Editor's Note: Corrigendum released on September 4, 2012. Original judgment has been corrected with text of corrigendum appended.
COURT FILE NO.: 49567/07
DATE: 2012/08/31
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LUCIANO BUTERA, 1515404 ONTARIO INC. operating as NIAGARA MITSUBISHI and CANTERRA PROPERTY HOLDINGS INC.
Plaintiffs
– and –
MITSUBISHI MOTORS CORPORATION, MITSUBISHI MOTOR SALES OF AMERICA, INC., MITSUBISHI MOTORS NORTH AMERICA, INC., MITSUBISHI MOTORS CREDIT AMERICA, INC. and MITSUBISHI MOTOR SALES OF CANADA, INC.
Defendants
Harry Korosis and Peter Nicholson, for the Plaintiffs/Responding Parties
W. Brad Hanna and Richard McCluskey, for the Defendants/Moving Parties
HEARD at St. Catharines: August 27 & 28, 2012
the honourable Mr. justice p.b. hambly
Introduction
[1] This is a motion brought by the defendants for summary judgment dismissing the plaintiffs’ action. One of the corporate plaintiffs alleges that it entered into an agreement with one of the corporate defendants as a result of misrepresentations made to it by agents of the defendants. It also alleges that the corporate defendants did not comply with the Arthur Wishart Act (Franchise Disclosure) (the act). The corporate defendant which is a party to the agreement counterclaims based on the agreement for $16,591.85. The plaintiff corporate defendant admits that this amount is owing but claims a set off. The defendants submit that the entire action ought to be dismissed because it was commenced outside of the applicable limitation period. In the alternative, the defendants submit that they made no misrepresentations which would give the plaintiffs a cause of action against them and that the act has no application on the facts of the case. They seek dismissal of the claims based on the alleged misrepresentations leaving only a claim for negligence against the corporate defendant which was a party to the agreement.
The Facts
[2] Luciano Butera (Butera) resides in the City of Niagara Falls. While he was attending school, he assisted his father in the operation of a used car business. In 1999, his father acquired a Kia dealership in which he sold new vehicles. Butera assisted him in this business. Butera graduated from law school in 2000. He served his articles with the law firm of Chown Cairns in St. Catharines. He worked as a lawyer for this law firm from February, 2002 until July, 2002. This is the law firm which represents him in this lawsuit.
[3] Butera became interested in acquiring a Mitsubishi dealership. He incorporated 1515404 Ontario Inc. operating as Niagara Mitsubishi. He also incorporated Canterra Property Holdings Inc. (Canterra). He is the sole owner and officer of these companies.
[4] Mitsubishi Motors Corporation (MMC) is a Japanese company which manufactures Mitsubishi motor vehicles. Mitsubishi Sales of America Inc. (MMSA) now operates as Mitsubishi Motors North America Inc. (MMNA). It manufactures and markets Mitsubishi motor vehicles in North America. Mitsubishi Motors Sales of Canada Inc. (MMSCAN) markets Mitsubishi motor vehicles in Canada. It is wholly owned by MMNA. Mitsubishi Motors Credit of America Inc. (MMCA) provides credit to authorized Mitsubishi dealers and their companies. It is wholly owned by MMNA.
[5] In 2001, Butera entered into discussions with representatives of MMSCAN about acquiring a Mitsubishi dealership. On March 1, 2002, he submitted to MMSCAN an application for a Mitsubishi dealership. In his application he included pro forma sales forecasts. In his pro forma statement for 2003, he predicted that Niagara Mitsubishi would sell 252 new motor vehicles and 125 used motor vehicles. In his 2007 pro forma statement, he predicted that Niagara Mitsubishi would sell 500 new vehicles and 250 used vehicles. He submitted 2 further pro forma sales forecasts on the same date. In these documents, he forecast that he would sell 180 new and 120 used vehicles in his first 12 months of operation and 350 new and 125 used vehicles in an average year. These latter documents contained on the first page the following disclaimer:
This Pro Forma Balance Sheet reflects the financial condition of the proposed dealership/financial entity after initial investment allocation to various accounts, and is warranted to be a true statement of the proposed dealership financial structure at inception. Additionally, this Sales and Profit Forecast has been prepared by the candidate from the records of this dealership and/or from estimates furnished by the preparer and is intended to serve only as a guide in reaching objectives deemed desirable by the preparer. While Mitsubishi Motors Sales of Canada, Inc. (MMSCAN) has reviewed it, MMSCAN makes no representations and assumes no liability regarding the objectives and assumptions involved or any figures shown which may have been voluntarily furnished by the candidate.
[6] On April 25, 2002, Butera on behalf of Niagara Mitsubishi entered into a Letter of Understanding with MMSCAN that confirmed that Butera had expressed an interest in establishing a Mitsubishi dealership in Niagara Falls. On June 21, 2002, Butera on behalf of Niagara Mitsubishi entered into a Letter of Intent with MMSCAN in which it confirmed that it would enter into a Dealer Agreement with Niagara Mitsubishi. On July 16 and 17, 2002, Butera attended a Mitsubishi dealers meeting in Las Vegas. On September 17, 2002, Butera on behalf of Niagara Mitsubishi entered into a Dealer Service and Sale Agreement (Dealer Agreement) with MMSCAN. On October 25, 2005, Niagara Mitsubishi ceased selling motor vehicles but maintained a service business. On October 23, 2007, Niagara Mitsubishi ceased doing business. At that time, Niagara Mitsubishi owed MMSCAN $16,591.85. On October 31, 2007, Butera, Niagara Mitsubishi and Canterra commenced an action against MMC, MMSA, MMNA and MMSCAN.
[7] The Dealer Sales and Service Agreement contained an entire agreement clause which stated the following:
18K This Agreement contains the entire integrated agreement between the parties. This Agreement terminates and supersedes all prior written or oral agreements and understandings, if any, between MMSCAN and Dealer, except (1) any written agreements expressly referred to and incorporated herein, (2) any indebtedness which may be owing by either MMSCAN or Dealer to the other, and (3) any of Dealer’s unfilled orders with MMSCAN for any MMSCAN Products placed with MMSCAN pursuant to the provisions of any sales agreement terminated or superseded by this Agreement. Dealer agrees that any oral statements of any MMSCAN personnel shall be of no force or effect and that Dealer has not relied on any such oral statements in entering into this Agreement.
It also contained a release clause which stated the following:
18L Upon execution of this Agreement by Dealer and in consideration of MMSCAN’s entering into this Agreement, Dealer releases MMSCAN from any and all claims, demands, contracts and liabilities (including, but not limited to, statutory liabilities), known or unknown, of any kind or nature whatsoever, arising from or out of or in connection with any such prior oral or written agreements, business transactions, course of dealing, discussions or negotiations between the parties prior to the effective date hereof.
[8] Niagara Mitsubishi never came close to making the sales that were forecast in the pro forma documents that Butera submitted with his application for a dealership. Its sales were as follows:
2002 - 14 new vehicles
2003 – 127 new vehicles
2004 – 100 new vehicles
2005 – 29 new vehicles
[9] When Butera, on behalf of Niagara Mitsubishi, signed the Dealer Agreement with MMSCAN Mitsubishi motor vehicles were not being sold in Canada. Butera alleges that he was induced to cause Niagara Mitsubishi to enter into the Dealer Agreement by misrepresentations made by agents of the defendants of the sales of Mitsubishi motor vehicles in the United States and the prospect of greatly expanded sales of Mitsubishi motor vehicles in the United States and Canada. He concedes that he has no evidence that the statements presented to him of actual sales in the United States were false. He alleges that the statements were flawed and misleading because they did not distinguish between fleet sales and actual sales. Fleet sales are sales of a large number of vehicles to corporate entities such as car rental companies where there is a very small profit to the vendor. He also claims that sales in the United States resulted from the promotion of the sale of new motor vehicles by Mitsubishi on favourable credit terms to the customers who were ultimately unable to pay for the vehicles. He refers to the 0 0 0 program – 0 down payment, 0 interest and 0 payments for one year. He also states that there were substantial recalls of new Mitsubishi motor vehicles which were not disclosed.
[10] In the years 2000-2003, 690,906 Mitsubishi motor vehicles were sold in the United States. Of these, 28,289 vehicles were sold under the 0 0 0 financing program. Of these vehicles, the purchasers of 3353 vehicles did not make payments. This constituted 0.5 % of the total sales.
[11] On April 11, 2005, Butera sent a letter to MMSCAN in which he stated that his losses to date were $500,000 and growing. He requested the following:
a one-year rent subsidy in the amount of $16,700 per month;
reimbursement for expenditures for signage and light spikes in the amount of $50,000;
partial reimbursement for Mitsubishi brand furniture in the amount of $30,000;
reinstatement of the national advertising campaign in our local markets;
implementation of a 70/30 co-op budget.
He also stated the following:
To date Niagara Mitsubishi has not been self-sufficient and doubtfully will ever become profitable based on the expense structure of this store. This expense structure is a function of the investment made according to MMSCAN’s initial pro forma and business plans. Accordingly, it has become increasingly apparent that our investment was excessive and not required when compared to the dealership’s actual sales volume. It is clear that the initial targets and projections set forth by MMSCAN were inaccurate thus misleading the amount of investment made.
Viability in acquiring a dealership is measured heavily against the projected sales versus the expense associated with not only operating but as well to accommodate the manufacturer’s requirements. Any automotive brand becomes increasingly difficult to operate profitably when high expense structures are forced in order to accommodate the manufacturer’s mandatory brand imaging requirements. Based on your original Business Plan and the plans set forth by MMSCAN and Mitsubishi Motors North America (MMNA) prior to and after our first dealer meeting, it was clear that at that time, based on the projections provided that such investment was justified. Today, after almost three years, it is obvious that as Dealer our ability to survive under such conditions is questionable especially when dealers are not treated on an equal playing field.
… it seems that MMNA has failed to adequately support its Canadian dealers and have only recently begun to accommodate partial requests, neglecting the fact that many of its dealers have lost a gross amount of capital representing the Mitsubishi brand in Canada. MMNA and MMSCAN can no longer be negligent of its Canadian Dealers position and ignore the position their brands weaknesses have left its representatives here in Canada.
MMSCAN responded by letter dated April 25, 2005. It took the position that Butera was responsible himself for his own lack of success.
[12] Butera stated that a friend sent him a copy of the Wards Reports for Canada and the United States in March 2006. They showed the number of cars sold by the different manufacturers in the market from 2002 until 2005. They showed that the share of the market in the United States for Mitsubishi sales of motor vehicles declined from 2001 when it was 2.7% to 2005 when it was 1.1%. They also showed that Mitsubishi had not been able to sell any number of cars of significance in Canada from when it entered the Canadian market in 2002. He came across a newspaper article which he found on the internet which reported that the owners of a Mitsubishi dealership in New Jersey that had failed were suing MMNA for fraud and violation of the state’s franchise laws. He states that these two events caused him to instruct his lawyer in an E-mail dated October 19, 2006 with the article attached to pursue a lawsuit against the defendants. The subject line of the E-mail is "OK now I'm pursuing this!!!!" The article is dated October 1, 2005 from Ward’s Dealer Business.
[13] In their action, the plaintiffs claim $5 million in damages for breach of contract, fraudulent, negligent and reckless misrepresentation and breach of collateral warranty. The plaintiffs also allege negligence against the defendants for not offering Canadian dealers adequate support to properly launch the Mitsubishi brand in the Canadian marketplace. Canterra purchased land in Niagara Falls on which it erected a building to sell and service Mitsubishi motor vehicles pursuant to the Dealer Agreement. Butera financed Canterra and Niagara Mitsubishi. He alleges that he lost, either personally or through his companies, over $3million as a result of misrepresentations of the defendants. The plaintiffs also allege that the Dealer Agreement is a franchise agreement, that MMSCAN is a franchisor and that the Arthur Wishart Act (the act) applies. The defendants concede that they did not provide the plaintiffs with a disclosure document as required by the act but deny that the act applies. The plaintiffs concede that the time has passed that would give them a right of rescission under the act but submit that other provisions of the act supplement their rights against the defendants under the common law.
Discussion
[14] The current Rule of Civil Procedure which governs the granting of summary judgment is as follows:
20.04(2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or
(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.
(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
In Combined Air v. Flesch, 2011 ONCA 764, [2011] O.J. No. 5431 the Court of Appeal stated the following:
50 … In deciding if these powers should be used to weed out a claim as having no chance of success or be used to resolve all or part of an action, the motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?
52 … in document-driven cases with limited testimonial evidence, a motion judge would be able to achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Similarly, the full appreciation test may be met in cases with limited contentious factual issues. The full appreciation test may also be met in cases where the record can be supplemented to the requisite degree at the motion judge's direction by hearing oral evidence on discrete issues.
This is substantially a “document-driven” case. In my view, the “full appreciation” test is met.
[15] The Limitations Act, 2002 states the following;
Basic limitation period
- Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
Discovery
- (1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
[16] When Butera established Niagara Mitsubishi in September 2002 in Niagara Falls, Mitsubishi did not have a presence in the Canadian market. He relied on the information that he had been given by agents of the defendants as to the success that Mitsubishi had in marketing its vehicles in the United States. He accepted the predictions that MMNA and MMSCAN made that based on the success in marketing Mitsubishi vehicles in the United States that Mitsubishi vehicles could be sold in Canada. In his letter to MNSCAN dated April 11, 2005, he makes it clear that he believed that MMNA and MMSCAN had deceived him. He stated: “It is clear that the initial targets and projections set forth by MMSCAN were inaccurate thus misleading the amount of investment made.” And, “Based on your original Business Plan and the plans set forth by MMSCAN and Mitsubishi Motors North America (MMNA) prior to and after our first dealer meeting, it was clear that at that time, based on the projections provided that such investment was justified. Today, after almost three years, it is obvious that as Dealer our ability to survive under such conditions is questionable especially when dealers are not treated on an equal playing field.” It is also clear that he believed that MMNA and MMSCAN had been negligent in not providing him with sufficient support in the operation of his dealership. He stated: “MMNA has failed to adequately support its Canadian dealers and have only recently begun to accommodate partial requests, neglecting the fact that many of its dealers have lost a gross amount of capital representing the Mitsubishi brand in Canada. MMNA and MMSCAN can no longer be negligent of its Canadian Dealers position and ignore the position their brands weaknesses have left its representatives here in Canada.”
[17] Butera argues that the evidentiary significance of the April 11, 2005 letter must be considered in the context in which it was written. Butera was still trying to make Niagara Mitsubishi a viable company. The letter was a request to MMSCAN for support. The letter is headed “Dealership Support Request”. MMSCAN was his supplier. He could not be expected to “bite the hand that fed him” by suing it.
[18] Butera was a lawyer. He had worked with his father in Niagara Falls selling cars for many years. The number of cars that he was selling from the opening of Niagara Mitsubishi in September 2002 to the end of 2004 fell far short of his estimates. A simple search on the internet would have turned up the information in the Ward reports which he states he first learned about by happenstance in the spring of 2006. The fact that he learned in October 2006 that a Mitsubishi dealer in New Jersey had sued MMNA in the United States can have no relevance as to whether he knew or ought to have known earlier that he had a case.
[19] The Limitation Act, 2002 s. 5(2) states that the limitation period starts to run from “the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known” that he had a case. I find that the day that Butera knew that he had a case against the defendants was April 11, 2005 at the latest and that if he did not know by that date that given his abilities and experience that he ought to have known by that date and substantially before that date. The Limitation Period is two years. I find that date expired on April 10, 2007 at the latest. This action was commenced on October 31, 2007 after the expiration of the limitation period. The action is statute barred.
[20] In the event that I am wrong in this conclusion, I will go on to assess the other arguments of the defendants which they advance in support of their motion.
[21] The defendants submit that the plaintiffs have presented no evidence of any representations that MMCA made to them let alone any misrepresentations. The plaintiffs submit that they should be permitted to continue the action against MMCA because, according to Butera in his affidavit sworn January 25, 2012, it “took an impactful role at the Las Vegas Dealer meeting” (para. 33), it took a $450 bad debt reserve (para.31) and the “interrelatedness of the Mitsubishi Defendants” (para. 31). He offers no particulars. There is no evidence that he asked for financial statements or that they were not available to the public. The plaintiffs’ claim against MMCA should be dismissed.
[22] The heart of the plaintiffs’ claim is that the Mitsubishi defendants misrepresented the future prospects of sales of Mitsubishi motor vehicles in Canada based on their past performance in the United States. Butera admits that he has no evidence that the figures presented to him of the sales of Mitsubishi vehicles in the United States prior to his signing the Dealer Agreement on September 17, 2002 were not accurate. He also has no evidence that the agents of the defendants did not honestly believe their predictions of success of the Mitsubishi brand both in the United States and Canada. He states that the figures presented to him of the sales of Mitsubishi vehicles in the United States were misleading because they did not distinguish between fleet sales and retail sales. Butera had experience in the motor vehicle sales industry. He knew of the distinction between fleet sales and retail sales. He never asked the Mitsubishi defendants to provide him with retail sales only with respect to the sale of Mitsubishi motor vehicles in the United States. He also states that they are flawed because they did not the show the number of vehicles that were purchased on the 0 0 0 financial incentive program. These figures are now available and they demonstrate that only 0.5% of the total sales of Mitsubishi vehicles in the United States between 2000 and 2003 were lost as a result of this program. He also states that a large number of Mitsubishi vehicles were recalled which was not disclosed. However, there were newspaper articles about this. The information was in the public domain. Butera has failed to demonstrate that the information that he was given about the sale of Mitsubishi vehicles in the United States prior to his signing the Dealer Agreement was misleading.
[23] Butera’s argument is that the future forecasts of success presented by the Mitsubishi defendants of the Mitsubishi brand in Canada based on its past performance in the United States was misleading. It proved to be inaccurate. It was an expression of opinion about the future based on the past. This does not give the plaintiffs a cause of action against the defendant based on misrepresentation. This principle is fully developed based on case law of high authority in the defendants’ factum and reply factum. I see no need to refer to the case law at length here. In my view, the concept is best expressed in the decision of Justice D. Brown in Deep v. M.D. Management 2007 CarswellOnt 3875 which is a case relied upon by the plaintiffs and cited in the defendants’ reply factum. Justice Brown stated the following:
13 To support a claim for negligent misrepresentation, a statement or representation must be a matter of ascertainable fact, as distinguished from an opinion or expectation…The making of statements of forecasts about the future and the omission to make the same cannot sustain an action in negligent misrepresentation… Nor is a forecast an untrue statement of a material fact only because the forecast results were not achieved… As to opinions, the mere expression of an opinion honestly held is not fraudulent even if the opinion is erroneous… (citations omitted)
The defendants state in their factum the following:
- Given that the Plaintiffs cannot establish that the Forward-Looking Representations were untrue representations about existing facts, there is no genuine issue requiring a trial on this point.
I agree with this submission.
[24] The defendants rely on the exclusive agreement clause (18K) and the release clause (18L) in the Dealer Agreement set out in para. 7. Butera, who is a lawyer, understood these clauses. He prepared the pro forma statements that he submitted to MMSCAN with this application for a dealership. They contained a disclaimer statement of MMSCAN. The case law where these clauses have been upheld where the purchaser of a business understood the clauses and the alleged misrepresentations have been made based on accurate historical information are reviewed in paras. 72-82 of the defendants’ factum. The plaintiffs rely on cases reviewed in their factum at paras. 64-68 where these clauses have not been upheld in cases where a purchaser of a business has not understood the clauses and where alleged misrepresentations of future success of a business were based on an inaccurate presentation of past performance made by the vendor. The principle is well expressed in a decision of Justice Mossip in Khagen Investments Ltd. v. 710497 Ontario Ltd., [1999] O.J. No. 2152 cited in the reply factum of the defendants. In that case, she dismissed an action brought by a franchisee of a Baker’s Dozen store. She stated the following:
74 On a balance of probabilities, based on the evidence at trial, I find that there is insufficient evidence to draw the inference of fraudulent intent (that is knowledge of falseness or recklessness) on the part of Baker's Dozen or its employees, either with respect to the pro forma document, or generally in relation to other alleged statements about the franchise, such as why the franchise was being sold, or the fact that a median, affecting the entrance to the plaza would be removed. Further, as Mr. Justice Lutz stated in P.M. Foods et al. v. Pizza Hut Inc. et al. (1985), 1985 CanLII 1301 (AB KB), 6 C.P.R. (3d) 330 at p. 364:
It is my view that none of the statements complained of here were such that it can be said that those from whom they issued did not hold an honest belief as to their existence, and, but for mismanagement on the part of the plaintiff would be true, or alternatively, those statements were provided to the plaintiff as statements of information or of intention, as to the future or as opinion.
And:
79 Secondly, and more importantly, the case before me, is on all fours with those cases that have found a disclaimer paragraph in the parties' agreement, a full defence to an allegation of negligent misrepresentation or failure to live up to a duty of care, that may exist between a franchisor and a franchisee. It is also to be noted that the pro forma form itself contained a very specific disclaimer with respect to the reliability of the numbers on the document.
80 The franchise agreement is the legal contract between the plaintiff and the defendant corporation. Its terms cannot be ignored simply because the plaintiff's business failed. The plaintiff was represented by independent counsel when he signed this agreement, and I must presume he understood what he was signing and the consequences of same.
81 As Mr. Justice Rutherford said in Ronald Elwyn Lister Ltd., supra, this contractual term, that is the disclaimer clause, is "fatal" to the plaintiff's claim for damages for negligent misrepresentation. Paragraph 25.11 of the franchise agreement could not be clearer in placing full responsibility on the shoulders of the plaintiff, for investigating himself all aspects of the finances of the franchise prior to buying same, for accepting fully the financial risks of the franchise and for accepting that the franchisor has not given any warranties or guarantees, express or implied, about the volume, profits or success of the franchise. Mr. Justice Rutherford relied on two other Canadian decisions which he refers to at p. 337 of his decision, in support of his finding, which ratio I concur with, that the language of the disclaimer clause in the franchise agreement herein is a complete defence to the plaintiff's claim for damages based on negligent misrepresentation or breach of an imposed duty of care of the defendant franchisor.
82 Further, Mr. Justice Lutz stated in P.M. Foods Ltd. et al., supra, at p. 358:
One must construe the contract in its entirety, including the disclaimer clause. It is within the competence of the parties to contract out of their liabilities, and in my view they did so here;
Clauses 18K and 18L in the Dealer Agreement are a complete defence to the Plaintiffs’ claim against MMSCAN.
[25] The plaintiffs allege that they have rights under the Arthur Wishart Act (Franchise Disclosure), 2000(the act). Sections of the act that need to be considered are as follows:
- (1) In this Act,
"disclosure document" means the disclosure document required by section 5; ("document d'information")
"franchise" means a right to engage in a business where the franchisee is required by contract or otherwise to make a payment or continuing payments, whether direct or indirect, or a commitment to make such payment or payments, to the franchisor, or the franchisor's associate, in the course of operating the business or as a condition of acquiring the franchise or commencing operations and,
- (1) Every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement.
Right of action
(2) A party to a franchise agreement has a right of action for damages against another party to the franchise agreement who breaches the duty of fair dealing in the performance or enforcement of the franchise agreement.
- (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.
(3) A disclosure document must be one document, delivered as required under subsections (1) and (2) as one document at one time.
- (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.
- (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 against,
(a) the franchisor;
(b) the franchisor's agent;
(c) the franchisor's broker, being a person other than the franchisor, franchisor's associate, franchisor's agent or franchisee, who grants, markets or otherwise offers to grant a franchise, or who arranges for the grant of a franchise;
(d) the franchisor's associate; and
(e) every person who signed the disclosure document or statement of material change.
(2) If a disclosure document or statement of material change contains a misrepresentation, a franchisee who acquired a franchise to which the disclosure document or statement of material change relates shall be deemed to have relied on the misrepresentation.
The rights conferred by this Act are in addition to and do not derogate from any other right or remedy a franchisee or franchisor may have at law.
Any purported waiver or release by a franchisee of a right given under this Act or of an obligation or requirement imposed on a franchisor or franchisor's associate by or under this Act is void.
[26] The Dealer Agreement did not require that Niagara Mitsubishi make a payment or continuing payments to MMSCAN. For that reason, I am of the opinion that the act can have no application. However, I am mindful of the admonition of the Court of Appeal in the case below that the act is not to be narrowly construed. Other aspects of the definition of franchise in the agreement might well apply to the Dealer Agreement. Tony Laframboise who submitted an affidavit sworn December 8, 2011 on behalf of the defendants states in para. 1 that he began his employment with MMSCAN as National Franchise Development Manager. Even if the act does apply, in my view it does not assist the plaintiffs.
[27] In Personal Service Coffee Corp. v. Stanley Beer 2005 CanLII 25180 (ON CA), [2005] O.J. No. 3043 a franchisor rescinded a franchise agreement based on incomplete disclosure three days before the expiration of the two year limitation period in s. 6(2) of the act. The franchisee continued in business under another name in which he continued to use equipment that he had obtained from the franchisor and continued to serve the customers that he had acquired while operating under the franchisee’s name. The rescission of the franchise agreement did not prevent the franchisor from pursuing an action against the franchisee for an accounting and an injunction. The Court of Appeal in the judgment of Justice MacFarland held that the franchisor could rely on sections 3 and 9 of the act. Justice MacFarland stated the following:
28 It is clear, therefore, that the focus of the Act is on protecting the interests of franchisees. The mechanism for doing so is the imposition of rigorous disclosure requirements and strict penalties for non-compliance. For that reason, any suggestion that these disclosure requirements or the penalties imposed for non-disclosure should be narrowly construed, must be met with scepticism.
29 However, while the Act imposes fairly onerous disclosure requirements on franchisors, it is not entirely one-sided. In particular, s. 3 of the Act imposes a duty of fair dealing on "each party" to a franchise agreement with respect to performance and enforcement and gives the parties a right to damages for breaches of this duty of fair dealing. In this way, the Act obliges both the franchisor and the franchisee to deal fairly with one another.
And:
36 As stated, s. 3 of the Act imposes on each party to a franchise agreement a duty of fair dealing in its performance and enforcement. Section (3)(3) defines the duty of fair dealing to include the duty to act in good faith and in accordance with reasonable commercial standards. Any breach of that duty by a party gives rise to an action for damages by the party wronged.
38 Insofar as the franchisor's complaints relate to the conduct of the franchisee after rescission, the franchisor would, under s. 9 of the Act, have the right to bring an action at common law against the franchisee. PSCC's claims in relation to the alleged appropriation of business, unlawful use of customer lists and equipment, misappropriation of know-how and systems, and related complaints would fall to be determined under s. 9.
[28] In this case, Butera concedes that the time has long past that would give Niagara Mitsubishi right to rescind the Dealer Agreement. However, he argues that sections 3, 7 and 9 of the act have the effect of giving him a cause of action against MMSCAN. I disagree. These sections except s. 7(2) do no more than codify the common law. Section 7(2) does not assist the plaintiffs because I have held that the defendants made no misrepresentation which would give the plaintiffs a cause of action. In my view, on the facts of this case, the act gives the plaintiffs no more rights than they have at common law.
Result
[29] The action is dismissed. MMSCAN’s counterclaim against Niagara Mitsubishi is allowed in the amount of $16,591.85. The defendants may make submissions on costs within 10 days of their receipt of these reasons. The plaintiffs may have 10 days to respond after receipt of the defendants’ submissions.
Hambly J.
Released: August 31, 2012
COURT FILE NO.: 49567/07
DATE: 2012/08/31
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LUCIANO BUTERA, 1515404 ONTARIO INC. operating as NIAGARA MITSUBISHI and CANTERRA PROPERTY HOLDINGS INC.
Plaintiffs
– and –
MITSUBISHI MOTORS CORPORATION, MITSUBISHI MOTOR SALES OF AMERICA, INC., MITSUBISHI MOTORS NORTH AMERICA, INC., MITSUBISHI MOTORS CREDIT AMERICA, INC. and MITSUBISHI MOTOR SALES OF CANADA, INC.
Defendants
REASONS FOR JUDGMENT
Hambly J.
Released: August 31, 2012
COURT FILE NO.: 49567/07
DATE: 2012/09/04
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LUCIANO BUTERA, 1515404 ONTARIO INC. operating as NIAGARA MITSUBISHI and CANTERRA PROPERTY HOLDINGS INC.
Plaintiffs
– and –
MITSUBISHI MOTORS CORPORATION, MITSUBISHI MOTOR SALES OF AMERICA, INC., MITSUBISHI MOTORS NORTH AMERICA, INC., MITSUBISHI MOTORS CREDIT AMERICA, INC. and MITSUBISHI MOTOR SALES OF CANADA, INC.
Defendants
Harry Korosis and Peter Nicholson, for the Plaintiffs/Responding Parties
W. Brad Hanna and Richard McCluskey, for the Defendants/Moving Parties
HEARD: at St. Catharines: August 27 & 28, 2012
the honourable mr. justice p.b. hambly
Addendum
[1] Paragraph 24 of my judgment dated August 31, 2012 is replaced by the following paragraph:
[24] The defendants rely on the exclusive agreement clause (18K) and the release clause (18L) in the Dealer Agreement set out in para. 7. Butera, who is a lawyer, understood these clauses. He prepared the pro forma statements that he submitted to MMSCAN with this application for a dealership. They contained a disclaimer statement of MMSCAN. The case law where these clauses have been upheld where the purchaser of a business understood the clauses and the alleged misrepresentations have been made based on accurate historical information are reviewed in paras. 72-82 of the defendants’ factum. The plaintiffs rely on cases reviewed in their factum at paras. 64-68 where these clauses have not been upheld in cases where a purchaser of a business has not understood the clauses and where alleged misrepresentations of future success of a business were based on an inaccurate presentation of past performance made by the vendor. The principle is well expressed in a decision of Justice Mossip in Khagen Investments Ltd. v. 710497 Ontario Ltd., [1999] O.J. No. 2152 cited in the reply factum of the defendants. In that case, she dismissed an action brought by a franchisee of a Baker’s Dozen store. She stated the following:
74 On a balance of probabilities, based on the evidence at trial, I find that there is insufficient evidence to draw the inference of fraudulent intent (that is knowledge of falseness or recklessness) on the part of Baker's Dozen or its employees, either with respect to the pro forma document, or generally in relation to other alleged statements about the franchise, such as why the franchise was being sold, or the fact that a median, affecting the entrance to the plaza would be removed. Further, as Mr. Justice Lutz stated in P.M. Foods et al. v. Pizza Hut Inc. et al. (1985), 1985 CanLII 1301 (AB KB), 6 C.P.R. (3d) 330 at p. 364:
It is my view that none of the statements complained of here were such that it can be said that those from whom they issued did not hold an honest belief as to their existence, and, but for mismanagement on the part of the plaintiff would be true, or alternatively, those statements were provided to the plaintiff as statements of information or of intention, as to the future or as opinion.
And:
79 Secondly, and more importantly, the case before me, is on all fours with those cases that have found a disclaimer paragraph in the parties' agreement, a full defence to an allegation of negligent misrepresentation or failure to live up to a duty of care, that may exist between a franchisor and a franchisee. It is also to be noted that the pro forma form itself contained a very specific disclaimer with respect to the reliability of the numbers on the document.
80 The franchise agreement is the legal contract between the plaintiff and the defendant corporation. Its terms cannot be ignored simply because the plaintiff's business failed. The plaintiff was represented by independent counsel when he signed this agreement, and I must presume he understood what he was signing and the consequences of same.
81 As Mr. Justice Rutherford said in Ronald Elwyn Lister Ltd., supra, this contractual term, that is the disclaimer clause, is "fatal" to the plaintiff's claim for damages for negligent misrepresentation. Paragraph 25.11 of the franchise agreement could not be clearer in placing full responsibility on the shoulders of the plaintiff, for investigating himself all aspects of the finances of the franchise prior to buying same, for accepting fully the financial risks of the franchise and for accepting that the franchisor has not given any warranties or guarantees, express or implied, about the volume, profits or success of the franchise. Mr. Justice Rutherford relied on two other Canadian decisions which he refers to at p. 337 of his decision, in support of his finding, which ratio I concur with, that the language of the disclaimer clause in the franchise agreement herein is a complete defence to the plaintiff's claim for damages based on negligent misrepresentation or breach of an imposed duty of care of the defendant franchisor.
82 Further, Mr. Justice Lutz stated in P.M. Foods Ltd. et al., supra, at p. 358:
One must construe the contract in its entirety, including the disclaimer clause. It is within the competence of the parties to contract out of their liabilities, and in my view they did so here;
Clauses 18K and 18L in the Dealer Agreement are a complete defence to the Plaintiffs’ claim against MMSCAN.
Hambly J.
Released: September 4, 2012
COURT FILE NO.: 49567/07
DATE: 2012/09/04
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LUCIANO BUTERA, 1515404 ONTARIO INC. operating as NIAGARA MITSUBISHI and CANTERRA PROPERTY HOLDINGS INC.
Plaintiffs
- And -
MITSUBISHI MOTORS CORPORATION, MITSUBISHI MOTOR SALES OF AMERICA, INC., MITSUBISHI MOTORS NORTH AMERICA, INC., MITSUBISHI MOTORS CREDIT AMERICA, INC. and MITSUBISHI MOTOR SALES OF CANADA, INC.
Defendants
ADDENDUM
Hambly J.
Released: September 4, 2012