Court File and Parties

COURT FILE NO.: 5030/14

DATE: 2018-05-09

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LYUDMILA CHAVDAROVA a.k.a. MILA CHAVDAROVA, Plaintiff

AND:

THE STAFFING EXCHANGE INC., a.k.a. TSE CANADA INC., Defendant

BEFORE: Gray J.

COUNSEL: Lyudmila Chavdarova, Self-represented

Michael Polvere, Counsel for the Defendant

HEARD: April 12, 2018

ENDORSEMENT

[1] This is the second time this matter has been remitted to me by the Court of Appeal.

[2] On February 29, 2016, I heard motions for summary judgment brought by both parties. I determined that the relationship between Ms. Chavdarova and The Staffing Exchange Inc. was that of franchisor and franchisee, notwithstanding that The Staffing Exchange had attempted to frame the relationship as one of licensor and licensee. I held that Ms. Chavdarova had properly rescinded the franchise agreement, because she had never been furnished with a disclosure document as required by s.5 of the Arthur Wishart Act (Franchise Disclosure) 2000. I ordered that Ms. Chavdarova receive a refund of the amount she paid to The Staffing Exchange, namely, $33,335. I also ordered that since The Staffing Exchange had not disputed the amount she had claimed as damages, $99,835, I awarded that sum to her.

[3] The Court of Appeal upheld my determination that the parties were in the relationship of franchisor and franchisee, but held that it was uncertain as to what material was relied on for Ms. Chavdarova’s damages, and thus remitted the issue of damages to me for determination.

[4] On January 17, 2017, I directed Ms. Chavdarova to file an affidavit setting out, in detail, her damages. She filed an affidavit that contained no information as to her damages. I held a hearing on April 26, 2017, after which I dismissed her claim for damages.

[5] By endorsement dated December 15, 2017, the Court of Appeal held that Ms. Chavdarova should have been given another opportunity to file evidence in support of her damages claim, and once again remitted the matter to me for determination.

[6] I again directed Ms. Chavdarova to file an affidavit specifying what her damages are. I permitted The Staffing Exchange to file material in response. I ordered that at the hearing, cross-examination would take place on the affidavit material. At the hearing, cross-examination took place.

[7] The relevant provisions of the Arthur Wishart Act (Franchise Disclosure), 2000 are:

6 (2) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than two years after entering into the franchise agreement if the franchisor never provided the disclosure document.

(6) The franchisor, or franchisor’s associate, as the case may be, shall, within 60 days of the effective date of the rescission,

(a) refund to the franchisee any money received from or on behalf of the franchisee, other than money for inventory, supplies or equipment;

(b) purchase from the franchisee any inventory that the franchisee had purchased pursuant to the franchise agreement and remaining at the effective date of rescission, at a price equal to the purchase price paid by the franchisee;

(c) purchase from the franchisee any supplies and equipment that the franchisee had purchased pursuant to the franchise agreement, at a price equal to the purchase price paid by the franchisee; and

(d) compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up and operating the franchise, less the amounts set out in clauses (a) to (c).

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

[8] Ms. Chavdarova bases her claim for damages on the following:

a) Income she says she lost during the operation of her franchise, being 17 months at $2,000 per month, for a total of $34,000;

b) Income she says she lost by observing a non-competition covenant for a period of 12 months at $2,000 per month, for a total of $24,000;

c) Expenses incurred during operation of the franchise for an office lease, office equipment, office insurance, and royalties paid to The Staffing Exchange, in the total amount of $12,748.

Her total damages claimed are $70,748.

[9] The Arthur Wishart Act, in s.6(6) and s.7(1) sets out the amounts required to be paid by a franchisee where a franchise agreement has been rescinded, or the franchisor has not complied with s.5 of the Act.

[10] In this case, The Staffing Exchange has refunded to Ms. Chavdarova the money that she paid, and has thus complied with s.6(6)(a). There is no evidence that Ms. Chavdarova purchased any inventory, and thus there is no need to consider s.6(6)(b). The remaining issues under s.6(6) are whether Ms. Chavdarova has any claim under (c) and (d).

[11] Section 6(6)(c) requires that the franchisor purchase from the franchisee any supplies and equipment that the franchisee purchased pursuant to the franchise agreement. In this case, Ms. Chavdarova does not claim that The Staffing Exchange should purchase office equipment from her. Rather, she claims damages equal to the amount that she paid for desktops, laptops, desks and chairs. She still has that equipment in her possession, and there is no suggestion that she wants to give it to The Staffing Exchange. Her claim is not one that falls under s.6(6)(c), and it is dismissed.

[12] Ms. Chavdarova’s claim for her office lease payments and insurance payments are valid, and I will allow them. I will not allow her claim for royalties paid to The Staffing Exchange, since they represent amounts payable on account of income earned under the franchise agreement.

[13] I award Ms. Chavdarova the amount of $5,317, representing her claim for lease payments and office insurance.

[14] Ms. Chavdarova’s claim for what she says is lost income from September 21, 2011 to February 22, 2013, the period during which she operated the franchised business, fails to take into account amounts she actually earned or could reasonably have earned operating the franchised business. That said, I am prepared to award her a reasonable amount under this heading. I will award her one-half of the amount claimed, namely, $17,000.

[15] Ms. Chavdarova’s claim for income she says she lost when she abided by the non-competition covenant must fail. Ms. Chavdarova rescinded the agreement, which would have rescinded the non-competition clause as part of the agreement. She was thus under no legal restriction in securing employment, even employment that would compete with The Staffing Exchange.

[16] Furthermore, even if it applied, the non-competition covenant was narrowly restricted geographically. I am not satisfied that Ms. Chavdarova could not have sought employment outside the restricted area, and in any event I am not satisfied that she could not have obtained employment that did not compete with The Staffing Exchange.

[17] Furthermore, and in any event, I am not persuaded that damages of this sort are contemplated under s.6 or s.7 of the Act. The claim for damages is based on the statute. I have already dealt with the claim under s.6. To fall under s.7, the claim must arise from a misrepresentation contained in the disclosure document, or in a statement of material change, or as a result of the franchisor’s failure to comply with s.5 of the Act. In this case, there was no disclosure document or statement of material change. There is no evidence that the claim for an alleged loss on account of the non-competition clause is related in any way to a failure to comply with s.5.

[18] In the result, I award Ms. Chavdarova total damages in the amount of $22,317.

[19] I will entertain written submissions as to costs, not to exceed three pages, together with a costs outline. Ms. Chavdarova will have five days to file submissions, and Mr. Polvere will have five days to respond. Ms. Chavdarova will have three days to reply.

Gray J.

Date: May 9, 2018