance provided by the Supreme Court of Canada in Hyrniak v. Mauldin, 2014 SCC 7, the motions judge held that the issue of whether the disclosure documents were sufficiently deficient to amount to no disclosure at all was appropriate for summary judgment. There was no genuine issue requiring a trial because the evidence available allowed the motions judge to fairly and justly adjudicate the issue in a timely, cost-effective and proportionate manner. After considering the evidence, the motions judge held that the deficient disclosure was not egregious enough to amount to no disclosure at all, and the franchisee’s rescission claims were dismissed.
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