SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-11-427235
DATE: 20120706

RE: Vikram Vijh, 2207101 Ontario Inc., Salim Murdhani, 2208302 Ontario Inc., Ziad Ahmad, Omar Ghadieh, Mediterranean Food Group Ltd., Rehman Sareshwala, Maha Faisal Enterprise Ltd., Nancy Alaeddine, Nizam Alaeddine, Nizam & Nancy’s Restaurant, Riyaad Joomun, 2250771 Ontario Inc., Shafikhusein Adamjee, 2248883 Ontario Inc., Salim Dedanwala and Alif Foods Inc. Plaintiffs / Moving Parties

AND:

Mediterranean Franchise Inc., Sam’s Restaurant Inc. and Sam Hussein Defendants / Responding Parties

BEFORE: Justice Edward P. Belobaba

COUNSEL:
W. A. Chalmers for the Plaintiffs / Moving Parties (Riyaad Joomun and 2250771 Ontario Inc.)
H. Manis and D. Gray for the Defendants / Responding Parties

HEARD: June 22, 2012

ENDORSEMENT

[1] Section 5(2) of the Arthur Wishart Act (Franchise Disclosure) [1] requires that the franchisor’s disclosure document be delivered personally or by registered mail. What happens if the franchisor delivers the disclosure document by e-mail with the franchisee’s consent? Can the franchisee, after waiting almost two years, rescind the agreement under s. 6(2) of the Act and recover costs and damages because of the improper delivery method? Or is he restricted to the damages remedy provided under s. 7(1)?

[2] In this motion for partial summary judgment, the issue of email delivery is squarely presented. Both sides agree that in every other respect the franchisor fully complied with the requirements set out in the Act. The only deficiency was the method of delivery. With the franchisee’s consent, the franchisor delivered the disclosure document by email rather than via registered mail or personal delivery. [2] The franchisee, having operated the Taste of the Mediterranean franchise for almost two years, now wants rescission and damages. [3]

[3] For the reasons below, I conclude that rescission under s. 6(2) of the Act, simply because the disclosure document was delivered by email, is not available. The motion for partial summary judgment is dismissed.

Analysis

[4] I have attached an Appendix that sets out the applicable portions of ss. 5, 6 and 7 of the Act. As I read these provisions, the franchisor and prospective franchisee have the following rights and responsibilities:

• 5(1) – the franchisor must provide a disclosure document at least 14 days before the franchise agreement is signed or any money is paid;

• 5(2) – the disclosure document must be delivered personally or by registered mail (no other delivery methods have been prescribed);

• 5(3) – the disclosure document must be delivered as one document (and not in parts);

• 5(4) – sets out the required contents of the disclosure document;

• 6(1) – rescission is permitted within 60 days after receiving the disclosure document if the franchisor breached the s. 5(1) “14 day” requirement or the s. 5(4) contents requirements;

• 6(2) – rescission is permitted within two years after entering the franchise agreement if no disclosure document was provided;

• 7(1) – damages are available if the franchisor fails to comply in any way with s. 5.

[5] The franchisee submits that any breach of the Act that relates in any way to the disclosure document, including a breach of ss. 5(2) regarding the method of delivery, allows rescission even if almost two years have gone by. He argues that s. 6(2) should be interpreted by adding five words to the end of the section as follows: the franchisee may rescind the franchise agreement even after almost two years if the franchisor never provided the disclosure document as required by the Act. Thus any breach of any provision, however minor, would allow rescission under s. 6(2).

[6] I do not agree with this submission. This interpretation of s. 6(2) does not make sense given the plain language of ss. 5, 6 and 7 and the obvious legislative intent to provide two routes for rescission: (1) a 60-day right of rescission if a disclosure document was provided late (after the 14-day requirement) or lacked some of the required content; and (2) a two-year right of rescission if no disclosure document was ever provided. The Act also provides a damages remedy under s. 7(1) for breach of any of the s. 5 requirements. If the franchisee’s interpretation of s. 6(2) is right (i.e. the franchisee may rescind for up to two years for any breach of the Act however minor) then why have s. 6(1)? Why differentiate between the 60-day rescission right for late delivery or incomplete delivery of the disclosure document and the two-year rescission right for no delivery? The reason, surely, is to make clear that the two-year rescission right is reserved for the much more serious situation where no disclosure document is provided.

[7] In any event, the decision of the Court of Appeal in Imvescor [4] is determinative. The Court made clear that not every breach of s. 5 justifies rescission under s. 6(2). [5] In other words, s. 6(2) cannot be read by adding the five words suggested by the franchisee. The Court of Appeal concluded in Imvescor that the two-year right of rescission is only available where there is “a complete failure to provide a disclosure document” [6] or where the disclosure document provided was “materially deficient” [7] but not where it was “merely late.” [8]

[8] By the same reasoning, the two-year right of rescission is not available where a complete disclosure document was provided, as here, but it was provided by email rather than registered mail. If a breach of the timing or content requirements under ss. 5(1) and 5(4) allows only a 60-day right of rescission under s. 6(1), then a breach of the method of delivery requirement under s. 5(2), which by any measure is much less significant, cannot sensibly justify a two-year right of rescission under s. 6(2). [9]

[9] The franchisee is therefore limited to the damages remedy in s. 7(1). Counsel for the franchisor suggests that the only damage sustained by the franchisee herein was the cost of printing the emailed disclosure document. He may well be right.

[10] My focus here, however, is s. 6(2) and my conclusion, for the reasons just stated, is that the franchisee is not entitled to rescind the franchise agreement after almost two years simply because the disclosure document was emailed.

Disposition

[11] The motion for partial summary judgment is dismissed with costs.

[12] If the parties cannot agree on costs, I will be pleased to receive a brief costs submission from the franchisor within 14 days and a responding submission from the franchisee within 10 days thereafter.

Belobaba J.
Date: July 6, 2012

Appendix

Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c.3

Franchisor's obligation to disclose

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.

Methods of delivery

5(2) A disclosure document may be delivered personally, by registered mail or by any other

prescribed method.

Same

5(3) A disclosure document must be one document, delivered as required under subsections (1)

and (2) as one document at one time.

Contents of disclosure document

5(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.

Rescission for late disclosure

6(l) 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.

Rescission for no disclosure

6(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.

Damages for misrepresentation, failure to disclose

7(1) If a franchisee suffers a loss because of a misrepresentation contained in the disclosure document or in a statement of a material change or as a result of the franchisor’s failure to comply in any way with section 5, the franchisee has a right of action for damages ...

[1] S.O. 2000, c.3 (“the Act”).

[2] I agree with the franchisee that under s. 11 of the Act his consent to receive the disclosure document by email in breach of s. 5(2) would be voided.

[3] The only plaintiff-franchisee that remains in this action is Riyaad Joomun and his numbered company 2250771 Ontario Inc. Counsel advise that all of the other plaintiff-franchisees have either discontinued their actions or settled.

[4] 4287975 Canada Inc. v. Imvescor Restaurants Inc., 2009 ONCA 308, [2009] O.J. No. 1508 (C.A.)

[5] Ibid., at para. 43.

[6] Ibid., at para. 37.

[7] Ibid., at para. 43. In 1490664 Ontario Ltd. v. Dig this Garden Retailers Ltd., (2005) 2005 25181 (ON CA), 256 D.L.R. (4th) 451, the Court of Appeal concluded that providing only 70 per cent of the required disclosure information in “bits and pieces over time” (para. 15) rather than in one document at one time as required by s. 5(3) was akin to not providing a disclosure document at all and justified rescission under s. 6(2). No case, however, has suggested that providing a complete disclosure document at one time via ordinary mail or email, albeit in breach of s. 5(2), is akin to not providing a disclosure document at all and is sufficient to invoke the two-year rescission remedy under s. 6(2).

[8] Ibid., at para. 43.

[9] Also see Imvescor, supra, note 4, at paras. 40 to 41.