Court File and Parties
Court File No.: 4185/17 Date: 2019-05-14 Superior Court of Justice - Ontario
Re: 2462192 ONTARIO LTD., Plaintiff And: PARAMOUNT FRANCHISE GROUP INC. and MOHAMAD FAKIH, Defendants
And Between: PARAMOUNT FRANCHISE GROUP INC., Plaintiff by Counterclaim And: 2462192 ONTARIO LTD., MAHER OBEID, JASON RAPPAZZO and NADER OBEID, Defendants by Counterclaim
Before: Gray J.
Counsel: Peter W.G. Carey and Philip Holdsworth, for the Plaintiff Adam Ship, Nicholas E. Fitz and Helen Fotinos, for the Defendants
Heard: May 1, 2019
Endorsement
[1] This is a motion for summary judgment brought by a former franchisee of the Defendant, Paramount Franchise Group Inc. (“Paramount”), and its principal Mohamad Fakih.
[2] For the reasons that follow, the motion for summary judgment is dismissed.
Background
[3] Because I am ordering that the matter proceed to trial, I will keep my recitation of the background facts as succinct as I can.
[4] Paramount is a franchisor of restaurants specializing in Middle Eastern cuisine.
[5] One of the principals of the plaintiff, Mahar Obeid, was interested in establishing a franchised restaurant in Burlington. On that point, the parties agree. However, the parties disagree on many of the fundamental facts that subsequently developed after Mr. Obeid signified his interest in 2015.
[6] Mr. Obeid had an existing business in Burlington, and wanted to locate his restaurant in the same plaza where his existing business was located.
[7] Mr. Obeid met with Holly Graham, Paramount’s Manager of Franchising, in April, 2015. It turned out that there was an existing franchisee who had a right of first refusal over the establishment of any restaurant in Burlington. This would have to be addressed before Mr. Obeid could establish a franchise restaurant in Burlington.
[8] On April 2, 2015, Mr. Obeid met with Ms. Graham and was given a Disclosure document.
[9] Ms. Graham referred Mr. Obeid to Claus Etzler, a consultant, who provided the plaintiff with some revenue projections and other financial advice. There is a dispute as to whether Mr. Etzler was acting on behalf of Paramount, or whether he was an independent consultant retained by the plaintiff.
[10] On May 12, 2015, a Franchise Agreement was executed. There is a dispute as to whether the execution of this franchise agreement meant that the plaintiff was a franchisee from that date onward, or whether it only became a franchisee when another franchise agreement was signed in the fall of 2015.
[11] Mr. Obeid’s brother, Nader Obeid, and Jason Rappazzo, subsequently became involved with the plaintiff. There are disputes as to whether, and if so, when and how, signatures on various documents were obtained for Maher Obeid, Nader Obeid and Jason Rappazzo.
[12] Ms. Graham has no recollection of exactly what occurred when the initial documents were signed in April and May, 2015, and subsequently in the fall of 2015. However, she testified extensively, in her affidavit and on cross-examination, as to her normal practice in dealing with franchise documents and obtaining signatures.
[13] A disclosure document, required by the Arthur Wishart Act (Franchise Disclosure), 2000, involves very detailed disclosure of a number of matters. Ms. Graham testified that it is her normal practice to print the body of the disclosure document, and also print, separately, a number of documents to be inserted, including financial statements. There is a dispute as to whether a number of attachments were actually included within the disclosure documents provided to the plaintiff and its principals.
[14] One of the insertions, or schedules, has to do with the territory covered by the franchise. In this case, because of the need to obtain a waiver from the franchisee who had a right of first refusal, there is a dispute as to whether any particular territory was to be covered by the franchise agreement, and if there was, what it included. The territorial issue could not be resolved until a waiver of the right of first refusal had been obtained.
[15] A second disclosure document was provided to the plaintiff on September 24, 2015. As noted, there is a dispute as to whether it is this disclosure document that governs, or whether, as asserted by Paramount, it was simply a document to give the plaintiff an additional opportunity to consider whether it wished to proceed in light of new information in the most recent document.
[16] There are a number of disputes as to what occurred at the meeting on September 24, 2015.
[17] Ms. Graham asserts that she prepared four copies of the disclosure document, but only brought three to the meeting because one of the plaintiff’s principals would not be there. The plaintiff asserts that Ms. Graham only brought two copies of the document. Maher Obeid and Mr. Rappazzo assert that they only got one copy, while Ms. Graham and Mr. Fakih assert that both Mr. Obeid and Mr. Rappazzo had their own copies.
[18] There is a dispute as to who signed receipts for the disclosure document. Ms. Graham asserts that she delivered a separate copy of the document to Nader Obeid, and obtained his signature on the same day. The plaintiff alleges that Paramount forged the signatures and initials of Maher Obeid and Nader Obeid.
[19] As noted, there is a dispute as to certain of the insertions in the disclosure document, and whether they were actually included within the document given to the plaintiff. The plaintiff says there was no draft head lease, there were no financial statements, and there was no schedule relating to the protected territory. Ms. Graham asserts that those documents would have been included, because it was her invariable practice to include them.
[20] There is a dispute as to whether the principals of the plaintiff, particularly Maher Obeid, actually reviewed the disclosure document. Maher Obeid says he placed the document in a safe, and did not look at it at all. Paramount submits that this is highly unlikely, because the safe also contained jewellery that his wife used. Furthermore, this was an important document and it is unlikely that the principals of the plaintiff would not have been aware of its contents.
[21] The right of first refusal regarding the territory covered by the City of Burlington was waived on or about October 2, 2015. Ms. Graham asserts that she then prepared execution copies of the Franchise Agreement. It was signed on October 28, 2015. There is a dispute as to whether the Agreement was read by the principals of the plaintiff before it was signed. There is also a dispute as to whether the Agreement was supposed to have a description of protected territory, whether it actually had one, or whether a handwritten description was added later.
[22] There is a dispute as to whether proposed construction costs and revenue projections, prepared with the assistance of Mr. Etzler, were accurate, and whether the amounts spent by the plaintiff to establish a restaurant fell within the ranges for construction costs that were anticipated.
[23] There is a dispute as to whether the operation of the restaurant by the plaintiff was deficient, or whether the expected level of revenue was not received because of the inadequate projections provided.
[24] Paramount issued a notice of default to the plaintiff on August 21, 2017. Very shortly thereafter, the plaintiff delivered a Notice of Rescission, pursuant to s.6 of the Arthur Wishart Act. On November 10, 2017, Paramount took over the franchise and excluded the plaintiff. There is a dispute as to whether Paramount was entitled to do so, and if so, whether it was entitled to retain equipment left in the restaurant and retain the proceeds of sale once it sold the restaurant.
[25] The plaintiff claims over $2,000,000 in damages, and there are disputes as to the amount or amounts to which the plaintiff would be entitled, if it establishes liability.
Submissions
[26] Counsel for the plaintiff submits that this case qualifies as one in which summary judgment is appropriate.
[27] Counsel submits that to the extent that there are disputed facts, the court is in a position to resolve the dispute on a balance of probabilities. For example, to the extent that there are disputes as to what insertions, or schedules, were included in the disclosure document, the evidence of the plaintiff is more compelling than that of the defendant. The defendant has no direct evidence as to what was or was not included, because that evidence consists of the evidence of Ms. Graham, who can only testify as to what her normal practice was. The evidence of the plaintiff, on the other hand, consists of the direct evidence of the principals of the plaintiff, who can testify directly as to what observations they made at the time.
[28] To the extent that the plaintiff asserts fraud and forgery, counsel submits that the plaintiff’s evidence should be preferred as, once again, the evidence consists of actual observations of what did and did not take place, while Ms. Graham’s evidence consists only of her normal practice.
[29] As far as the other issues are concerned, counsel submits that they are primarily legal. To the extent that it is asserted that the disclosure document was sufficiently deficient so as to result in a conclusion that it did not qualify as a disclosure document at all, there are numerous decisions of the Court of Appeal that will allow the court to make the necessary assessment and come to a conclusion.
[30] To the extent that the disputes involve the financial projections, the construction costs, and the anticipated revenue, there is sufficient material in the record to allow the court to make the necessary findings.
[31] To the extent that the dispute involves the right of the plaintiff to rescind the agreement, and whether the defendant had the right to take over the restaurant and exclude the plaintiff entirely, including seizure of the equipment and keeping the sale proceeds, the record is sufficient to allow the court to deal justly with the matter.
[32] Counsel for the plaintiff asserts that as a matter of law, the defendant accepted the rescission of the agreement by the plaintiff, and the matter was then governed by the provisions of the Arthur Wishart Act, and the defendant had no right to act as it did.
[33] With respect to the issue of damages, the plaintiff has filed some very recent affidavit material, which was objected to by the defendant, but the plaintiff asserts that the issue of damages can either be dealt with at a further hearing, or the court can order a reference.
[34] Counsel for Paramount submits that there are simply too many factual disputes, including on allegations of fraud and forgery, to permit this matter to be dealt with by way of summary judgment.
[35] Counsel submits that the court is in no position to sort out the issues of credibility on the basis of a paper record.
[36] Counsel submits that with respect to the issue of the notice of rescission delivered by the plaintiff, and whether it was purportedly accepted by the defendant, it raises a serious issue of law that can only be resolved in the context of a detailed examination of the factual matrix, which, as submitted, involves an assessment of credibility that cannot be done on this record.
Analysis
[37] It is unnecessary to engage in any detailed analysis of Hyrniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87. While that case represents a culture shift in the way civil cases are to be conducted, and does away with the former assumption that a trial is the preferred mechanism for resolving civil disputes, it was made clear, in that case, that summary judgment can be used only where it allows the motion judge to make necessary findings of fact; allows the judge to apply the law to the facts; and is a proportional, expeditious, and less expensive means to achieve a just result. This will not be the case, however, where there are difficult issues of credibility, including on matters such as fraud and forgery.
[38] There is no doubt, in my view, that there are simply too many disputed issues of fact, in which the court is required to resolve issues of credibility, to make this case an appropriate one for summary judgment. In my view, the holding of a mini-trial is not something that will suffice. It will be necessary for a judge to make the necessary assessment having heard all of the evidence and, ultimately, make findings based on the balance of probabilities.
[39] As for the legal issue regarding the effect of the delivery of a notice of rescission, and its purported acceptance by the defendant, that is a difficult issue of law that, in my view, can only be adequately resolved with a full appreciation of the factual matrix: Romano v. D’Onoforio (2005), 77 O.R. (3d) 583 (C.A.). While that case was decided by the Court of Appeal before the seminal case of Hyrniak v. Mauldin, supra, nevertheless I think the approach taken by the Court of Appeal in that case remains valid. The Court of Appeal held that the issue of whether statements made through a microphone and a loud speaker constituted a “broadcast” under the Libel and Slander Act, was a novel question that should appropriately be decided on the basis of a full record.
[40] In my view, that reasoning applies equally here. It is not clear whether the defendant’s actions were prompted by the notice of rescission, or by alleged defaults of the plaintiff, and even if they were prompted by the notice of rescission it is not clear as to what, if anything, either party is entitled to do thereafter. A trial judge will be assisted in resolving the legal issues by a full appreciation of all of the facts, to be explored after a trial.
Disposition
[41] For the foregoing reasons, the motion for summary judgment is dismissed.
[42] I will entertain brief written submissions as to costs, not to exceed five pages together with a costs outline or bill of costs. Counsel for the defendants shall have five days and counsel for the plaintiff shall have five days to respond. Counsel for the defendants shall have five days to reply.