MBCO Summerhill Inc. v. MBCO Associates Ontario Inc., 2011 ONCA 236

CITATION: MBCO Summerhill Inc. v. MBCO Associates Ontario Inc., 2011 ONCA 236

DATE: 20110325

DOCKET: C52927

COURT OF APPEAL FOR ONTARIO

Armstrong, Juriansz and Watt JJ.A.

BETWEEN

MBCO Summerhill Inc.

Plaintiff (Respondent)

and

MBCO Associates Ontario Inc., MBCO Rosedale and George Elian

Defendants (Appellants)

M. McQuade, for the appellants

Andrea McEwan and Daniel Waldman, for the respondent

Heard & released orally: March 22, 2011

On appeal from the order of Justice S. Chapnik of the Superior Court of Justice, dated October 5, 2010

ENDORSEMENT

[1] The appellants appeal from the decision of Chapnik J., dated October 5, 2010, granting summary judgment in favour of the respondent:

a) declaring that the franchise agreement between MBCO Associates Ontario Inc. and the respondent was validly rescinded pursuant to s. 6(2) of the Arthur Wishart Act;

b) finding that the appellants Elian and MBCO Rosedale were “franchisors associates” within the meaning of the Act with the consequence that the respondent’s sublease from MBCO Rosedale was null and void; and

c) requiring MBCO Associates Ontario Inc. and Elian to pay the respondent the sum of $128,226.69 pursuant to s. 6(6) of the Act.

[2] The appellant’s counsel submitted that the findings of the motion judge that Elian owned 50% of the shares of the franchisor, ran the day-to-day business of the franchisor in Ontario, acted for the franchisor in negotiating the franchise agreement and executing the agreement on behalf of the franchisor, were insufficient to support a finding that he was a franchisor’s associate. We disagree. These facts did provide a basis for the finding.

[3] In regard to MBCO Rosedale, the motion judge had a basis for finding that it was controlled by another person who also controlled the franchisor, namely, Elian. She also had a basis for finding that the respondent had a continuing financial obligation to MBCO Rosedale in respect of the franchise, namely, the rent due on its sublease. However, she did not cite any evidence for finding that MBCO Rosedale exercised “significant operational control” over the franchisee. In fact, her reasons suggest that she considered that the continuing financial obligation amounted to significant operational control.

[4] This case is different from 6862829 Ontario Ltd. v. Dollar It Ltd., 2008 CanLII 60699 (ON SC), [2008] O.J. No. 4687 (S.C.J.) in which the lease clothed the landlord with the authority of the franchisor. The lease in this case has no equivalent provision.

[5] In the result, the appeal of MBCO Associates Ontario Inc. and Elian is dismissed. The appeal of MBCO Rosedale is allowed and the order in respect of MBCO Rosedale is set aside. The issue of whether MBCO Rosedale was a franchisor’s associate may proceed to trial.

[6] The respondent shall have its costs of the motion in the Superior Court fixed at $16,000 inclusive of disbursements and applicable taxes. The respondent shall also have its costs of the appeal fixed at $5,000 inclusive of disbursements and applicable taxes.

[7] MBCO Rosedale shall have its costs of the motion in the Superior Court fixed in the amount of $5,300 inclusive of disbursements and applicable taxes. MBCO Rosedale shall have its costs of the appeal fixed at $2,500 inclusive of disbursements and applicable taxes.

“R.P. Armstrong J.A.”

“R.G. Juriansz J.A.”

“David Watt J.A.”