The recent Ontario Superior Court of Justice decision in 2337310 Ontario Inc. v. 2264145 Ontario Inc., 2014 ONSC 4370, addressed a partial summary judgment motion brought by the franchisee of a cafe seeking a declaration that it was entitled to exercise its right of rescission under the Arthur Wishart Act (Franchise Disclosure), 2000 (“the Act”).
The franchisee sought to rescind the franchise agreement approximately six months after entering into the agreement by arguing that the disclosure document provided by the franchisor was so deficient that it amounted to receving no disclosure at all. In contrast, the franchisor argued that the franchisee was provided with disclosure as required under the Act, and the franchisee was simply attempting to resile from a bona fide transaction due to its own incompetence and inability to operate the business successfully.
The Court found a number of deficiencies in the disclosure provided by the franchisor, including failure to provide: (1) the financial statements of the franchisor; (2) the lease or sublease relating to the premises where the franchise operated and an estimate of the costs for such a lease; (3) the Directors’ Certificate; and (4) various other agreements relating to the franchise.
The Court stated that the franchisor’s failure to provide its financial statements prevented the franchisee from assessing the financial viability of the franchisor, and the franchisor’s failure to provide the lease or sublease prevented the franchisee from assessing the costs of a significant expense – the monthly lease obligations. Accordingly, the Court concluded that the disclosure provided was so deficient that it did not qualify as a “disclosure document” for the purposes of the Act, and the franchisee was entitled to exercise its right of rescission under s. 6(2) of the Act.
If you require legal advice in respect to franchise disputes, please contact us for an initial consultation.
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