2240802 Ontario Inc. v. Springdale Pizza, 2013 ONSC 7288
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2240802 ONTARIO INC., NIRAJ PATEL, RITESHAKUMAR SHETH and KINU SNEHAL AMIN,
Plaintiffs
– and –
SPRINGDALE PIZZA DEPOT LTD., 2220731 ONTARIO INC., RANJIT SINGH MAHIL and DILAWAR SINGH KHAKH,
Defendants
Shane P. Murphy, Counsel for the Plaintiffs, Moving Parties on the Motion
David S. Altshuller and Kristina Davies, Co-counsel for the Defendants
HEARD: OCTOBER 10, 2013
ENDORSEMENT: GREER J.:
1The Plaintiffs in this Partial Summary Judgment Motion, 2240802 Ontario Inc, (“224”), Niraj Patel (“Patel”), Riteshakumar Sheth (“Sheth”) and Kinu Snehal Amin (“Amin”), entered into a Franchise Agreement dated May 28, 2010 with the Respondents, Springdale Pizza Depot Ltd. (“Springdale”), 2220731 Ontario Inc. (“222”), Ranjit Singh Mahil (“Mahil”) and Dilawar Singh Khakh (“Khakh”). I shall collectively refer to them as the “Plaintiffs” or the “Defendants”, as the case may be. I shall refer to the individual litigants by their above names and refer to 224 as the “Franchisee” and Springdale as the “Franchisor”.
2The Franchisee delivered a Notice of Rescission to the Franchisor on February 16, 2012. The Plaintiffs say that the Purported Disclosure Document given to them by the Franchisor did not meet the requirements of Section 5 of the Arthur Wishart Act (Franchise Disclosure) 2000, S. O. 2000 c.3.
3The Plaintiffs move before the Court for:
- Partial Summary Judgment against all the Defendants for the following relief:
(a) a declaration that the Franchise Agreement (“the Agreement”) dated May 28, 2010 made between 224 and Springdale was validly rescinded by the delivery of a notice of rescission dated February 16, 2012 on their behalf;
(b) a declaration that the rescission of the Agreement also validly rescinded the following documents:
(i) A Licence Agreement dated May 28, 2010 (“Licence Agreement”) and
(ii) A confidentiality and Non-Competition Agreement dated May 28, 2010 (“Confidentiality Agreement”); and
(iii) A sub-lease between 224 and 222 dated May 31, 2010;
(c) a declaration that the document entitled “Disclosure Document – Pizza Depot” delivered to the plaintiffs by the defendants did not constitute a disclosure document within the meaning of the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c.3 (“the Act”).
Partial summary judgment against the Defendants, 222, Mahil and Khakh, declaring that they are “franchisor’s associates” within the meaning of section 1 (1) of the Act;
Judgment against all Defendants, jointly and severally, to pay to the Plaintiffs the principal amount of $567,271.37 pursuant to subsection 6(6) of the Act. (This relief was not proceeded with, as the parties agree that if the Plaintiffs are successful on this Partial Summary Judgment Motion, that the damages issue will be referred on a Reference to a Master.)
Some background facts
4Springdale is the Franchisor of a pizza franchise known as “Pizza Depot”, which has a franchise system of take-out pizza outlets in the City of Toronto. There was no evidence presented on the Motion as to how many franchises operated in Toronto in May 2010.
5Springdale is controlled by Mahil who is its President and a Director. Khakh, is the Secretary/Treasurer and a Director. Springdale uses 222 as a company to enter into sub-lease agreements between it and its franchisees. Mahil and Khakh are also both Directors of 222.
6Patel and Sheth knew each other before they got into the business of operating a pizza franchise in the Pizza Depot group. Neither of them had any franchise experience before entering into the Agreement with Springdale. Patel sets out, in his Affidavit sworn March 2, 2013, the details of how the two of them became involved and how they found a location they thought might be a good spot for a pizza depot outlet.
7Sheth introduced him to Amin. The three of them decided to work together to seek out potential franchise opportunities. Sheth arranged the meeting with Springdale. Patel says, it was to “learn more about the franchise opportunities they were offering.” They all met several times with Mahil and Khakh. Patel says that he emphasized to them that he and his partners were inexperienced in business and franchising was new to them. They were accepted as a franchises by Springdale on May 6, 2010.
8Patel and Sheth and Amin found, on their own, a location they thought would be good for such a franchise and told Mahil and Khakh about a new commercial development under construction by Aldgate Construction (1988) Limited (“Aldgate”). It was contacted by Springdale and 222, and permission was obtained for a Pizza Depot franchise to open in that location. They were instructed to write a cheque to Aldgate for the first and last month’s rent, which they did on April 9, 2010, which was not cashed until they had been approved as a franchisee. There is no evidence that the Franchisor did any research about that new development or what was in that area that might be a competitor of the new franchise.
The franchise documentation
9On May 6, 2010, Mahil, as CEO, Springdale wrote to the individual Plaintiffs, officially approving their application to become a Pizza Depot Franchisee operating at the premises at the Ellesmere Road location found by them. On May 7, 2010, the Franchisee was given a letter on the letterhead of “Progressive Construction Inc.” respecting electrical and other construction aspects of the new premises.
10On May 28, 2010, Patel and Sheth attended at Springdale’s office and were presented with a package of documents. Patel says that they were asked to sign for it by a secretary. He says that Kinu Amin was never presented with a copy of the package of Disclosure Documents.
11Patel says that the Disclosure Documents were given to him and Sheth on the same day as they executed the Franchise Agreements. Those Agreements include:
(a) Franchise Agreement;
(b) Licence Agreement;
(c) Confidentiality and Non-Competition Agreement;
(d) Sublease; and
(e) Guarantee, Subordination, and Transfer Restriction Agreement.
12Patel says that they received a copy of the “Disclosure document- Pizza Depot” and took the documents to Amin to review. All their families were there. The Plaintiffs signed the documents at one of their homes and said they returned them to Springdale the next day. The Receipt is dated May 28, 2010 and is signed by both Patel and Sheth saying they received a 2009 year end Financial Statement, a Franchise Agreement & Related Documents and a List of current and Past Franchisees. The copy of the Document attached to Patel’s affidavit as an Exhibit, does not contain any related documents or a list of current and past franchisees.
13The Franchisor gave the Plaintiffs an undated “Deposit Acknowledgment”, signed by Mahil. It says that the Franchisor has received the rent payments but that other payments are owing. The Franchisor says that on June 6, 2010, Mahil wrote to the Franchisee to advise it that they had not signed the Franchise Agreements or made any payments to the Franchisor for the franchise and training fees, which were due upon signing of the Franchise Agreements. On June 18, 2010 the Franchisee paid the franchise fee of $21,000 and the training fee and gave Springdale the signed copies.
14Their Pizza Depot opened for business on October 8, 2010 and remained open until February 16, 2012, when they delivered the Notice of Rescission to the Franchisor.
15Patel acknowledges that the Document Disclosure did contain:
(a) Two copies of a Certificate executed by Mahil;
(b) A financial statement for Springdale’s most recently completed financial year;
(c) NO DESCRIPTION of licences, registration, authorization or other permission the franchisee was required to obtain; and
(d) NO LIST of the name, last known address and telephone number of each franchisee in Ontario, who operated a Pizza Depot franchise that has been terminated, cancelled, not renewed or reacquired or otherwise left the system.
16The Franchisor, in its materials, says that Khakh’s Certificate was included in the Franchisee’s copy, and it is in the copy attached to Mahil’s affidavit. It was not there and only first appears, says Patel, when the Defendants filed their responding materials. There is, however, more suspicious evidence in the Document received by the Franchisee. On the 4th page (the document pages are not numbered), under the heading “8. Guarantees and Independent Legal Advice”, the Franchisee’s copy, in the second paragraph says:
In Alberta, guarantors must complete the prescribed form of certificate pursuant to the Guarantees Acknowledgement Act (Alberta).
17On the Franchisor’s copy, it left in the province name of “Alberta” as the second word. At the end, however, the Franchisor had crossed out the word “Alberta” and inserted “Ontario”, appearing to try to correct errors again before its copy was put in as an Exhibit.
18On the Franchisor’s copy, there has also been added handwritten words, “Schedule “C” & “D”, followed by a typed list of Franchised and Corporate Stores. The List looks as though it was a separate document, now, again, being later incorporated in the Franchisor’s copy of the document.
19In the copy Patel has, there is a page headed “SCHEDULE “C” & “D” (underlined) and in caps again, “PAST & CURRENT FRANCHISEES”, followed by the separate heading “SEE ATTACHED”. Nothing was attached to it. This page is not in the Franchisor’s copy. What is there is an insert, followed by a second copy of the Receipt signed by Patel and Sheth and later by a third copy after the Franchisor inserted copies of the identification provided by Patel and Sheth.
20In my view, the Franchisor was very careless in ensuring that its documents were properly drafted. What was provided to the Franchisee was not what the Franchisor had in its copy. It was not in compliance with the Act.
The operation of the Franchise
21The parties disagree on how the Franchisee operated its Pizza Depot. The Franchisor says it became aware that one of Patel, Sheth and Amin had full-time employment outside the franchise, when all were to be giving their full-time and attention to the franchise. It says that Amin never worked there at all and Patel only worked full-time for 7 months.
22The Franchisor says that the Franchisee did not purchase its beverages from the designated supplier, and that it did not deliver the 17,000 flyers it was supposed to do. On the other hand, the Franchisee complained about its poor sales and the Franchisor offered help. It says that Patel never produced the franchise’s financial statements when asked for.
23The Franchisor says that there were periodic health inspections of the franchise by Noraxx Inspections Inc, which the Franchisee failed.
24Patel says that early on in the operation, the amount it had paid to Springdale for various expenses “greatly exceeded what could be paid based upon the sales at the franchised business.” He also says that other franchisees were experiencing the same problem but no assistance was provided to any of them by the Franchisor. Given this, says Patel, the Plaintiffs and other franchisees of Pizza Depot, formed a franchise association to try to address these concerns. Patel says the latest health inspections were more thorough and demanding that they had been in the past. This was followed by Springdale sending the Franchisee a Notice of Default dated December 7, 2011.
The Deficiencies claimed by the Franchisee
25Patel says that there were deficiencies in the documentation they received right at the onset. It lists them as follows:
(i) It does not contain a certificate signed by at least two directors of the Franchisor;
(ii) It does not contain financial statements prepared to an audited or review engagement standard;
(iii) It does not contain any information about 222, including the identity of its officers and directors and/or its relationship to Springdale;
(iv) It does not contain any site specific information whatsoever regarding the operation of the Franchise upon the Premises;
(v) It does not include a list of the name, last known address and telephone number of each franchisee in Ontario who operated a Pizza Depot franchise that had been terminated, cancelled, not renewed or reacquired by Springdale or otherwise left the system;
(vi) It does not include information for each closure of a Pizza Depot franchise within the three fiscal years immediately preceding the delivery of the Purported Disclosure Document, the reasons for the disclosure, including who perpetrated the closure and under what circumstances;
(vii) It does not include a description of every licence, registration , authorization or other permission a franchisee is required to obtain, under any applicable federal or provincial law or municipal by-law, to operate the Franchised Business;
(viii) It does not disclose that at the date the Purported Disclosure Document was provided, an additional civil action had been commenced against Springdale, Mahil, and Khakh, involving claims of providing insufficient disclosure to a franchisee;
(ix) It was provided to Patel and Sheth on the same day the Franchisees executed the Franchise Agreement; and
(x) It is not bound and was not presented as a single cohesive document.
The Issues
26The Plaintiffs see the issues, in summary, to be whether the Proposed Disclosure Document is a “disclosure document” within the meaning of Section 5 of the Act and the Regulations, whether the Franchisees validly rescinded the Agreement pursuant to subsection 6(2) of the Act, and are 222, Mahil and Khakh “franchisor’s associates” as defined by the Act?
27The Franchisor asks the question as to whether the issues it says are the real issues, are to be dealt with on a Summary Judgment Motion? It asks whether there were any deficiencies in the Disclosure Document sufficiently material that the Disclosure Document can be rescinded pursuant to Section 6(2) of the Act? It also asks what is the amount of compensation, if any, due to the Franchisee under S.6(6) of the Act?
28On the day of the all-day Motion, it was agreed by the parties and me that the issue of compensation/damages owing, if any, would be left to be dealt with at a later date on a Reference to a Master. There was not sufficient time to have counsel go over the evidence necessary to have it dealt with then. The Summary Judgment Motion is therefore Partial, given that this issue is not being dealt with by me.
Analysis
1. The test under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194
29The Plaintiffs brought on this Partial Summary Judgment Motion. Under subrule 20.04 (2) of the Rules, 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.
In making such determination, under the Rule, the Court is entitled to weigh the evidence, evaluate a deponent’s credibility and draw any reasonable inference from the evidence, unless it is in the interest of justice for such powers to be exercised only at a trial. In Combined Air Mechanical Services Inc. v. Flesch 2011 ONCA 764, the Court , in para. 253, the Court held that:
Under the principles we have established, the full appreciation test is the governing test. It must be asked 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?
The Summary Judgment cannot serve as an adequate substitute for the trial process, as also noted in Combined Air, supra.
30I find, on a full appreciation by a weighing of all the evidence before me, that the Partial Summary Judgment Motion should be granted, for the reasons which follow. I disagree with the Defendants that there are numerous factual issues in dispute. There are some but not any that require a Trial for a fair and just resolution. Further, in my view, there is no necessity for the Plaintiffs to cross-examine the Defendants’ witness, Mahil on his Affidavit if they did not wish to do so.
31The Defendants say that Mahil’s evidence conflicts with that given by Patel, the Plaintiffs’ witness. In weighing the evidence in 2 affidavits sworn to by each party’s Affiant, Patel’s evidence is backed-up by my examination of the Disclosure Document and the deficiencies I have noted are part of it.
32Further, the fact that Sheth, Amin and her husband failed to attend at examinations despite being properly served, in my view is not fatal to granting Summary Judgment. There is no obligation on the Plaintiffs to agree to be examined before the Notice of Rescission is delivered on February 16, 2012.
33I find that the Franchisee put its best foot forward on this Motion. The Franchisor did not. I find there are too many deficiencies in the documentation received by the Plaintiffs, which go to the root of the matter. There is no need to have the matter go to Trial. The Plaintiffs properly chose to bring on the Motion and thus took their chances on its outcome.
34The Franchisor says that Patel, who was examined on September 26, 2013, did not respond to his Refusals and Undertakings. They were given 14 days before the Motion took place, the Motion had been set down 8 months before to be heard in October. The Defendants had more than enough time to move matters forward had they chosen to.
2. Springdale’s Failure to deliver a Disclosure Document
35Under subsection 5(1) of the Act, 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 the signing of the Agreement or any other agreement relating to the franchise; and the payment of any consideration by or on behalf of the prospective franchisee to the franchisor or franchisor’s associate relating to the franchise.
36Subsection 5(2) says that a disclosure document may be delivered personally, by registered mail or by any other prescribed method.
37Subsection 5(3) says that a disclosure document must be one document delivered as required under subsections (1) and (2) as one document at one time.
38Subsection 5(4) says that the disclosure document shall contain the following:
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.
39“Material fact” is defined in paragraph 1.(1) of the definition section of the Act as including any information about the business, operations, capital or control of the franchisor or franchisor’s associate or about the franchise system, that would reasonably be expected to have a significant effect on the value or price of the franchise to be granted or the decision to acquire the franchise.
40One material fact regarding the business and operations is the financial statements appended to the Purported Disclosure Document. They were not prepared in the prescribed manner as set out in that Document. The form is entitled “SPRING DALE (sic) PIZZA DEPOT LTD. Financial Statements March 31, 2009 (Unaudited).” In the Notice to Reader, on the front page, it reads:
We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of such information. Accordingly, readers are cautioned that these statements may not be appropriate for their purposes.
41This means that the preparer of the Statements did not verify anything. In fact, I note an error in the Statements on p.2 under the heading of “FIXED ASSETS” respecting accumulated depreciation. There, accumulated depreciation has increased from 2008 to 2009, without any of the fixed assets showing a drop in value from one year to the next. The old numbers are simply repeated.
42In the Note to Reader on p.5, the correct depreciated numbers appear. In my view, there is a reasonable inference that the preparer of these Statements did not carefully read either the Statements prepared for it or the Regulation under the Act, which governs how financial statements are to be prepared.
43Under the Act, Ontario Regulation 581/00, para. 3. (1), states that every disclosure document shall include:
(a) an audited financial statement for the most recently completed fiscal year of the franchisor’s operations, prepared in accordance with generally accepted auditing standards that are at least equivalent to those set out in the Canadian Institute of Chartered Accountants Handbook;
(b) a financial statement for the most recently completed fiscal year of the franchisor’s operations, prepared in accordance with generally accepted accounting principles that are at least equivalent to the review and reporting standards applicable to review engagements set out in the Canadian Institute of Chartered Accountants Handbook;
(c) (inapplicable).
The Financial Statements of Springdale meet neither of these standards. They are deficient.
44In addition, the Certificate, which is supposed to be signed by two directors or officers, is only signed by Mahil, the President. Regulation 7. (2) (c) states that in the case of a franchisor that is incorporated and has more than one officer or director, by at least two persons who are officers and directors. Both Mahil and Khakh are officers and directors of the franchisor, so both should have signed the Certificate. They did not do so.
45In the Purported Disclosure Document, there are two copies of the Certificate signed by Mahil on May 28, 2010. The Franchisor then produced, upon providing its responding materials on this Motion, a Certificate dated May 28, 2010 signed by Khakh. This was presented sometime in March or April 2013, nearly three years after it was allegedly signed on May 28, 2010. I take no notice of it since it was not included in the original Disclosure Document given to the Plaintiffs.
46The Plaintiffs, when they were given the Purported Disclosure Document, the Documents were not presented as one single bound document (emphasis added). Patel sets out in his affidavit sworn on March 2, 2013, in paras. 16 to 20, how and what documents were received by the Plaintiffs. He says a package, which was not one document, was given to him and Sheth, and they signed a receipt for it.
47The documents included in the package are the Franchise Agreements and the documented, Purported Disclosure Document. Patel attaches a copy of that document to his Affidavit as an exhibit. It is entitled DISCLOSURE DOCUMENT PIZZA DEPOT. This document is 18 pages in length with the Certificate included. It was in the package with all the other Franchise Agreements documents. It was therefore not one document. The Plaintiffs take the position that this manner of receipt did not allow them, as a prospective franchise purchaser, to make properly informed decisions about whether or not to invest in a franchise.
48The Plaintiffs also say that the Franchisor did not give them full information about the state of the franchise system. Under the Act, the Franchisor is obligated to disclose the names, contact information and where applicable, the reasons why former franchisees left the system or were terminated as franchisees. If the Franchisor is involved in litigation, this must also be disclosed to any prospective franchisee. No such list of names, addresses and telephone numbers was included, nor was there any information about closures of franchises within the three fiscal years immediately preceding the delivery of the Purported Disclosure Document and the reasons for the disclosure.
49Again, the Defendants, in their responding materials, have produced two Schedules labelled C and D appended to their copy, which were not attached to the one received by the Plaintiffs on May 28, 2010.
50Patel says that the document also did not include a description of every licence, registration, authorization or other permission a franchisee is required to obtain, under any applicable federal or provincial or municipal laws. Also not disclosed was the fact that the Franchisor was involved in a new legal claim when Proposed Disclosure Document was given to them. (one other 2009 claim, had been disclosed.)
51What it fails to include is a Statement of Claim dated August 19, 2009 cited as 2189205 Ontario Inc. Parmender Mutti and Navjot Kaur Chandi, Plaintiffs, and Springdale Pizza Depot Ltd. Fanjit Singh Mahil, Dilwar Singh Khakh, 2147390 Ontario Inc. and Kulwinder Singh as Defendants. That Claim also claims rescission and other similar claims as are currently made by the Plaintiffs.
52Had proper Financial Statements been prepared for the Franchisor, both of these claims would have been noted in the Notes set out at the end of the Financial Statement, as these are contingent liabilities and reflect on the value of the company. Neither was shown in the 2009 Statements presented nor was the information provided to the Plaintiffs in any other form.
53The Plaintiffs also say that there were not provided with proper business information about the Franchisor’s operations and what its exclusive operating territory was and where the specific locations were of other franchisees. This information would have helped the Franchisee determine whether its chosen location was a good one, or if there were competing other pizza franchises in the vicinity from which it hoped to draw customers.
54The Defendants, in their materials, claim that there were two certificates in the package given to the Plaintiffs, one signed by each officer/director. The Certificate itself uses the verb “certify”, which would mean that more than one person was to sign the Certificate. Only Mahil signed it. It also does not say that the Certificate can be signed in counterparts. This, in my view, is a major deficiency.
3. The Default and Notice of Termination and the Notice of Rescission
55The Franchisor says that there were breaches made by the Franchisee, including the fact that the Franchisee failed to pay the rent for January 2012. The Franchisor delivered a Notice of Default about this. On February 23, 2012, it delivered a Notice of Termination to the Franchisee, after the Franchisee had delivered its Notice of Rescission to the Franchisor on February 16, 2012.
56The Franchisor says that the claims of the Franchise about deficient disclosure are “suspect”. I do not find that to be the case. On the other hand, in the Franchisor’s production of certain documents in its responding materials, which were not in the package given to the Plaintiffs in the first instance, is deficient.
57The issue of rescission is dealt with under S.6 of the Act. It differentiates between late disclosure and no disclosure. Subsection 6(2) reads:
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.
I find, on the evidence before me that the Notice of Rescission was properly delivered under the terms of the Act and is valid, given the deficiencies in the Disclosure Document.
4. Franchisor’s Associate
58It is the Franchisee’s position that both Mahil and Khakh fall under S. 1 (1) the definition section of the act, as being Associates of the Franchisor. This is a person who directly or indirectly controls or is controlled by the franchisor, or is controlled by another person who also controls, directly or indirectly, the franchisor and who is directly involved in the grant of the franchise by reviewing it or approving it or by making representations to the prospective franchisee on behalf of the franchisor for the purpose of granting the franchise, marketing it or otherwise offering to grant the franchise, and to whom the franchisee has a continuing financial obligation in respect of the franchise.
59On the evidence, I find that 222 and/or Mahil and/or Khakh are a franchisor’s associate or associates. It is clear that Mahil and Khakh are both officers and directors of Springdale. They met with the Plaintiffs when they first inquired about the franchise and were involved in reviewing and approving the grant of the franchise. Mahil and Khakh control 222. The head lease was entered into by 222. Therefore under S.6(6) of the Act, all three are jointly and severally liable for any damages that the Plaintiffs may be entitled to as a result of their rescission.
5. Legal Analysis
60Springdale has been involved in other summary judgment motions involving it as the Franchisor. Madam Justice Wilson, D.A., in 2189205 Ontario Inc., Parminder Mutti, and Navjot Kaur Chandi v. Springdale Pizza Depot Ltd., Ranjit Singh Mahil, Delawar Singh Khakh, 2147390 Ontario Inc. and Kulwinder Singh, 2010 ONSC 3695 says, in part, in para. 20:
In considering whether there is a genuine issue for trial, bearing in mind the Court’s new powers of weighing evidence and drawing any reasonable inference from the evidence, I am satisfied that I am in as strong a position as a trial judge would be to determine if the Defendants complied with the disclosure requirements imposed on them under the Act. The language of the Act is clear and unambiguous and I have available to me the documents that are relied on by the parties.
She found the Franchisor failed to meet its obligations under the Act. I also find that the Defendants before me have not met their obligations in the matter before me. The Disclosure Document that was delivered contained such material deficiencies that the Plaintiffs are entitled to rescission under the Act.
61The Act, itself, is in many ways consumer protection legislation. Franchisors are expected to comply with it and its Regulations. It is remedial legislation, which the Court may broadly apply. In examining what deficiencies are sufficiently material to conclude that the Disclosure Document fails to satisfy the substantial requirements of the Act, Mr. Justice Wilton-Siegel in Sovereignty Investment Holdings, Inc. v. 9127-6907 Quebec Inc., 2008 CanLII 57450 (ON SC), [2008] O.J. No. 4450 (S.C.J.) found, in para.15 that out of 19 deficiencies in the case before him, there were at least 4 such deficiencies in the disclosure provided, “each of which, on its own, is fatal” to the Franchisor’s assertion that it complied with the requirements of the Act to deliver a disclosure document.
62One of those flaws is one of the same fatal deficiencies in the case before me. The Financial Statements provided by the Franchisor did not comply with the Act, as earlier noted by me. As well, as in this case, the documents provided were not collected in a single document. As well, the Certificate provided did not comply with S.7 Regulations and the list of names of other franchisees and the status of what happened to them was not part of the Disclosure Document received by the Plaintiffs.
63In my view, none of the deficiencies noted above are so minor that they would not qualify. They are major deficiencies. There were other minor deficiencies, as noted by me. The Financial disclosure, in my view, must comply with the Act, in every respect. To have a bookkeeper prepare a statement from the figures provided by the Franchisor, without any documents being examined or verified, with errors in its transcription and no Notes at the end about on-going or pending litigation, does not give the franchisee a true financial picture. See also: Melnychuk v. Blitz Limited, 2010 ONSC 566 at pp. 6 and 7.
Declarations and Orders
64The relief requested by the Plaintiffs in their Partial Summary Judgment is granted as follows:
There is no genuine issue to be tried and the Partial Summary Judgment is granted against all Defendants, Mahil, Khakh, and 222, who are “franchisor’s associates” within the meaning of s. 1(1) of the Regulations, under the Act.
A Declaration shall go that the Agreement dated May 28, 2010 made between the Plaintiffs and the Defendants is validly rescinded by the Plaintiffs’ delivery of a notice of rescission dated February 16, 2012 on their behalf.
A Declaration shall go that the rescission of the Agreement also validly rescinds a Licence Agreement dated May 28, 2010 and a confidentiality and Non-Competition Agreement of same date, and a sub-lease made between 224 and 222 dated May 31, 2010.
A Declaration shall go that the document entitled “Disclosure Document – Pizza Depot” delivered to the Plaintiffs by the Defendants does not constitute a Disclosure Document within the meaning of the Act.
The issue of the quantum of damages and compensation to which the Plaintiffs are entitled, shall be referred by Reference to a Master, to determine the amount owing jointly and severally by the Defendants to the Plaintiffs. A copy of such Reference, when decided shall be sent to me by the Master.
Costs
65If the parties cannot otherwise agree on Costs, they shall make written submissions to me no longer than three pages in length plus a Bill of Costs by the successful parties, and case law and dockets. The Plaintiffs, as successful parties shall serve the Defendants within 30 days of this Judgment, and the Defendants shall have 10 days thereafter within which to respond, and the Plaintiffs 5 days thereafter for Reply, if any. They shall be sent to me at Judges’ Administration, Court House, 361 University Avenue, 1st floor.
Greer J.
Released: December 2, 2013
CITATION: 2240802 Ontario Inc. v. Springdale Pizza, 2013 ONSC 7288
COURT FILE NO.: CV-12-453708
DATE: 20131202
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2240802 ONTARIO INC., NIRAJ PATEL, RITESHAKUMAR SHETH and KINU SNEHAL AMIN,
Plaintiffs
– and –
SPRINGDALE PIZZA DEPOT LTD., 2220731 ONTARIO INC., RANJIT SINGH MAHIL and DILAWAR SINGH KHAKH,
Defendants
ENDORSEMENT
Greer J.
Released: December 2, 2013
