2176693 Ontario et al. v. The Cora Franchise Group Inc. et al., 2015 ONSC 1265

COURT FILE NO.: CV-11-431698
DATE: 20150226

SUPERIOR COURT OF JUSTICE - ONTARIO

RE:

2176693 ONTARIO LTD., SARAH E. BARBER, WILLIAM B. WATTERS, LINDA J. WATTERS, MATTHEW B. WATTERS, DAVID W.B. WATTERS and MICHAEL B. WATTERS

PlaintiffS

-AND-

THE CORA FRANCHISE GROUP INC., CORA TSOUFLIDOU, NICHOLAS TSOUFLIDIS, YVAN COUPAL and DAVID POLNY

Defendants

BEFORE: F.L. Myers J.

COUNSEL: D. Ronde and J. Wansbrough for the defendants

D. Smith for the plaintiffs

HEARD: February 24, 2015

ENDORSEMENT

[1] The defendants move for partial summary judgment dismissing 14 causes of action pleaded in the amended, amended statement of claim. This is after having previously successfully moved to dismiss a number of other causes of action on pleading grounds. By order dated December 21, 2011 that was upheld by the Court of Appeal, 2012 ONCA 477, Hainey J. struck out the plaintiffs’ claims for rescission and other statutory remedies under the Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c 3. The court did so on the ground that the claims were brought more than two years after the plaintiffs had entered into the franchise agreement on July 25, 2008

[2] The plaintiffs have a perfectly proper claim set to move forward by which they claim against their franchisor for allegedly misrepresenting the proposed financial prospects of their franchise. However, they have also included in their 53 page, 128 paragraph, amended, amended statement of claim much surplusage. The excess interferes with the efficient prosecution of the case. I was advised at the outset of the hearing that the plaintiffs agreed that they do not oppose the dismissal of eight of the 14 causes of action that are challenged. The remaining six are dismissed as well.

[3] There were extensive lead affidavits exchanged, consisting of three volumes of material on each side, plus supplementary affidavit material filed by each side. The main protagonists were also cross-examined. I am satisfied that there is before the court more than ample evidence to allow me to resolve fairly and justly the six challenged issues without reference to the expanded fact finding powers under Rule 20.04(2.1).

[4] Nothing in this decision limits the plaintiffs’ entitlement to proceed on their remaining causes of action with whatever evidence they may have or whatever arguments they may properly make. I am not finding, for example, that the plaintiffs may never refer to pre-opening events in trying to make out their remaining causes of action. However, this lawsuit was commenced on July 28, 2011, which is two years and one day after the plaintiffs’ franchised business opened for business to the general public on July 27, 2009. There is no triable issue on the six claims that the plaintiffs assert in relation to the causes of action that accrued before they opened on the following bases:

[5] Misrepresentation regarding costs of opening: The costs in excess of the amounts that the plaintiffs say they were misled to expect had been charged to the plaintiffs before July 27, 2009. Moreover, they were warned previously by another franchisee to watch for construction costs overages. The full extent of the plaintiffs’ possible damages was not necessarily known by July 27, 2009 but it need not be known to raise a limitations defence. Johnson v. Studley, 2014 ONSC 1732 at para. 62. The elements of the cause of action had all objectively accrued by that date. The burden is on the plaintiffs to establish that they did not know the elements of the cause of action at the time they arose. See: s.5(2) of the Limitations Act, 2002, SO 2002, c.24, Sched. B and Johnson, supra, at para. 58. The plaintiffs argue that in the hurly-burly of opening their franchise they cannot be taken to have known that a lawsuit was an appropriate means to seek a remedy for these costs. They had a lawyer. This is not a medical malpractice case where expert opinion is required to determine if one has a cause of action. Here the plaintiffs say they were told that costs would be $X and they knew before July 27, 2009 that the costs were significantly greater than that. Realistically, although the plaintiffs claim a number of costs about which they were misled, the only one for which there was a real issue was the construction costs. This is the one cost area on which they say they were specifically put on their guard. There were just three invoices for construction and they had all been received by the plaintiffs before July 27, 2009. A reasonable person in the plaintiffs’ position would have known, or discovered by the exercise of reasonable diligence, all the matters in s.5(1) of the Limitations Act in respect of this claim even if the plaintiffs say they did not.

[6] Misrepresentation of costs in the profit and loss projection: The claim in paras. 97 and 98 of the amended, amended statement of claim is in respect of the opening costs set out in a profit and loss statement. This is a separate claim from the misrepresentation of profitability of the franchise once it opened. The profit and loss statement relied upon by the plaintiffs for this part of the claim was from January, 2007 and related to a different franchised store that had been purchased by the plaintiffs previously. The opportunity presented to buy the franchise that is at issue in this action was not even mentioned between the parties before 2008. In any event, the costs are nearly the same as those which formed the basis of the first cause of action referenced above. And as noted above, the actual costs were or ought reasonably to have been known to the plaintiffs before July 27, 2009. Accordingly this claim was commenced too late too.

[7] The franchise disclosure was contained in more than one document and alleged breaches of the duties of good faith and fair dealing arising from statutory disclosure failures: Section 3 of the Arthur Wishart Act imports a duty of fair dealing into every franchise agreement. The duty of fair dealing and the related duty of good faith are contractual doctrines that govern how contracting parties relate. The disclosure issues pre-date the formation of the franchise agreement. The parties had not signed the franchise agreement and were not yet bound by contractual duties when the franchisor was required by statute to make disclosure. Disclosure is designed to assist a prospective franchisee to decide whether she wishes to enter into a franchise agreement. Disclosure pre-dates the franchise agreement by definition. Disclosure rules are very detailed in this statute and the regulations under the statute. Sections 5 through 7 of the Arthur Wishart Act regulate the pre-contractual period and provide specific statutory remedies concerning pre-contractual disclosure problems. Hainey J. has already dismissed the claims under the statute.

[8] There is no common law tort dealing with the content of franchise disclosure documents or requiring that they all be contained in one document. The plaintiffs’ counsel concedes that they are not pleading negligence (for which statutory duties can sometimes provide a private law standard of care in negligence. See: The Queen (Can.) v. Saskatchewan Wheat Pool, [1983] 1 SCR 205, 1983 21 (SCC)). Instead, the plaintiffs rely on the duty of fair dealing in s.3 of the Arthur Wishart Act. Without a claim in negligence, counsel’s reference to the decision of the House of Lords in Anns v Merton London Borough Council, [1978] A.C. 728 to try to establish a duty of good faith was misplaced. Nor does the recent decision of the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71 assist the plaintiffs. The Court in that case recognized a contractual duty of honesty (a duty not to overtly lie to your contractual counterparty). This has no relevancy to an alleged claim against a franchisor for failing to disclose to a prospective franchisee all required documents together in the form of one document as required by the statute.

[9] Moreover, prior to the opening of their franchised business the plaintiffs had received and signed all of the agreements that they allege were missing from the disclosure document that they received. Therefore, they could not establish causation at common law in any event. Furthermore, in light of the admitted receipt and signing of all of the documents before July 27, 2009, they would also be too late with this cause of action if it existed.

[10] Failure to allow bidding for construction manager: The claims in paras. 52 and 116(d) of the amended, amended statement of claim are out of time. They relate to the process for the hiring of the construction manager. The appointment of the manager, allegedly in breach of the franchise agreement, occurred before the construction and opening of the franchise. The plaintiffs knew who was building their store. It was the same company that built their prior store and all of the franchisor’s Ontario stores. As to para. 124(i), (iv) and (v) of the amended, amended statement of claim, pre-opening claims are too late. Some claims in those subparagraphs are alleged to have been discovered later – such as the claim that the manager charged excessive fees. The plaintiffs have adduced no evidence to support any of these claims. They want to receive the defendants’ affidavits of documents and go to oral examinations for discovery to find supporting evidence. They also argue that they need to hire a quantity surveyor to assess the value of the work performed and the fees charged but they have not obtained any such evidence as yet. They did not bring a motion for directions to seek to require documentary or oral discovery before the hearing of the motion for summary judgment. They did not fulfill their obligation in responding to a motion for summary judgment to “lead trump” (or even a side suit for that matter). See: Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200 at para. 32.

[11] Under the principles espoused by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, it is generally not sufficient to simply ask for discovery to hope to find evidence. See: ThyssenKrupp Elevator (Canada) Limited v. Amos, 2014 ONSC 3910 at paras. 37 to 45. It is the responding parties’ obligation to respond to a motion for summary judgment with evidence under Rule 20.02(2).

[12] In addition, on October 14, 2014, Himel J. established a schedule for the presentation of this motion on consent of the parties. Evidence was filed and cross-examinations were held as ordered. In UHA Research Society v. Canada (Attorney General), 2014 FCA 134 Stratas J.A. made reference to the importance of scheduling orders of the court as follows:

[8] I reiterate and underscore the fact that the end result is an order of the Court scheduling the appeal hearing. A scheduling order is no different from any other order of the Court – it is an instrument of law, on its terms mandatory and effective.

[10] Scheduling Orders of this Court are not trivial matters that can be set aside whenever something comes up for counsel.

[13] Scheduling orders are particularly important under the new processes adopted for Civil Practice Court under the Toronto Region Pilot Practice Advisory – Civil Practice Court (Regional – October 14, 2014, in effect until July 1, 2015). Dates for motions are only set when a judge has obtained an assurance that the hearing date is realistic in light of proposed interim steps. Adjournments from matters scheduled in Civil Practice Court are intended to be a rarity. As noted in the Practice Advisory,

Motions will only be booked if the parties can confirm their availability to have them heard in the next 100 days (14 weeks), otherwise they will not be scheduled. Absent exceptional circumstances, the Court will schedule a hearing date within 100 days. In order to effectively implement this policy, it will be necessary to adopt a “no adjournment within 2 days of the scheduling hearing” policy, in the absence of extenuating circumstances.

[14] It is too late to present evidence on these issues or to adjourn the motion. For this reason as well, absent an order amending the scheduling order made in Civil Practice Court, a request for discovery made at the hearing to try to find evidence of the causes of action under consideration is unlikely to be successful to defeat a motion for summary judgment.

[15] In the absence of evidence from the plaintiffs to support their bald allegations, I conclude there is no triable issue on the remaining matters referred to in para. 124(i), (iv) and (v).

[16] The misrepresentation as to exclusive territory: One plaintiff claims that the representative of the franchisor represented to her that the franchisor would not open any other franchised stores within an hour of the plaintiffs’ new store. This is utterly inconsistent with the multiple documents that the parties signed, including the franchise agreement itself, that expressly provide that there is no exclusive territory associated with this franchise system or this franchise. This plaintiff’s evidence is also inconsistent with the evidence of her father who repeats his understanding that there was no exclusive territory. However, I do not need to determine this issue on the basis of disputed evidence. The plaintiffs acknowledge that they learned that the franchisor was opening a franchise within “their” territory on the day that the plaintiffs opened their store. They met the new franchisees who attended their grand opening. Even assuming that the evidence concerning the misrepresentation is true, learning that there was a new franchise in the region and that the franchisor did not keep its word on such an important issue must have been a significant event. The plaintiffs had two years after discovering their cause of action in which to sue. They waited one day too long.

[17] I am satisfied that although this motion is for partial judgment only, its success will streamline discoveries and help the parties focus on the efficient, affordable resolution of this action on its true merits.

[18] The fixing of costs is a discretionary decision under s.131 of the Courts of Justice Act. That discretion is generally to be exercised in accordance with the factors listed in Rule 57.01 of the Rules of Civil Procedure. These include the principle of indemnity for the successful party (57.01(1)(0.a)), the expectations of the unsuccessful party (57.01(1)(0.b)), the amount claimed and recovered (57.01(1)(a)), and the complexity of the issues (57.01(1)(c)). Overall, the court is required to consider what is “fair and reasonable” in fixing costs, and is to do so with a view to balancing compensation of the successful party with the goal of fostering access to justice: Boucher v Public Accountants Council (Ontario), 2004 14579 (ON CA), (2004), 71 O.R. (3d) 291, at paras 26, 37.

[19] I have reviewed the bills of costs submitted by the parties. The fee component of both are very similar and quite reasonable. The defendants seek over $2,500 for photocopying. There was much duplication in the parties’ voluminous materials. And, as is so often the case, few of the exhibits were actually terribly useful. Counsel for both sides could have agreed on a joint compendium and saved their clients wasted costs.

[20] It seems to me that the plaintiffs’ overreaching claims is the cause of their legal misfortunes to date. If parties want an efficient and affordable remedy and process, they should consider focusing on the strength of their cases and shedding the junk that gets in the way and gives the other side ammunition. In all, considering the Boucher factors, it is both fair and reasonable that the plaintiffs be jointly and severally liable to the defendants, jointly and severally, for costs on a partial indemnity basis in the amount of $25,000 inclusive of disbursements and taxes.

________________________________ F.L. Myers J.

Date: February 26, 2015