Court File and Parties

COURT FILE NO.: CV-18-00611767 DATE: 20190531 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

2101516 ONTARIO INC., BASKARAN NAVARATNAM and KALAWATHY BASKARAN Applicants – and – RADISSON HOTELS CANADA INC. (formerly known as CARLSON HOTELS CANADA INC.) Respondent

Counsel: Ben V. Hanuka & Anthony Pugh, for the Applicant Geoffrey B. Shaw & Stefanie A. Holland, for the Respondent

HEARD: May 23, 2019

COURT FILE NO.: CV-19-0616990 DATE: 20190531 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

RADISSON HOTELS CANADA INC. (formerly known as CARLSON HOTELS CANADA INC.) Applicant – and – 2101516 ONTARIO INC., BASKARAN NAVARATNAM and KALAWATHY BASKARAN Respondents

Counsel: Geoffrey B. Shaw & Stefanie A. Holland, for the Applicant Ben V. Hanuka & Anthony Pugh, for the Respondents

HEARD: May 23, 2019

M. D. FAIETA j.

Reasons for Decision

Introduction

[1] Amongst other things, this application for leave to appeal from an Arbitrator’s decision raises the issue of whether a franchisee is entitled to damages under section 7(2) of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the “AWA”) when a franchisor voluntarily, but without obligation under s. 5 of the AWA, delivers a disclosure document that contains a misrepresentation. The Arbitrator’s decision that a claim under s. 7(2) of the AWA is not available in such circumstances is not only reasonable, it is correct.

[2] For reasons described below, I have dismissed the application for leave to appeal and have granted the application to enforce the arbitral awards referenced below.

Background

[3] Baskaran Navaratnam (“Navaratnam”) and Kalawathy Kaskaran (“Kaskaran”) are spouses and the sole directors of 2101516 Ontario Inc as well as the guarantors of 210’s obligations. (Collectively, 210, Navaratnam and Kaskaran will be referred to as the “210 Group”). Radisson offers “Country Inn Suites” hotel franchises across North America.

[4] 210 purchased a Country Inn & Suites brand hotel that operated under license from Radisson from Northampton Inns (Oakville East) Inc. 210’s purchase was conditional upon Radisson’s approval of 210 as a franchisee.

[5] As part of the approval process, Radisson provided 210 with a Financial Disclosure Document (“FDD”).

[6] Radisson approved 210 as a franchisee and the purchase of the hotel was completed for $8.35 million. Navaratnam and Kaskaran personally guaranteed 210’s obligations.

[7] 210 took over operation of the hotel in July 2016 and stopped paying the required monthly royalty fees to the Respondent in May 2017. 210 rescinded the License Agreement on the basis that of allegedly deficient disclosure in the FDD.

[8] In September, 2017, the 210 Group commenced an arbitration against the Respondent pursuant to the arbitration clause in the License Agreement seeking rescission and damages pursuant to s. 6 of the AWA and damages for misrepresentation pursuant to s. 7 of the AWA.

[9] The arbitration proceeded before Mr. Larry Banack. He rendered four arbitral awards.

[10] The parties agreed that it would be expedient to determine the issue of whether the Respondent was exempt from providing disclosure under s. 5 of the AWA. In his first award, dated September 28, 2018, the Arbitrator ruled that:

• Radisson is exempt from the disclosure obligation required by s. 5(1) of the AWA given that the 210 Group had invested more than $5 million in acquiring an operating the franchise in the first year, as provided by s. 5(7)(h) of the AWA and section 10 of the Ontario Regulation 581/00.
• As a consequence, the 210 Group’s claim for rescission and damages under s. 6(2) and 6(6) of the AWA, respectively, was dismissed;
• The License Agreement was validly terminated by Radisson on October 17, 2017;
• The 210 Group owe the sum of $128,021.65 USD to the Radisson for unpaid royalties and other fees as well as $379,299.72 USD in liquidated damages. However the Arbitrator declined to make any award for damages in favour of the Radisson until the 210 Group’s claim under s. 7 of the AWA for damages was determined.

[11] Following the receipt of additional submissions, the Arbitrator issued a further award dated December 3, 2018 that dismissed the 210 Group’s claim for damages under s. 7 of the AWA as he found that a claim under s. 7 of the AWA only arises in relation to a misrepresentation found in the disclosure document required to be provided under s. 5 rather than a misrepresentation found in a disclosure document that is not required to be provided under s. 5 of the AWA.

[12] On March 6, 2019 the Arbitrator issued a costs award in respect of the proceedings that requires the Applicants to pay the sum of $200,000.00 to Radisson. On March 26, 2019, the Arbitrator issued a further award requiring the Applicants to pay pre-judgment and post-judgment interest.

[13] The 210 Group’s Notice of Application, as amended, seeks and order for leave to appeal, and setting aside, the Awards dated December 3, 2018 and March 6, 2019.

[14] In turn, Radisson filed a Notice of Application for an order: (1) to enforce the four awards described above pursuant to section 50 of the Arbitration Act, 1991, S.O. 1991, c. 17; and, (2) to dismiss the 210 Group’s Notice of Application for leave to appeal and/or set aside the award dated December 3, 2018.

[15] The applications raise the following issues:

• Can the Awards of the Arbitrator be appealed?
• Should leave to appeal be granted pursuant to s. 45 of the Arbitration Act?
• Are disputed Awards reasonable?
• Should the Awards be enforced?

Issue #1: Can the Awards of the Arbitrator be Appealed?

[16] Radisson submits that the Awards cannot be appealed because the arbitration clause of the License Agreement provides that the Arbitrator’s decisions are “final, conclusive and binding”. The 210 Group submits that this phrase, and other similar phrases in the License Agreement are do not indicate a clear intention of the parties to waive appeal rights given that it provides that “all aspects of the arbitration … will be confidential in nature and will not be admissible in any subsequent legal proceeding”.

[17] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court of Canada stated a contract should be interpreted in a practical, common-sense manner. The court stated, at para. 47:

The overriding concern is to determine “the intent of the parties and the scope of their understanding” [citations omitted]. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning. …”

[18] There is no evidence of the surrounding circumstances at the time that this License Agreement was entered regarding the arbitration provisions nor, in particular, whether a right to appeal was intended to be preserved or excluded.

[19] There is no dispute that there is nothing in the arbitration provisions of the License Agreement that expressly deals with appeals.

[20] The arbitration clause of the License Agreement states that the arbitration:

• Any disagreements between the parties “shall be finally settled and resolved” by arbitration;
• The Arbitrator’s decision “will be final, conclusive and binding upon the parties and may be enforced in any court having jurisdiction”.
• The parties will not “commence any legal proceedings against the other party for any dispute or disagreement that is the subject of arbitration proceedings”;

[21] Unless the context indicates otherwise, it is generally accepted that where a legislative provision provides that an order is "final" there is no appeal from that order. The phrase “final and binding” would have no meaning whatsoever if it did not exclude a right of appeal that had been given by statute: Yorkville North Development Ltd. v. North York, [1988] O.J. No. 410, paras. 7 & 8 (C.A.).

[22] It is now well-established that an arbitration agreement which states that the parties agree to “final and binding” arbitration does not necessarily preclude judicial review, but it does reflect an intention to exclude a right of appeal: Labourers’ International Union of North America, Local 183 v. Carpenters and Allied Workers Local 27 et al., para. 22; Kucyi v. Kucyi, [2005] O.J. No. 5626 (Div. Ct.) para.14; Weisz v. Four Seasons Holdings Inc., 2010 ONSC 4456, paras. 22-25, 37-39; Nasjjec Investments Ltd. v. Nuyork Investments Ltd., 2015 ONSC 4978, paras. 30-35.

[23] Considering all of the provisions related to this issue relied upon by the parties, I find that the License Agreement reflects an intention to exclude a right of appeal. I conclude that there is no right of appeal from the arbitral awards that are challenged by the 210 Group. I will briefly turn to address the other issues raised by the parties.

Issue #2: Should Leave to Appeal be Granted?

[24] Section 45(1) of the Arbitration Act states:

If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,

(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and (b) determination of the question of law at issue will significantly affect the rights of the parties.

[25] The distinction between a question of law, a question of fact and a question of mixed fact and law was summarized by Justice Perell in DesRochers v. Fis, 2013 ONSC 6467, at para. 43, as follows:

Questions of law concern questions about what is the correct legal test; questions of fact involve questions about what actually took place between the parties; and, questions of mixed fact and law are questions about whether the facts satisfy the legal tests. Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., [1997] 1 S.C.R. 748, para. 35; Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., 2013 ONSC 2662 at para. 21.

[26] As noted, the sole question raised by the Applicants is whether a franchisee is entitled to damages under section 7(2) of the AWA when a franchisor voluntarily, but without obligation under s. 5 of the AWA, delivers a disclosure document containing misrepresentations. This issue is question of statutory interpretation and such matters are normally characterized as a question of law: Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, para. 47. It is my view that this is a question of law as it is not a dispute over a very particular set of circumstances but rather a dispute over a general proposition that can be expected to have an impact beyond the parties and thus qualifies as a question of law.

[27] I am also satisfied that the determination of the question of law at issue will significantly affect the rights of the parties given that the 210 Group will be limited to pursuing a claim for common law misrepresentation in respect of the alleged misrepresentations in the FDD rather than the more generous provisions of the statutory cause of action found in s. 7 of the AWA.

[28] However, I am not satisfied that the importance to the parties of the matters at stake in the arbitration justifies an appeal. In particular, the 210 Group have not particularized their claim for misrepresentation either in the Notice of Arbitration, the arbitration or subsequently. The only evidence on the record is that the 210 Group operated the hotel profitably for about one year and are still operating profitably.

[29] Accordingly, and in any event, I also find that leave to appeal should not be granted.

Issue #3: Are the Disputed Awards Reasonable?

[30] The 210 Group argues that the Arbitrator erred in interpreting s. 7(1) of the AWA. They submit that the right to damages under s. 7 of the AWA applies to any misrepresentation found in any disclosure document provided by the franchisor to a franchisee and not just to a disclosure document that is required to be provided to a franchisee under s. 5 of the AWA.

[31] The principles of statutory interpretation were described by Zarnett, J.A. in Business Development Bank of Canada v. Astoria Organic Matters Ltd., 2019 ONCA 269, para. 44:

The modern approach to statutory interpretation instructs a court to consider the words of a statute “in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: … While there is a presumption that the plain meaning of a statute’s words reflect Parliament’s intention, that plain meaning is only one aspect of the modern approach: … . The court must read statutory provisions in their entire context. This involves considering “the history of the provision at issue, its place in the overall scheme of the Act, the object of the Act itself, and Parliament's intent both in enacting the Act as a whole, and in enacting the particular provision at issue”: …

[32] Justice Strathy, as he then was, in 779975 Ontario Ltd. v. Mmmuffins Canada Corp., [2009] O.J. No. 2357, describes the object of the AWA as follows:

The AWA is remedial legislation that was designed to address the inequality in bargaining power between franchisees, who were frequently small business people, often lacking in commercial experience, and franchisors, who were typically more sophisticated and substantial corporate organizations. It was a legislative response to the commercial disasters that had befallen some franchisees, who found that the reality of franchise life was far from the rosy picture painted by the franchisor's marketing force.

[33] To redress this imbalance of bargaining power the “… thrust of the Act is to set standards for adequate disclosure and to create significant penalties for failing to meet those standards.”: 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd., [2005] O.J. No. 3040 (C.A.), para. 12. Also see Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673, para. 26.

[34] The AWA establishes: (1) a duty of fair dealing, in the performance and enforcement of the franchise agreement (s. 3); (2) a duty on the franchisor to provide a disclosure document to a prospective franchisee prior to signing a franchise agreement and a continuing obligation to disclosure material changes to the disclosure document after the franchise agreement (s. 5); (3) a right to rescind the franchise agreement if the franchisor fails to provide the disclosure document or if the disclosure document is deficient (s. 6); and a right to damages arising from the franchisor’s misrepresentation or non-disclosure (s. 7).

[35] Section 5 of the AWA requires a franchisor to provide a prospective franchisee with a disclosure document containing certain prescribed information before purchasing a franchise except in certain circumstances, such as those described in s. 5(7). The purpose of these exceptions is to exclude the disclosure requirement where the disclosure obligation under s. 5 of the AWA is not required to correct the inequality of bargaining power in the franchisee/franchisor relationship because it is deemed that the circumstances in the enumerated exceptions in s. 5(7) reflect a transaction that involves a commercially sophisticated prospective franchisee. Such exceptions must be narrowly construed given the purpose and context of the Act: 2189205 Ontario Inc. v. Springdale Pizza Depot Ltd., 2011 ONCA 467, para. 32.

[36] Section 7 affords a right to damages for losses suffered because of a misrepresentation “contained in the disclosure document …”. “Disclosure document” is defined by the AWA to mean “the disclosure document required by section 5”.

[37] In my view the plain language of s. 7 only extends the right to compensation under that provision to a franchisee for losses suffered as a result of a misrepresentation contained in a disclosure document that a franchisor is obliged under s. 5 to provide to that franchisee. To read s. 7 more broadly as suggested by the Respondent, would make the words “required by section 5” unnecessary. The broad interpretation suggested by the 210 Group would also be contrary to the purpose of the AWA by making the right to damages under section 7 available to commercially sophisticated franchisees who neither require, nor are entitled, to the assistance of section 5 to correct the imbalance of bargaining power between prospective franchisees and franchisors.

[38] There is no dispute that the standard of reasonableness generally applies to the judicial review of commercial arbitration awards: Teal, paras. 74-75. The Arbitrator’s decision regarding the scope of s. 7 of the AWA is not only reasonable, it is also correct.

Issue #4: Should the Court Exercise its Discretion Under Subsection 50(3) of the AWA to Recognize and Enforce the Award?

[39] Under s. 50(3) of the AWA, this court is required to give judgment enforcing an award made in Ontario unless one or more of the conditions described in that subsection are satisfied. Given that the 210 Group’s application for leave to appeal has been dismissed, and given that none of the other conditions in s. 50(3) of the AWA are engaged, I grant judgment enforcing the Awards.

Conclusions

[40] The 210 Group’s application is dismissed. Radisson’s application is granted.

[41] The parties have agreed that 210 Group shall pay costs of $25,000.00, in total, to Radisson in respect of these applications.

Mr. Justice M. D. Faieta

Released: May 31, 2019

COURT FILE NO.: CV-18-00611767 DATE: 20190531 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 2101516 ONTARIO INC., BASKARAN NAVARATNAM and KALAWATHY BASKARAN Applicants – and – RADISSON HOTELS CANADA INC. (formerly known as CARLSON HOTELS CANADA INC.) Respondent COURT FILE NO.: CV-19-0616990 DATE: 20190529 RADISSON HOTELS CANADA INC. (formerly known as CARLSON HOTELS CANADA INC.) Applicant – and – 2101516 ONTARIO INC., BASKARAN NAVARATNAM and KALAWATHY BASKARAN Respondents

REASONS FOR DECISION Mr. Justice M. Faieta Released: May 31, 2019