ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-13-483923
DATE: 20140715
BETWEEN:
2296423 ONTARIO LIMITED and FLORENCE KUHNEL
Plaintiffs/Respondents
– and –
FOF FRANCHISE CORP., PERFECT RESULTS FLOWER CORP., carrying on business as FOREST OF FLOWERS, WAYNE M. WATSON, JUDITH WATSON and DENNIS LEROY
Defendants
Jeffrey P. Hoffman, for the Plaintiffs/Respondents
Daniel J. MacKeigan, for the Defendants/Applicants
HEARD: April 15, 2014
B. p. o’marra j.
ruling on application to stay proceeding for arbitration
overview
[1] This is an action by the plaintiffs (“franchisees”) for rescission of a franchise agreement and related agreements plus damages under the Arthur Wishart Act (“AWA”) and damages for negligent misrepresentation. The defendants have moved for a stay and referral to arbitration.
the facts
[2] On December 19, 2011, 229 Ontario entered into a franchise agreement with FOF as franchisor. Kuhnel was not a party to the agreement but guaranteed the sublease between Perfect Results Flower Corp. (“PRFC”) as sublandlord and 229 Ontario as subtenant.
[3] On November 16, 2012, 229 Ontario and Kuhnel delivered a Notice of Rescission of the franchise agreement, sublease and any agreements related to the agreement. The plaintiffs alleged that the disclosure document was materially deficient contrary to the provisions of the AWA.
[4] By letter dated November 20, 2012 the franchisees were advised that the franchisor would pursue it rights under the franchise agreement should the location cease to operate on the basis of an invalid rescission claim.
[5] There was a dispute whether the franchisees abandoned the franchise. The franchisor intends to commence a claim (or counterclaim) against the franchisees for losses as a result of the alleged abandonment.
[6] The plaintiffs have claimed the defendants are jointly and severally liable for the following:
(a) damages for rescission under the AWA
(b) in the alternative, damages for negligent misrepresentation
(c) damages for further breaches of the AWA
(d) punitive damages
[7] The franchise agreement is between the defendant FOF Franchise Corp. (“FOF”) as franchisor and the plaintiff 229 Ontario Limited as franchisee. Neither the plaintiff, Florence Kuhnel, nor the defendants, Perfect Results Flower Corp. carrying on business as Forest of Flowers (“PRFC”), Wayne M. Watson, Judith Watson and Dennis Leroy, are parties to the franchise agreement.
[8] The “dispute resolution” provision of the franchise agreement is set out in s. 19.17 of the franchise agreement. It reads:
Except as provided in Section 19.11 , the Franchisor and Franchisee agree that any and all disputes between them, and any claim by either party that cannot be amicably settled (including tort as well as contractual claims), claims based upon any federal, provincial, state or municipal statute, law, order, ordinance or regulation (including, without limitation, the Arthur Wishart Act (Franchise Disclosure), 2000 (Ontario) S.O. 2000 c. 3 and the Franchises Act (Alberta) R.S.A. 2000 c. F-23), and any claims arising from any relationship prior to, at the time of entering, during the term of, or upon or after expiration or termination of this Agreement) except for claims relating to the Marks or other marks or commercial symbols of the Franchisor, will be determined solely and exclusively by arbitration under the Arbitration Act, 1991 (Ontario) as amended, and in accordance with the Arbitration Rules set out in the Manual. The arbitrator may not under any circumstance assess punitive, speculative or exemplary damages; or may any award that restores possession of the Location from which the Franchised Business was conducted to the Franchisee (and may, in lieu thereof, award only monetary damages). The arbitrator will be limited to the issues in dispute between the Franchisor and the Franchisee and a dispute between any other franchisee and the Franchisor will not be considered in the same arbitration proceeding or by the same arbitrator. The Franchisor and the Franchisee agree and submit to personal jurisdiction in the Province of Ontario in connection with any arbitration hearings under this agreement or any suit brought to enforce the decision of the arbitrator. Any arbitration will occur in London, Ontario, or at such other location as the parties may mutually agree. The parties will each bear their own expenses including, but not limited to, all fees and expenses of the arbitrator, and their respective legal and accounting costs. Judgment upon any award of the arbitrator will be conclusive and binding, and will be entered in a court of competent jurisdiction. The Franchisor and the Franchisee will fully comply with all of the terms and conditions of this agreement and will fully perform their respective obligations under this agreement during the entire time of the arbitration process.
[9] There were no arbitration rules set out in the manual or in the franchise disclosure document.
[10] The defendants submit that the franchise agreement was intended to include affiliates, employees and other related parties of the franchisor. There is reference in the franchise agreement to affiliates, directors, shareholders, officers etc.
[11] The defendants also rely on the following reference in s. 19.17 of the agreement:
“…and any claims arising from any relationship prior to, at the time of entering, during the term of, or upon or after expiration or termination of this agreement.”
[12] Article 2.8 of the franchise agreement reads in part:
“Nothing in this agreement is intended, nor will it be considered, to confer upon any person or legal entity other than the parties and those person expressly indicated to be entitled to rights and remedies under this agreement…” [emphasis added].
[13] Wayne Watson and Judith Watson are being sued in their capacity as franchisor associates and for negligent misrepresentation. Dennis Leroy is being sued in his capacity as a franchisor’s broker or agent and for negligent misrepresentation. Damages, interest and legal costs are sought against all defendants on a joint and several basis.
analysis
[14] If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.
Arbitration Act, s. 7(1).
[15] Arbitration agreements are interpreted broadly in favour of arbitration. Where the arbitration clause is capable of two interpretations, and one provides for arbitration, the court should favour that interpretation.
Greenfield Ethanol Inc. v. Suncor Energy Products Inc. [2007] O.J. No. 3104 (S.C.) at para. 6.
[16] The Court has discretion to stay a proceeding with respect to matters dealt with in an arbitration agreement where some matters arise under the agreement and some do not.
Arbitration Act, s. 7(5).
[17] The discretion to stay some of the matters dealt with in the arbitration agreement and allow other matters to proceed should not be exercised where it would potentially delay resolution of the entire matter, produce a significant duplication of resources and potentially inconsistent findings.
Courts of Justice Act, s. 138.
Radewych v. Brookfield Homes (Ontario) Ltd., [2007] O.J. No. 2483 (S.C.) at para. 23; aff’d 2007 ONCA 721.
[18] Where one of the parties to an action is not subject to an arbitration clause, and the claim involving the non-party to the arbitration clause and the claim sought to be submitted to arbitration both contain closely related facts and issues in dispute, a partial stay may not be reasonable, and the court should instead exercise its discretion to allow the entire matter to proceed in the one forum of the court.
Radewych v. Brookfield Homes (Ontario) Ltd. 2007 ONCA 721 at paras. 3 and 4.
[19] The defendants’ position is that the action should be stayed to permit an arbitrator to decide whether the parties intended that non signatories were bound by the agreement. In my view, in this case, that is not a matter for the arbitrator to decide.
[20] For a moving party to qualify for a stay under s. 7(1) of the Arbitration Act, the moving party must be another party to the arbitration agreement. The onus is on them to prove they qualify for the relief sought, which is to say that they must prove that it is true that they are parties to the arbitration agreement. A party to an action who is not a party to an arbitration agreement has no right to invoke the arbitration agreement under s. 7(1) of the Arbitration Act.
Shaw Satellite G.P. (c.o.b. Shaw Direct) v. Pieckenhagen, 2011 ONSC 4360 at paras. 31 and 32.
[21] The individual defendants and the corporate defendant PRFC have all consented to proceed by way of arbitration. In my view these defendants cannot unilaterally alter the specific terms of the franchise agreement on the fundamental issue of who is a party to the agreement.
[22] The franchise agreement specifically and explicitly limits the rights and remedies thereunder to the named parties (the franchisor and franchisee) and those expressly indicated.
[23] There are parties to this action who are not parties to the arbitration agreement. This is not a case where the court should exercise its discretion to send only the named parties for arbitration bearing in mind the potential for the following:
(i) delay in resolving the entire matter
(ii) duplication of resources
(iii) inconsistent findings
result
[24] Motion dismissed.
[25] The parties may file brief written submissions on costs. The plaintiff should submit their brief costs outline within 14 days of this ruling. The defendants will have a further 7 days to respond.
B. P. O’Marra J.
Released: July 15, 2014
COURT FILE NO.: CV-13-483923
DATE: 20140715
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2296423 ONTARIO LIMITED and FLORENCE KUHNEL
Plaintiffs/Respondents
– and –
FOF FRANCHISE CORP., PERFECT RESULTS FLOWER CORP., carrying on business as FOREST OF FLOWERS, WAYNE M. WATSON, JUDITH WATSON and DENNIS LEROY
Defendants
RULING ON APPLICATION TO
STAY PROCEEDING FOR ARBITRATION
B. P. O’Marra J.
Released: July 15, 2014