COURT FILE NO.: CV-11-00430418-0000
DATE: 20120321
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2032151 ONTARIO INC. and NALLIAH BALACHANDRAN Plaintiffs – and – MICHAEL J. WEBSTER Defendant
T. Colleen Feehan , for Nalliah Balachandran
No one appearing for the Defendant
HEARD: February 14, 2012
B. P. O’Marra J.
reasons for decision
Issue
[ 1 ] Should default judgment or other relief be granted against the former lawyer for the Plaintiffs?
Facts
[ 2 ] The individual Plaintiff Balachandran was an officer, director and operating mind of 203 Ontario. 203 Ontario was the franchisee of an International News store in Toronto pursuant to an Agreement dated September 26, 2003.
[ 3 ] On September 5, 2003 International News gave Balachandran a purported Disclosure Document as defined in the Wishart Act . That day Balachandran paid a $20,000 deposit to International News.
[ 4 ] In October of 2004, Balachandran was locked out of the franchise and 203 Ontario ceased to operate as a franchisee.
[ 5 ] Webster was a barrister and solicitor in Toronto. Balachandran met with him in October 2004 and retained him for a claim against International News. Webster claimed to have expertise in franchise law.
[ 6 ] Balachandran provided Webster with a copy of the purported disclosure document and disclosed various misrepresentations made by International News.
[ 7 ] Webster did not send a Notice of Rescission of the franchise Agreement to International News in accordance with the Wishart Act before September 25, 2005. He also neglected to claim damages pursuant to the Act .
[ 8 ] International News had not provided material disclosure pursuant to the Act and the Plaintiffs were still within the two-year time limit to claim statutory rescission rights.
[ 9 ] On March 4, 2005 Webster commenced a claim on behalf of the franchisee against International News seeking damages of $150,000 for misrepresentation pursuant to the Act . He did not file a Statement of Claim with 30 days of commencing the action, or at all.
[ 10 ] The action was dismissed for delay by the Registrar of the Court on June 19, 2008.
[ 11 ] Webster failed to provide a copy of the Notice of Dismissal to Balachandran.
[ 12 ] Webster commenced a new action against International News on behalf of the franchisee on December 21, 2007. That action alleged that the disclosure document did not comply with the Act .
[ 13 ] In February of 2010, Balachandran retained Teplitsky, Colson to assume carriage of the 2007 action. Balachandran learned at that time that various claims were missing in the action as drafted by Webster and that his statutory rescission rights had not been protected.
[ 14 ] On July 22, 2010 the franchisee delivered an Amended Statement of Claim.
[ 15 ] On September 9, 2010 and October 5, 2011 the Defendants to the 2007 claim delivered Amended Statements of Defence alleging that various causes of action asserted in the 2007 claim were barred by operation of the Limitations Act .
[ 16 ] On July 11, 2011 a claim was issued against Webster related to his conduct of the 2005 and 2007 actions.
[ 17 ] On August 30, 2011 Webster was noted in default and the Lawyer’s Insurance Fund was notified.
[ 18 ] Had Webster properly advised Balachandran of his rescission rights, he could have claimed $183,646.35 in losses pursuant to the Act . Balachandran also accumulated legal fees to Webster and Teplitsky, Colson.
Analysis
[ 19 ] Franchisees have a statutory right of rescission where the franchisor fails to deliver the required documentary disclosure within two years of entering into the franchise agreement. This entitles the franchisee to recover all losses incurred as a result of entering into the agreement.
Wishart Act (Franchise Disclosure) S.O. 2000 s. 6(2)(6)
[ 20 ] Courts have taken a literal reading of the Act in terms of statutory disclosure obligations and require full compliance from franchisors.
Personal Service Coffee Corp. v. Beer (c.o.b. Elite Coffee Newcastle) 2005 25180 (ON CA) , [2005] O. J. No. 3043. (O.C.A.) at para. 28.
[ 21 ] Deficiencies in the required disclosure may well disqualify the material as a disclosure document. This permits the franchisee to claim rescission within the two-year period.
Wishart Act s. 6(2)
Sovereignty Investment Holdings Inc. v. 9127-6907 Quebec Inc. , 2008 57450 (ON SC) , [2008] O. J. No. 4450 (Ont. Sup. Crt.) at para. 24 .
[ 22 ] The purported Disclosure Document provided in this case was deficient in several fundamental ways.
[ 23 ] Where misrepresentation have been made to the proposed franchisee that induces them to enter the franchise agreement the Act sets out a right of action for damages suffered as a result of the misrepresentations.
Wishart Act s. 7(1)
[ 24 ] Where disclosure documents contain misrepresentations a franchisee will be deemed to have relied on same.
Wishart Act s. 7(2)
[ 25 ] The Defendant Webster failed to exercise the professional care and attention required to protect his client’s interests from the time he was retrained in October of 2004. His professional negligence in this matter deprived his client of statutory rights of rescission and damages that were otherwise available. Had the Defendant carried out his duties properly the Plaintiff would most likely have avoided years of litigation and expense.
[ 26 ] The Act specifies the franchisor’s obligations on rescission in terms of refunds, purchase of equipment and compensation for any losses incurred in setting up and operating the franchise.
Wishart Act s. 6(6)
[ 27 ] In this case the total refunds, purchase of inventory and losses named (loss before revenues) that the franchise would have been entitled to by a timely rescission is $188,646.35.
Disposition
[ 28 ] Judgment in favour of the Plaintiff. Damages set at $188,646.35 plus prejudgment and post judgment interest in accord with sections 128 and 129 of the Courts of Justice Act . Costs are fixed at $9,000, all inclusive.
B. P. O’Marra J.
Released: March 21, 2012
COURT FILE NO.: CV-11-00430418-0000
DATE: 20120321
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
2032151 ONTARIO INC. and NALLIAH BALACHANDRAN Plaintiffs – and – MICHAEL J. WEBSTER Defendant
REASONS FOR DECISION
B. P. O’Marra J.
Released: March 21, 2012