Court of Appeal for Ontario

Date: July 27, 2018 Docket: C63617

Judges: Pepall, van Rensburg and Trotter JJ.A.

Between

2212886 Ontario Inc., William Porteous and Kirsten Porteous Plaintiffs (Respondents)

and

Obsidian Group Inc., Obsidian Inc. and Gus Karamountzos Defendants (Appellants)

Counsel:

• Geoffrey Adair, for the appellants
• Daniel MacKeigan and Cole Vegso, for the respondents

Heard: December 15, 2017

On appeal from: The judgment of Justice Marc A. Garson of the Superior Court of Justice, dated March 21, 2017, with reasons reported at 2017 ONSC 1643.

van Rensburg J.A.:

Overview

[1] This is an appeal from a partial summary judgment in litigation concerning a franchise dispute. The franchisee and its principals were granted rescission of the franchise agreement and damages against the franchisor and its director in the sum of $964,805.33. The counterclaim was dismissed.

[2] There were two principal issues respecting liability. The first was whether the disclosure document provided by the franchisor in June 2010 was so materially deficient as to constitute no disclosure at all, giving rise to a right to rescission within two years of the execution of the franchise agreement under s. 6(2) and compensation under s. 6(6) of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the "AWA"). The second liability issue was whether the two year period ran from the date the parties first executed the franchise agreement, in which case the claim would be out of time, or from the date the parties executed a replacement agreement, in which case the claim was timely.

[3] The respondents relied on a number of allegations of non-disclosure in support of their claim for rescission, only one of which was accepted by the motion judge. He concluded that the franchisor's representative provided revenue projections in a meeting with the principals of the franchisee in May 2010, that the information was highly material, and that the failure to include the projections in the franchisor's disclosure constituted "no disclosure". The motion judge also concluded that since the franchisor insisted on a replacement agreement, the time for asserting the rescission rights under s. 6(2) ran from the date of that agreement.

[4] The appellants' principal argument on appeal is that the motion judge erred in determining the central disputed factual issue on which liability depended, where the evidence was contradictory, and where the record did not permit such a determination to be made.

[5] I would allow the appeal on this basis. The motion judge properly identified that the key factual issue was whether the franchisor provided earnings projections at a meeting in 2010. However, having found that the paper record was inadequate to resolve the issue, he erred in concluding that it was in the interests of justice to decide the disputed factual issue using the fact-finding powers under r. 20.04(2.1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and then in determining the issue without oral evidence.

[6] Because the central factual issue on which liability depends requires oral evidence, the balance of the motion judge's conclusions respecting liability and damages must fall. However, I would not interfere with the motion judge's determination that the time for asserting the s. 6(2) rescission rights ran from the parties' execution of the replacement agreement in September 2010. This is a distinct determination of what is essentially a limitation period defence that was properly made on the record before the motion judge and is free of any reversible error.

[7] I would therefore allow the appeal in part, setting aside all but the motion judge's determination of the limitation period issue.

Facts

[8] The appellants are Obsidian Group Inc. ("Obsidian"), the franchisor for Crabby Joe's Tap and Grill ("Crabby Joe's"), Obsidian Inc., the franchisee's sub-landlord, and Gus Karamountzos (referred to by the motion judge as "Gus"), the sole director of both companies. The respondent 2212886 Ontario Inc. ("221") is a franchisee that operated a Crabby Joe's restaurant in Bradford, Ontario. 221 was incorporated by its principals, the other two respondents to this appeal, William Porteous ("William") and Kirsten Porteous ("Kirsten").

[9] William and Kirsten communicated their interest in acquiring a Crabby Joe's franchise in April 2009. In June 2009, they paid a deposit of $31,500 and they incorporated 221 in July 2009. Between September 2009 and May 2010, the parties, working together, identified a suitable location. On June 1, 2010 the franchisor provided a franchise disclosure document. On June 16, 2010 Obsidian and 221 entered into a franchise agreement. On September 7, 2010 they signed a new franchise agreement (the "replacement agreement") that was substantially identical to the first agreement, as well as a franchise amending agreement (the "amending agreement") to replace some of the standard terms for the benefit of the respondents.

[10] The franchisee paid a total of $660,465 for the purchase of the franchise. The acquisition was financed in part by a small business loan from Royal Bank of Canada ("RBC").

[11] The respondents operated their Crabby Joe's franchise from March 9, 2011 until they served notice of rescission of the franchise agreement and related agreements on September 5, 2012. They demanded payment of their rescission damages by letter dated September 18, 2012. The franchisor purported to terminate the franchise agreement and related agreements on September 18, 2012. The franchise was transferred to a third party in January 2013. The respondents were sued by RBC on their small business loan (the "RBC litigation"), resulting in judgment in June 2014 against 221 and the personal respondents.

[12] The present proceedings were commenced by the respondents in December 2012, claiming rescission of the franchise agreement and rescission damages. They also claimed damages for breach of contract and the appellants' fair dealing obligations under the AWA. The appellants counterclaimed, seeking a declaration that the franchise agreement had been validly and properly terminated, as well as damages. After pleadings closed, the respondents moved for partial summary judgment, seeking rescission of the franchise agreement and rescission damages.

Decision of the Motion Judge

[13] Here, I will set out only briefly the conclusions of the motion judge on the material issues. Later in these reasons, I will address in more detail the motion judge's treatment of the disputed evidence respecting the May 2010 meeting.

[14] First, with respect to the time for asserting the claim of rescission, the motion judge concluded that the franchisee was within the two-year statutory rescission window which ran from the date of the replacement agreement (September 7, 2010) rather than the date of the original agreement (June 16, 2010). Although there was conflicting evidence about what prompted the need for a replacement agreement, it was clear that this occurred at the request of the franchisor. The motion judge reasoned that the franchisor, having required the franchisee to sign a replacement agreement, could not rely on the date of the first agreement as the effective date for the running of the two year limitation period for claiming rescission.

[15] Next, the motion judge considered the various deficiencies in disclosure alleged by the respondents. He concluded that only one of the deficiencies in disclosure alleged by the respondents was sufficient to ground rescission. Although there was conflicting evidence, he determined that the franchisor's representative, Danny Grammenopoulos ("Danny"), had shown the respondents a document containing weekly earnings projections at a May 2010 meeting, and that the franchisor's disclosure document of June 1, 2010 was deficient in not including this information. He further found that the failure to include the earnings projections and the underlying basis for such projections was a fundamental and stark omission. The motion judge found the omission so significant and material as to constitute no disclosure and to justify rescission under s. 6(2). The motion judge declared that the franchise agreement was rescinded and awarded damages in the sum of $964,805.33.

Issues

[16] The appellants contend that the motion judge erred:

1. in his approach to summary judgment – by making determinations of credibility and findings on a key factual issue, where the evidence was contradictory, where the appellant's deponent was not cross-examined, and without calling for or even considering the need for oral evidence;

2. in his conclusion that the failure to provide the earnings projections in the disclosure document constituted "no disclosure" under s. 6(2) of the AWA;

3. in failing to dismiss the claim for rescission because it was asserted more than two years after the original franchise agreement was signed; and

4. in his assessment of damages (essentially by including amounts for lease payments made by 221 to Obsidian Inc.).

[17] As I have indicated, it is sufficient for the determination of this appeal to address only the first and third issues.

Analysis

A. Did the Motion Judge Err in Granting Summary Judgment After Determining the Key Factual Issue on Disputed Evidence?

(i) The Evidence in Brief

[18] The motion judge noted, at para. 45 of his reasons, that the only potential argument for material non-disclosure was based on what occurred at a meeting in May 2010 between the respondents and Danny, and whether Danny showed or flashed them a copy of earnings projections for the franchise but did not provide them with a hard copy. William's and Danny's evidence about what happened at that meeting was contradictory.

[19] In his first affidavit, William stated that, at a meeting he and his wife attended "in or about May 2010", Danny showed them an earnings projections table that predicted weekly sales of $37,500-$44,000. William said that these projections were later included in a business plan submitted by the franchisor to Ken Kaufman at RBC. William's affidavit attached a copy of an email from Danny to Kaufman dated June 22, 2010 that refers to an attached business plan. In a second affidavit, William denied having provided a business plan to RBC. He stated that the same earnings projections that he and his wife were shown at the May 2010 meeting, and were prevented from taking away, were included in the business plan that Danny sent to RBC.

[20] Danny's affidavit "categorically denied" that he ever showed the respondents earnings projections or withheld a copy from them in a meeting in May 2010 or at any other time before they signed the franchise agreement. He stated that "[i]t has not been my practice in over 25 years in the franchise business to show or provide earnings projections to prospective franchisees before they enter into a franchise agreement, and I did not do so in this case." He then set out in some detail his "best recollection" of his involvement with the respondents and RBC as it related to the earnings projections and business plan. While he had no recollection of sending the June 22 email to RBC, he had no evidence to contradict the assertion that he sent the email and attached a business plan. Danny stated that, although he would have worked with the respondents in preparing a business plan and would have helped them to "come up with the figures to be included in their earnings projection", this would not have occurred until after they entered into the franchise agreement "as there would have been little point in spending time and effort on a business plan before the [respondents] had committed to purchasing a franchise by signing a franchise agreement."

[21] William gave inconsistent evidence about when he first saw the earnings projections and business plan. In his cross-examination, William stated that he first saw the business plan after March 2011. In the RBC litigation William stated that Kaufman presented the business plan and earnings projections to him and his wife at a meeting in July 2010, and that this was the first time they saw an earnings projection, which led to their decision to proceed with the purchase of the franchise.

[22] In an affidavit delivered after his cross-examination, William offered an explanation for the inconsistencies. He stated that, at the time of the meeting with Kaufman of RBC in July 2010 he was shown a copy of the earnings projections, but he was not aware that they formed part of the business plan, which he saw for the first time after rescission. He provided an affidavit in the RBC litigation referring to what he saw at the July 2010 meeting as earnings projections and a business plan because, by that time he knew that what he was shown by RBC was part of a business plan.

(ii) The Motion Judge's Decision to Determine the Issues by Summary Judgment

[23] The motion judge followed the direction of the Supreme Court in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 66, to first determine if there was a genuine issue requiring a trial based only on the evidence before him and without using the fact-finding powers in rr. 20.04(2.1) (to weigh the evidence, evaluate the credibility of a deponent, or draw reasonable inferences from the evidence) and 20.04(2.2) (to hear oral evidence for the purpose of exercising such powers).

[24] After acknowledging that there was conflicting evidence about what happened at the May 2010 meeting, the motion judge stated that he was satisfied that he could not make the necessary findings of fact, and that there was a genuine issue that required a trial. He stated, at para. 19:

Simply put, there is extensive conflicting evidence between William, Danny and Gus as to what took place at a meeting in May 2010 and the materials before me do not allow me to have a full appreciation of this event or to make the necessary findings of fact to then apply the law and achieve a just result.

[25] The motion judge then noted, at para. 21, that he must next determine whether the use of the expanded powers in rr. 20.04(2.1) and (2.2) would allow him to achieve a fair and just result that was timely, affordable and proportionate to the action as a whole (which is the second step identified in Hryniak, at para. 66).

[26] The motion judge apparently resolved the question in the affirmative. After describing the legal framework for rescission claims in the franchise context, and the evidence on the motion, including the evidence concerning the May 2010 meeting, the motion judge stated, at para. 41, that he "[had] already determined that it is in the interests of justice to rely on the enhanced fact-finding powers". He then went on to assess the evidence and to make findings of fact about the May 2010 meeting.

(iii) The Motion Judge's Determination of the Factual Issues

[27] The central factual issues were whether Danny provided an earnings projections table to the respondents before the franchise agreement was signed in June 2010, something that was alleged to have happened at a meeting "in or about May 2010", and if so, whether the failure to include the earnings projections in the June 2010 disclosure was so significant as to amount to no disclosure contrary to the AWA.

[28] Danny's evidence was key. As the motion judge stated, at para. 44, "[a]lthough the parties agree on very little, they both accept the importance of Danny's evidence on this motion".

[29] The motion judge rejected Danny's evidence, notwithstanding that he was not cross-examined. He found his evidence to be "heavy on speculation and general practice and light on direct knowledge", that Danny failed to identify specific sources for his belief, and that his affidavit consisted of argument and allegations instead of actual facts within his knowledge. Danny had no independent recollection of the May 2010 meeting and relied on his practice in over 25 years in the franchise business to reach the conclusion that he did not show the respondents an earnings projection at the May 2010 meeting. The motion judge also took into account the fact that Danny provided a similar earnings projection in the business plan sent to RBC in June.

[30] The motion judge concluded that "[t]he absence of cogent and probative evidence from [Danny] leads me to conclude that there was a meeting in May 2010 and that he did show William an earnings projection that suggested a range of $37,500 - $44,000 in projected weekly earnings for the franchise."

[31] In dealing with William's evidence, the motion judge acknowledged that he had given different accounts about when he saw the earnings projection and business plan in this litigation and in the RBC litigation. He stated that he recognized that William took one position in the RBC litigation, a second position in his cross-examination where he claimed that he first heard of the business plan after March 2011, and a third position in the affidavit that he was shown earnings projections by Danny in May 2010. He noted that he accepted William's explanation for the inconsistencies and that, in light of his rejection of both Danny's and Gus's evidence, the inconsistencies were not enough to create a triable issue.

[32] The motion judge found that the franchisor's disclosure on June 1, 2010 was deficient in not including the earnings projections. This was a "material, fundamental and stark omission" as it was potentially the most important information the franchisees would want to know. This omission was so significant that it constituted "no disclosure" under s. 6(2) of the AWA. While the motion judge agreed with the appellants that they did not have to disclose earnings projections, once they were provided they had to be included in the franchisor's disclosure.

(iv) Discussion

[33] In my view, the motion judge erred in granting summary judgment in this case.

(a) It was not in the interest of justice to determine the issues on summary judgment in this case without oral evidence

[34] Where, on the record, there appears to be a genuine issue requiring a trial, the motion judge may then consider whether the need for a trial can be avoided by using the powers under rr. 20.04(2.1) and (2.2). The motion judge's decision to exercise these powers is discretionary and attracts appellate deference "provided that their use is not against the interest of justice": 1615540 Ontario Inc. (c.o.b. Healing Hands Massage Therapy Clinic) v. Simon, 2016 ONCA 966, at para. 22.

[35] In this case the motion judge concluded that the record did not permit him to make an order for summary judgment, and that there was a genuine issue for trial with respect to the May 2010 meeting. He then proceeded to invoke the "expanded" powers under (1.1) to determine the rescission claims by summary judgment. However, he did not consider the obvious need for oral evidence under (2.2).

[36] It will not be against the interest of justice to use the expanded powers where this will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole: Hryniak, at paras. 61-66. Relevant considerations include the nature and complexity of the litigation, a comparison of the evidence that will be available at trial and on the motion, the opportunity to fairly evaluate the evidence, the proportional procedure considering the nature of the issues, as well as the nature and strength of the evidence: Hryniak, at paras. 58, 59 and 82.

[37] In this case, a number of factors were relevant and ought to have been considered before the motion judge decided to use the "enhanced" powers absent oral evidence to determine the respondents' rescission claims in a motion for summary judgment.

[38] The motion judge ought to have considered the central role of the disputed factual issue in the litigation. The case for rescission depended on a finding that Danny had shown William and Kirsten earnings projections before they signed the franchise agreement. It was only if this had occurred that they could possibly have been entitled to rescission and rescission damages.

[39] The motion judge had to consider the state of the evidence that was before him on the motion on the disputed factual issues. There was no cross-examination of the appellants' deponents, including Danny, whose evidence was key. The record that was available to the motion judge consisted of contradictory affidavit evidence on the central factual dispute. It also included inconsistent evidence by William. This was not a case where credibility could be determined by reference to documents the parties exchanged that was contemporaneous or otherwise.

[40] The more important credibility disputes are to determining key issues, the harder it will be to fairly adjudicate those issues solely on a paper record: A.C. v. Joyce, 2017 ONCA 49, at para. 92. The Supreme Court observed at para. 57 of Hryniak that "on a summary judgment motion, the evidence need not be equivalent to that at trial but must be such that the judge is confident she can fairly resolve the dispute. A documentary record, particularly when supplemented by the new fact-finding tools, including ordering oral testimony, is often sufficient to resolve material issues fairly and justly".

[41] The motion judge ought to have determined whether, in these circumstances, it would have been appropriate, or indeed necessary, to hear oral evidence as he was entitled to require under r. 20.04(2.2). If credibility cannot be assessed on a written record, that should be a sign that oral evidence or a trial is required: Trotter Estate, 2014 ONCA 841, 122 O.R. (3d) 625, at para. 55. Here, the motion judge ought to have considered whether oral evidence on the key disputed factual issue would have enabled him to determine the rescission claims on this motion: see for example Hryniak, at para. 51; Choquette v. Viczko, 2016 SKCA 52, 476 Sask. R. 273, at paras. 54-56.

(b) The motion judge could not, on this record, adequately resolve the credibility issues

[42] The motion judge's reasons for accepting William's evidence on the key factual dispute and rejecting Danny's, are not persuasive.

[43] First, the concerns about Danny's evidence that were identified by the motion judge were not sufficient to reject his evidence out of hand, especially where he had not been cross-examined. The motion judge characterized Danny's evidence as "heavy on speculation" and "light on direct knowledge". However, Danny was, as the motion judge observed, a very experienced member of the industry who sold or opened at least 1000 franchises prior to this matter. His affidavit contained clear evidence. He had no specific recollection of the May 2010 meeting, but denied having shown an earnings projection before the franchise agreement was signed. He said that "[i]t has not been my practice in over 25 years in the franchise business to show or provide earnings projections to prospective franchisees before they enter into a franchise agreement". This statement was not speculative or argumentative. It was a statement of fact based on Danny's prior experience. And Danny was not challenged on this statement, as he was never cross-examined. Had Danny been cross-examined, the weaknesses in his evidence, as well as the inconsistencies between his evidence and the more dogmatic evidence of Gus, may well have been explored.

[44] The motion judge appears to have focussed on the evidence about the business plan (which contained the earnings projections) having been sent to RBC, which was confirmed by the email of June 22, 2010. However he misstated Danny's evidence when he said, at paras. 11 and 50, that Danny denied preparing or providing the business plan to RBC and that both Gus and Danny suggested the earnings projections never existed. It is true that Gus, who was not present at the May 2010 meeting, and had no personal knowledge of what transpired, denied that the franchisor had any involvement in the business plan. However, Danny said that while he had no specific recollection of sending the email to Kaufman of RBC with the business plan attached, he had no evidence to contradict RBC's evidence.

[45] The import of Danny's evidence was that if he had prepared a business plan and sent it to RBC, he would have done so at the request of the respondents to assist them in obtaining financing. William's own evidence confirmed that the appellants provided him and his wife with assistance in obtaining financing from RBC. The determination that the franchisor was involved in the financing – whether by helping the respondents to prepare a business plan, or by preparing the business plan in its entirety for submission to RBC – is not determinative of the central issue: whether the earnings projections that were ultimately included in the business plan were shown to William and Kirsten, as they alleged, before they signed the franchise agreement in June 2010.

[46] Second, after rejecting Danny's evidence, the motion judge did not critically assess the respondents' evidence. The only mention of William's evidence was in respect of the inconsistencies about when he first saw the business plan and earnings projections, and then to say that he accepted it. The motion judge stated at para. 40:

The [respondents] argue that the issue in the earlier RBC case was not whether they saw the earnings projections but whether RBC showed [them] the earnings projections in July 2010. William, in his supplemental affidavit of October 18, 2016, explains that he reviewed the earnings projections from the business plan in July 2010 but did not appreciate what it was until after receiving a copy of the business plan after rescission. I accept this explanation and the distinction he draws in this regard.

[47] With respect, the explanation the motion judge appears to have accepted was not responsive to the concern about William's contradictory evidence. The point was that William took one position in his litigation with RBC – that he and his wife decided to proceed with the financing and purchase the franchise because of earnings projections first shown to them by Kaufman at a meeting in July 2010 – and made a contrary but similar assertion in this litigation – that they decided to sign the franchise agreement because of an earnings projection they were shown by Danny at a meeting in May 2010. It was not in my view sufficient for the motion judge to resolve the issue of credibility based on the acceptance of William's "explanation", without going further into the evidence. This court has cautioned that in the summary judgment and mini-trial context, motion judges must take great care "to ensure that decontextualized affidavit and transcript evidence does not become the means by which substantive unfairness enters": Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438, at para. 44. The motion judge's treatment of the evidence, including his acceptance of William's explanation for his inconsistencies, did not ensure that this key issue would be fairly resolved.

[48] The motion judge did not address what may have been potential weaknesses in the respondents' evidence, including that William had several meetings with Danny, could not recall what transpired at other meetings, did not recall the purpose of the meeting at which the earnings projections were alleged to have been provided, and did not have any notes or any further communications with Danny or anyone else about the projections. Nor did he identify any particular strengths. In the end, if he found William to be credible, the motion judge did not explain why he accepted his evidence about what transpired at the May 2010 meeting, except that he had rejected Danny's evidence. He summed up his assessment of the evidence by saying, at para. 48, "having accepted [William's] explanation for the inconsistencies, and in light of my rejection of both Danny and Gus's evidence in this regard, the inconsistencies in William's evidence are not sufficient in the circumstances to raise triable issues".

[49] In this case, the respondents' choice not to cross-examine the appellants' deponents on their affidavits and not to tender evidence from Kirsten ought to have been taken into consideration by the motion judge before he rejected the appellants' evidence and accepted the respondents' evidence on the key disputed factual issue. It is trite law that each side must "put its best foot forward" in a motion for summary judgment: Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., 28 O.R. (3d) 423 (Gen. Div.), at p. 434; Goudie v. Ottawa (City), 2003 SCC 14, [2003] 1 S.C.R. 141, at para. 32; Ramdial v. Davis, 2015 ONCA 726, 341 O.A.C. 78, at para. 27; Canada (Attorney General) v. Lameman, 2008 SCC 14, [2008] 1 S.C.R. 372, at para. 11; Chernet v. RBC General Insurance Company, 2017 ONCA 337, 11 M.V.R. (7th) 1, at para. 12. A motion judge is entitled to draw an adverse inference from a party's failure to adduce personal evidence: Mazza v. Ornge Corporate Services Inc., 2016 ONCA 753, 62 B.L.R. (5th) 211, at para. 9. Here, the motion judge did not address the fact that there was no affidavit from Kirsten, who was alleged to have been at the May 2010 meeting when the earnings projection was shown. Kirsten did not provide her own account of what transpired, except in an answer to an undertaking given in William's cross-examination. The absence of her direct evidence on the critical points ought to have been taken into account in determining whether it would be fair and just to grant summary judgment in this case.

[50] I would therefore allow the appeal on this basis. I would not purport to venture any opinion on the findings that a trial judge or another judge on summary judgment ought to make. Rather, I have set out some of my concerns about the motion judge's treatment of the parties' evidence, simply to underscore the difficulties in attempting to make credibility assessments and to find key and material facts without the benefit of oral evidence in this case. This is a case where oral evidence in particular on the question of the May 2010 meeting, would have permitted a full appreciation of the parties' evidence, and a proper assessment of their credibility.

B. Is the Motion Judge's Decision Supportable on Another Basis?

[51] I turn to address the respondents' submission in oral argument that this court should uphold the motion judge's decision on what they argue was an alternative basis for his decision.

[52] Essentially, the respondents say that what transpired at the May 2010 meeting is irrelevant, and that so long as the franchisor provided earnings projections to RBC in June 2010 (a finding which is unassailable), they were material and therefore ought to have been included in the disclosure document that was given to the respondents on June 1, 2010. In other words, it matters not whether the earnings projections were provided to the franchisees in May 2010 or later (in the business plan to RBC); if they were provided, then it was material non-disclosure amounting to no disclosure at all for the earnings projections not to have been included in the franchisor's disclosure document. The respondents say that this is the effect of paras. 50 to 53 of the motion judge's reasons.

[53] I disagree. The respondents' position is not supported by a fair reading of the motion judge's decision. The motion judge structured his reasons to deal first with whether earnings projections were shown to the respondents at the May 2010 meeting, at paras. 41 to 45. The motion judge had already determined that the earnings projections had been provided by the franchisor at the May 2010 meeting. He had to then determine the significance of the non-disclosure, which he discussed under the heading "The Effect of the May 2010 Meeting". I read paras. 50 to 53 as setting out the motion judge's conclusions as to the effect of the meeting, in light of his prior finding about earnings projections having been provided at the May 2010 meeting. He considered whether the subsequent failure to include the projections before the franchise agreement was signed amounted to "no disclosure" as required by s. 6(2) of the AWA before rescission could be granted within two years of the signing of the franchise agreement.

[54] The motion judge would have missed the point if, as the respondents argue, he had concluded that the failure to provide earnings projections as part of the disclosure was made out because the franchisor provided such projections to RBC with the business plan after the franchise agreement was signed. The purpose of disclosure is to enable a prospective franchisee to make an informed decision about whether or not to invest in a franchise: 6792341 Canada Inc. et al. v. Dollar It Limited, 2009 ONCA 385, 95 O.R. (3d) 291 (C.A), at para. 35. Disclosure is required to be made no later than 14 days before the franchisee signs the franchise agreement. If there is defective or incomplete disclosure, rescission must be exercised within 60 days of the disclosure having been made (s. 6(1) AWA). For s. 6(2) to apply, and for rescission to be available for two years, there must have been no disclosure. As such, the only basis on which the failure to provide the earnings projection could have amounted to non-disclosure was if the respondents had received the earnings projections before they signed the franchise agreement, and they had not been included in the disclosure. The provision of such information by the franchisor at a later stage in connection with the respondents' financing may well have given rise to other arguments about misrepresentation (which were not raised in the action), but could not found a claim of rescission based on non-disclosure.

[55] For these reasons, I would set aside the summary judgment granted in this case. The key and essential finding that there was non-disclosure which amounted to a breach of s. 6(2) of the AWA and justified rescission and damages ought not to have been made in the circumstances of this case. That finding could not be made on the basis of untested evidence, and without invoking at least the powers under r. 20.04(2.2) to hear oral evidence.

[56] I turn to the issue of the effective date of the franchise agreement for the purpose of a rescission remedy.

C. Was the Rescission Claim Out of Time?

[57] Section 6(2) of the AWA provides that a franchisee may rescind a franchise agreement no later than two years after entering into the franchise agreement if the franchisor never provided the disclosure document.

[58] The respondents signed the franchise agreement on June 16, 2010. They signed a replacement agreement in substantially identical terms on September 7, 2010. The appellants contend that the motion judge erred in concluding that the respondents had a right of rescission under s. 6(2) of the AWA, when the original franchise agreement was signed more than two years before the purported exercise of rescission. If this issue were determined in the appellants' favour, the respondents' action would be dismissed.

[59] The appellants say that there was contradictory evidence at the motion for summary judgment about the reason for executing a replacement franchise agreement. Their evidence was that the respondents were asked to sign a new agreement after they had been approved for financing, which meant the franchise location could proceed to be developed and a closing date could be confirmed. The respondents' evidence was that the replacement agreement was signed because the franchisor wanted to report the transaction in a later time period, and to avoid paying a commission to its broker. Gus's affidavit denied this, and noted that the broker had been paid.

[60] This conflict in the evidence is not material. Whatever the motivation for the replacement agreement, it is undisputed that the request originated with the franchisor. There was nothing to suggest that there was any benefit to the franchisee in signing a replacement agreement in terms that were substantially identical to the original agreement. The motion judge rightly concluded that "[h]aving chosen to require the franchisees to sign and enter into a replacement agreement, the franchisor cannot now argue that an existing franchise agreement is already in place such that the protections afforded under s. 6(2) are already partially diluted." In arriving at this decision, he properly considered the intent and consumer protection purpose of the AWA.

[61] The motion judge's decision on the effective date of the franchise agreement for the purpose of s. 6(2) is entirely reasonable and supported by the evidence. And I do not view the credibility issues identified earlier with respect to the earnings projections as in any way affecting the motion judge's decision on this issue, or that oral evidence would have been required to determine it.

[62] I would therefore not interfere with the motion judge's determination of this issue.

[63] Considering my resolution of the issues above, it is not necessary to examine the issue of damages.

Disposition

[64] For these reasons, I would allow the appeal. I would set aside the judgment of the motion judge, with the exception of the determination that the rescission claim was made in time. I would award costs to the appellants in the amount agreed between the parties, $20,000, inclusive of HST and disbursements. As for the costs of the motion in the court below, if the parties are unable to agree they may make written submissions to this court limited to five pages each, not including any costs outlines, as follows: the appellants within 20 days of these reasons, the respondents within 15 days of receipt of the appellants' costs submissions, with reply submissions, if any, within ten days thereafter.

K. van Rensburg J.A.

I agree S.E. Pepall J.A.

I agree G.T. Trotter J.A.

Released: July 27, 2018

Footnotes

[1] Earnings projections are not required to be disclosed, but when an earnings projection is provided, a statement specifying the reasonable basis for the projection, the assumptions underlying the projections and a location where information is available for inspection that substantiates the projection must be included in the disclosure: AWA, s. 5(4); O. Reg. 581/00, s. 6(3).

[2] Gus, who was the sole officer and director of the franchisor and who was not directly involved in the relevant dealings, also provided an affidavit denying that earnings projections were shown in a meeting in May 2010 and that any business plan had been provided by the franchisor to RBC. The appellants take no issue on appeal with the motion judge's rejection of Gus' evidence.