4287975 Canada Inc. v. Imvescor Restaurants Inc. et al. [Indexed as: 4287975 Canada Inc. v. Imvescor Restaurants Inc.]
98 O.R. (3d) 187
Court of Appeal for Ontario,
Borins, Crank and LaForme JJ.A.
April 16, 2009*
- This judgment was recently brought to the attention of the editors.
Contracts -- Franchise agreement -- Rescission -- Franchisor providing disclosure document more than 14 days after franchisee made payment relating to franchise -- Franchisee executing franchise agreement [page188] six months later -- Franchisee seeking to rescind franchise agreement under s. 6(2) of Arthur Wishart Act (Franchise Disclosure) just under two years later -- Motion judge correctly finding that franchisee did not have right of rescission under either s. 6(1) or s. 6(2) -- Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3, s. 6.
The appellant franchisee received a disclosure document from the respondent franchisor prior to the execution of a franchise agreement but more than 14 days after it paid $15,000 to the respondent relating to the franchise in issue. Approximately six months after the delivery of the disclosure document, the appellant executed the franchise agreement. Just under two years later, it served on the respondent a notice of rescission in respect of the franchise agreement. The appellant brought a motion in the form of a special case to determine whether it had a right of rescission under the Arthur Wishart Act (Franchise Disclosure), 2000. The motion judge held that the appellant did not have a right to rescind the franchise agreement under s. 6(2) of the Act because that section only applies where the franchisor never provides disclosure and that s. 6(1) of the Act did not provide a right of rescission, despite the fact that the disclosure document was delivered late, as the appellant had six months to consider the disclosure document before signing the franchise agreement. The appellant appealed, arguing that it had a right under s. 6(2) of the Act to rescind the franchise agreement within two years of executing it as, properly interpreted, the Act requires that disclosure must be made before the prospective franchisee pays any moneys or makes any legal commitments related to the franchise.
Held, the appeal should be dismissed.
The motion judge correctly found that the appellant did not have a right of rescission under either s. 6(1) or s. 6(2) of the Act. Section 6(1) applies to a situation in which the franchisee was unable to make a fully informed decision as a result of inadequate time for consideration of such decision or inadequate disclosure of the material facts. That was not the case here. Section 6(2) applies to a situation in which the franchisee is unable to make an informed decision at all because of a complete lack of a disclosure document. Again, that was not the case here. The appellant's argument that the motion judge failed to give appropriate or sufficient weight to the "imperative" language of s. 5 that uses words like "shall" and "must" to describe a franchisor's obligations was inconsistent with the modern approach to statutory interpretation. Interpreted in the light of the modern, purposive approach, it is clear that a rescission remedy is available to the franchisee in two separate situations and that the two situations are not to be blurred into one. Any failure to comply with s. 5 does not result in a finding of no disclosure and a s. 6(2) remedy.
APPEAL from the order of Newbould J. (2008), 2008 ONSC 41163, 91 O.R. (3d) 705, [2008] O.J. No. 3197 (S.C.J.) on a motion in form of a special case to determine whether the appellant had right of rescission.
Cases referred to 6862829 Canada Ltd. v. Dollar It Ltd., [2008] O.J. No. 4687, 2008 ONSC 60699; Sovereignty Investment Holdings, Inc. v. 9127-6907 Quebec Inc., [2008] O.J. No. 4450, 303 D.L.R. (4th) 515, 54 B.L.R. (4th) 277, 2008 ONSC 57450, consd Other cases referred to 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd., 2005 ONCA 25181, [2005] O.J. No. 3040, 256 D.L.R. (4th) 451, 201 O.A.C. 95, 7 B.L.R. (4th) 1, 141 A.C.W.S. (3d) 741 (C.A.); Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, 2002 SCC 42, 212 D.L.R. (4th) 1, 287 N.R. 248, [2002] 5 W.W.R. 1, J.E. 2002-775, 166 B.C.A.C. 1, 100 B.C.L.R. (3d) 1, 18 C.P.R. (4th) 289, 93 C.R.R. (2d) 189, REJB 2002-30904, 113 A.C.W.S. (3d) 52; [page189] Law Society of Upper Canada v. Ernst & Young (2003), 2003 ONCA 14187, 65 O.R. (3d) 577, [2003] O.J. No. 2691, 227 D.L.R. (4th) 577, 174 O.A.C. 49, 38 C.P.C. (5th) 40, 123 A.C.W.S. (3d) 480 (C.A.) [Leave to appeal to S.C.C. refused [2004] 1 S.C.R. viii]; Personal Service Coffee Corp. v. Beer (c.o.b. Elite Coffee Newcastle), 2005 ONCA 25180, [2005] O.J. No. 3043, 256 D.L.R. (4th) 466, 200 O.A.C. 282, 141 A.C.W.S. (3d) 410 (C.A.) Statutes referred to Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3, ss. 5, (1), (4), 6, (1), (2) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 22
Ian N. Roher and David S. Altshuller, for appellant. Randy C. Sutton and Christine Kilby, for respondents Imvescor Inc., Imvescor Restaurants Inc. and Jim Ragas. Timothy J. Hill, for respondents Baton Rouge Restaurants Company Ltd., Baton Rouge Restaurants Company and Sara-Mammas Corporation Inc.
The judgment of the court was delivered by
LAFORME J.A.: -- Overview
[1] The issue in this appeal is whether the appellant had a right of rescission under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the "Act"). The appellant is the franchisee of a Baton Rouge Restaurant located in the City of Oakville and seeks to rely on s. 6(2) of the Act as a basis for rescission of its franchise agreement.
[2] The appellant originally executed a franchise agreement with Baton Rouge Restaurants Company ("Baton Rouge"), which subsequently sold the franchise to a corporation that became Imvescor Restaurants Inc., the successor franchisor. Sara-Mammas Corporation Inc. is the successor of Baton Rouge.
[3] The appellant brought a motion in the form of a special case pursuant to Rule 22 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The special case arose in the following context: the appellant paid $15,000 relating to the franchise; the appellant received a disclosure document two months after the payment; and the appellant signed a franchise agreement six months after receiving the disclosure document. [page190]
[4] The motion judge determined that the appellant did not have a right of rescission under the Act. It is from this decision that the appellant now appeals.
Relevant Statutory Provisions
[5] Sections 5(1) and (4) of the Act provide as follows:
5(1) A franchisor shall provide a prospective franchisee with a disclosure document and the prospective franchisee shall receive the disclosure document not less than 14 days before the earlier of, (a) the signing by the prospective franchisee of the franchise agreement or any other agreement relating to the franchise; and (b) the payment of any consideration by or on behalf of the prospective franchisee to the franchisor or franchisor's associate relating to the franchise. . . . . .
(4) The disclosure document shall contain, (a) all material facts, including material facts as prescribed; (b) financial statements as prescribed; (c) copies of all proposed franchise agreements and other agreements relating to the franchise to be signed by the prospective franchisee; (d) statements as prescribed for the purposes of assisting the prospective franchisee in making informed investment decisions; and (e) other information and copies of documents as prescribed.
[6] The rescission rights are contained in s. 6 of the Act, which provides:
6(1) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than 60 days after receiving the disclosure document, if the franchisor failed to provide the disclosure document or a statement of material change within the time required by section 5 or if the contents of the disclosure document did not meet the requirements of section 5.
(2) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than two years after entering into the franchise agreement if the franchisor never provided the disclosure document.
Facts
[7] The facts set out in this special case, which were relied upon by the motion judge, are as follows: (i) On June 8, 2005, the appellant as a prospective franchisee paid $15,000 to the franchisor relating to the franchise in issue; [page191] (ii) on August 15, 2005, prior to the execution of any franchise agreement, the appellant received a document entitled "Ontario Franchise disclosure document" (disclosure document); (iii) for the purposes of this special case and without prejudice to any position which the appellant may subsequently wish to adopt, the court is to assume that the contents of the disclosure document fully complied with the provisions of s. 5(4) of the Act; (iv) on February 17, 2006, approximately six months after the delivery of the disclosure document, the appellant executed a franchise agreement with the franchisor; and (v) on February 15, 2008, the appellant served on the franchisor and other interested parties a notice of rescission in respect of the franchise agreement.
[8] The motion judge held that the rescission rights provided for in s. 6 of the Act were not available to the appellant. Specifically, he found that the appellant did not have a right to rescind the franchise agreement under s. 6(2) because this section only applies where the franchisor never provides disclosure. Further, given that the appellant had six months to consider the disclosure document before signing the franchise agreement, the motion judge held that s. 6(1) of the Act also did not provide a right of rescission.
Issue
[9] The sole issue on this appeal is the meaning of s. 6(1) and (2) of the Act, particularly when read together with s. 5 of the Act.
Positions of the Parties
[10] The appellant submits that the motion judge erred, and that it was entitled to rescission within two years of having executed the franchise agreement pursuant to s. 6(2) of the Act. In essence, the appellant argues that the interpretation and interaction of ss. 5 and 6 of the Act are each of fundamental importance to the entire purpose of the legislation, namely, to protect franchisees by requiring franchisors to provide proper disclosure before a franchisee provides consideration or signs an agreement. The appellant contends that to interpret the relevant sections of the Act as the motion judge did defeats the overall purpose of the Act. [page192]
[11] The respondents contend that the decision of the motion judge was correct. In particular, they argue that the result is consistent with the clear and unambiguous language of the Act, which states that s. 6(2) only applies where a disclosure document was never provided. Further, according to the respondents, the decision of the motion judge also accords with the modern principles of statutory interpretation and the purpose of the Act.
[12] For the reasons that follow, I agree with the motion judge that the position of the respondents is the correct one. That is, s. 6 of the Act does not permit the appellant to deliver its notice of rescission up to two years after executing the franchise agreement when it has been provided with a disclosure document. Accordingly, I would dismiss the appeal.
Analysis
[13] Before proceeding to examine the merits of the appeal, I will very briefly address a preliminary issue. (i) Assumed facts
[14] On the motion, the parties agreed that the motion judge could assume that the disclosure document fully complied with the disclosure provisions of s. 5(4) of the Act. That agreement was without prejudice to any position which the appellant may subsequently wish to adopt. In Law Society of Upper Canada v. Ernst & Young (2003), 2003 ONCA 14187, 65 O.R. (3d) 577, [2003] O.J. No. 2691 (C.A.), application for leave to appeal dismissed [2004] 1 S.C.R. viii, this court held that summary judgment motions are not to be decided on assumed facts where doing so would create a hypothetical question that could be answered differently at trial. The parties in the case at bar were asked to address this issue.
[15] For our purposes, the relevant parts of Rule 22 provide:
22.04 A special case (Form 22A) shall, (a) set out concisely the material facts, as agreed to by the parties, that are necessary to enable the court to determine the question stated; (b) refer to and include a copy of any documents that are necessary to determine the question; (c) set out the relief sought, as agreed on by the parties, on the determination of the question of law;
[16] On the motion brought by way of special case pursuant to Rule 22, the facts before the court were based on evidence not in [page193] dispute and agreed upon for all purposes of the motion. The only assumption was as to the "content" requirements of the disclosure document, and not as to any of the "time" requirements. The issue before the motion judge was related specifically to the timing issue and not to content. Thus, no facts relevant to the ultimate decision sought on the motion -- namely, the effect of the failure to comply with the time requirements set out in s. 5 of the Act -- were in dispute.
[17] In the end, the parties' agreement on the facts at issue in the motion distinguishes this case from the Law Society decision. The motion judge, in my view, was correct in his decision to proceed and decide the motion.
[18] I will now discuss the merits of the appeal. (ii) The statutory provisions
[19] The core argument of the appellant is that the Act contemplates that a "properly informed decision" or an "informed investment decision" made by a prospective franchisee must be one unencumbered by extraneous considerations, such as the assumption of debt to a third party, before any event described in s. 5(1) occurs. According to the appellant, this means that disclosure under the Act must be made before the prospective franchisee pays any moneys or makes any legal commitments related to the franchise.
[20] The appellant notes that the importance of a properly informed decision has been reinforced by this court in 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd., 2005 ONCA 25181, [2005] O.J. No. 3040, 256 D.L.R. (4th) 451 (C.A.), at para. 16, and in Personal Service Coffee Corp. v. Beer (c.o.b. Elite Coffee Newcastle), 2005 ONCA 25180, [2005] O.J. No. 3043, 256 D.L.R. (4th) 466 (C.A.), at para. 28. The appellant argues, however, that although the motion judge acknowledged the Act's purpose, he failed to properly give effect to it.
[21] The appellant asserts that a brief review of the Act makes it clear that the above purpose is reflected throughout its various provisions. For example, it says that the requirements surrounding disclosure found in s. 5 of the Act are critical to interpreting s. 6(2). When read together, the contention is, it becomes clear that all disclosure obligations under s. 5 must be fulfilled before either of the events described under s. 5(1) occurs. Such a reading, it is argued, is consistent with the statute's purpose.
[22] The sum of the appellant's submissions is that any purposive, harmonious interpretation of the provisions of the Act must be consistent with the protection of franchisees through, inter alia, the effective imposition of rigorous disclosure by [page194] franchisors. Conversely, any provisions of the Act which appear to contradict, frustrate, reduce, abrogate or even nullify the protection of franchisees or the method by which such protections are enforced must be carefully scrutinized and "met with scepticism": Personal Service Coffee, at para. 28.
[23] By way of illustration -- and as it was argued on the motion -- the appellant says that by reading s. 6(1) as the respondents propose, the appellant could only have rescinded the franchise agreement within 60 days after being provided with the disclosure document. But, given that the franchise agreement had not been signed within 60 days, it makes no sense and does not fulfill the purpose of the legislation to require the prospective franchisee to rescind the franchise agreement long before it was even made. This scenario, the appellant argues, calls for a different interpretation that ensures that the purpose of the legislation is fulfilled. That is to say, the interpretation urged by the appellant would construe s. 6(2) as applying if a disclosure document was provided but only outside of the time required by s. 5.
[24] Like the motion judge, I disagree. The Act provides clear guidance as to when a franchisor must deliver a disclosure document as well as the consequences of the failure to do so.
[25] In respect to timing, s. 5 of the Act ensures that a prospective franchisee has at least 14 days to review and consider a disclosure document before signing a franchise agreement or paying consideration in relation to a franchise. In the event that the franchisor does not comply with s. 5, the Act provides the franchisee with an extraordinary remedy: the right to rescind the franchise agreement with two different limitation periods, depending on when and whether the franchisor provides a disclosure document.
[26] First, s. 6(1) permits rescission within 60 days of receipt of the disclosure document if the disclosure document is not provided "within the time required by s. 5". Not only did the appellant not provide a notice of rescission within 60 days of receiving the document, but it also had six months to consider the disclosure document before entering into the agreement.
[27] Second, under s. 6(2), a franchisee may rescind a franchise agreement within two years, but only if there was no disclosure document provided by the franchisor. In particular, for s. 6(2) to apply, the franchisor must never have provided the disclosure document. The time for rescission under s. 6(2) starts to run from the date when the franchise agreement was signed, owing to the fact that unlike under s. 6(1) -- where the applicable time starts when a proper disclosure document is provided -- [page195] s. 6(2) applies to a situation where there is no disclosure document provided at all.
[28] In sum, s. 6(1) provides for a 60-day rescission period if either a franchisor fails to deliver a disclosure document within the required time periods under s. 5 or the contents of a disclosure document did not meet the requirements of s. 5. Section 6(2) provides for a two-year rescission period in the event of a failure by the franchisor to deliver a disclosure document.
[29] To state it in the terms of the appellant's arguments, s. 6(1) applies to a situation in which the franchisee was unable to make a fully informed decision as a result of inadequate time for consideration of such decision or inadequate disclosure of the material facts. Section 6(2) applies to a situation in which the franchisee is unable to make an informed decision at all because of a complete lack of a disclosure document.
[30] As noted, there was disclosure in this case. As the motion judge correctly held, s. 6(2) of the Act, therefore, has no application.
[31] The motion judge also found that s. 6(1) was not available to the appellant on the facts of this case, noting, at para. 12, that s. 6(1) "does not purport to provide a rescission right in all circumstances". Again, I agree with the motion judge.
[32] Section 6(1) contemplates a situation in which a franchisor has failed to comply with the timing or content requirements of the Act in respect of a disclosure document. It extends the time normally provided for the review of the disclosure document (at least 14 days) to afford a franchisee 60 days from the date the disclosure document is given to review the disclosure document and determine whether to rescind a binding franchise agreement.
[33] In this case, no notice of rescission under the Act was provided within the 60-day window, presumably because no agreement had been entered into in that time. In fact, the appellant took six months from the receipt of the disclosure document to decide whether to be bound by the franchise agreement at all.
[34] For these reasons, I would not give effect to this ground of appeal. (iii) Principles of statutory interpretation
[35] The appellant also argues that the motion judge failed to give appropriate or sufficient weight to the "imperative" language of s. 5 that uses words like "shall" and "must" to describe a franchisor's obligations. His interpretation of s. 6, it says, effectively frustrates the purpose of s. 5. This in turn leads to an absurd result, which is not in keeping with principles of statutory interpretation; franchisors face no "strict penalties" for failing to comply with the disclosure imperative of s. 5, [page196] which in turn defeats the purpose of the Act. I would reject this argument.
[36] The appellant's interpretation is entirely inconsistent with the modern approach to statutory interpretation in that it neither reflects the ordinary and grammatical sense of the language used, nor is it harmonious with the scheme of the Act or the express intention of the legislature. In Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, at para. 26, Iacobucci J., for the court, referred to the preferred approach to statutory interpretation as follows:
In Elmer Driedger's definitive formulation, found at p. 87 of his Construction of Statutes (2nd ed. 1983):
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
Driedger's modern approach has been repeatedly cited by this Court as the preferred approach to statutory interpretation across a wide range of interpretive settings . . . (Citations omitted)
[37] The Act, interpreted in the light of this modern interpretive approach, is clear that a rescission remedy is available to the franchisee in two separate situations, and that the two situations are not to be blurred into one. This interpretation is further bolstered by the purpose of the Act, which is in part to ensure that the franchisee has at least 14 days to review a disclosure document before signing an agreement. The legislature clearly chose to reserve the two-year remedy for instances of a complete failure to provide a disclosure document.
[38] Section 6(2) of the Act cannot be triggered in cases where a disclosure document is provided because it expressly applies only when a disclosure document was "never provided". To accept the appellant's submissions as to the applicability of s. 6(2) to this case would be inconsistent with, and contrary to, the inclusion of s. 6(1) in the Act, which speaks directly to the consequences of a franchisor's failure to provide a disclosure document that meets the timing and/or content requirements of the Act.
[39] While the Act does not expressly provide a right of rescission in circumstances where a disclosure document is delivered late, but more than 60 days in advance of the execution of a franchise agreement, this does not impose an injustice as the appellant suggests. Rather, the purpose of the Act is still met in such circumstances because the franchisee has sufficient time [page197] -- at least 60 days -- to make an informed decision as to whether or not to enter into the franchise agreement.
[40] A fair interpretation of the Act is one that balances the rights of both franchisees and franchisors. To read in the remedy that the appellant is proposing is inconsistent with such an interpretation and was clearly not within the contemplation of the legislature.
[41] Finally, the motion judge's interpretation does not give rise to absurd results. Rather, it is the appellant's argument that does so in that if applied, the s. 6(1) remedy provided by the legislature would be rendered pointless.
[42] The appellant urged this court to consider two recent decisions of the Ontario Superior Court of Justice: Sovereignty Investment Holdings, Inc. v. 9127-6907 Quebec Inc., [2008] O.J. No. 4450, 2008 ONSC 57450 and 6862829 Canada Ltd. v. Dollar It Ltd., [2008] O.J. No. 4687, 2008 ONSC 60699. In my view, however, these cases are of no assistance to the appellant.
[43] These cases do not stand for the broader conclusion, proposed by the appellant, that any failure to comply with s. 5 results in a finding of no disclosure and therefore a s. 6(2) remedy. On my reading of the two cases, they hold that if the disclosure document that is provided turns out to be materially deficient, then no disclosure will be found to be have been made. On the facts, that is not what happened here. The disclosure document was merely late.
[44] The appellant had ample time to review the disclosure document before executing the franchise agreement, and had it rescinded even after the 60-day period but prior to the signing of the agreement, it would have been entitled to a refund of $15,000 already paid under its common-law right to relief.
Conclusion
[45] In the result, I would dismiss the appeal. I would award each of the two groups of respondents their respective costs of the appeal as follows: (i) Imvescor Inc., Imvescor Restaurants Inc., and Jim Ragas, the all inclusive amount of $12,500; and (ii) Baton Rouge Restaurants Company Ltd., Baton Rouge Restaurants Company, and Sara-Mammas Corporation Inc., the all inclusive amount of $8,500.
Appeal dismissed. [page198]