2611707 Ontario Inc. et al. v. Freshly Squeezed Franchise Juice Corporation et al.
[Indexed as: 2611707 Ontario Inc. v. Freshly Squeezed Franchise Juice Corp.]
Ontario Reports
Ontario Superior Court of Justice
Vella J.
March 26, 2021
155 O.R. (3d) 359 | 2021 ONSC 2323
Case Summary
Contracts — Franchise agreement — Rescission — Disclosure — Franchisee obtaining rescission for inadequate disclosure — Franchisor withheld information within its power to disclose and did not act with transparency, amounting to not having delivered any disclosure document — Franchisor failed to disclose material facts regarding financial information, material facts regarding a negotiated lease, and fact that franchise location was first to be in a non-mall setting — Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3, ss. 5, 6.
The parties entered a franchise agreement in January 2018. The franchisee ceased operating in or around the fall of 2018 after delivery of a statutory notice of rescission under the Arthur Wishart Act (Franchise Disclosure), 2000. The notice was issued for what the franchisee claimed were four fatal flaws or material deficiencies in the franchise disclosure document. First, the franchisor's certificate required under s. 5 of the Wishart Act had the signature of only one of the two officers of the franchisor. Second, the financial disclosure report was incomplete because the notes to the financial balance sheet were not included in the copy produced in the disclosure document. Third, there was no disclosure of the fact that the franchisor had not yet entered into a head lease and there was no escape clause in the disclosure document that would give the franchisee comfort should the rents and terms of the head lease end up not being acceptable to it. Fourth, the disclosure was made in a piecemeal fashion. The franchisee also advanced two grounds as deficiencies in the disclosure document on the basis that they ought to have been disclosed as material facts. One was a failure to disclose a negotiated agreement to lease between landlord and franchisor and, in particular, two clauses of that document pertaining to the availability of the franchisee's unit and the right reserved by the head landlord to terminate the lease prematurely, without compensation should there be a decision to demolish, renovate or redevelop the space housing the franchisee's unit. The second was a failure to advise that the designated location, in the food hall of a hospital, was the only and first non-mall retail location that the franchise business would be operating in. The franchisee applied to have the franchise agreement terminated.
Held, the application should be allowed.
The franchisor withheld information that was within its power to disclose and failed to act in a transparent manner with the franchisee, amounting to not having delivered a disclosure document at all. The test for determining whether alleged deficiencies were sufficiently serious to impair the ability of a franchisee to make an informed investment decision was an objective one. That test did not require the franchisee to put forth evidence demonstrating that the ability to make an informed investment decision was actually impaired. As for the first alleged deficiency, although the franchisor at one time had two corporate officers, one of them had resigned in 2014 but through inadvertence his name had been left on the corporate profile register. Accordingly, the remaining sole director and officer had properly signed the franchise certificate. Regarding the second alleged deficiency, failure to disclose a complete version of the financial statements was material. The explanatory notes relating to certain line items were merely referenced and not [page360] attached, such that the franchisor failed to fully disclose the financial and other information needed by a prospective franchisee to decide whether to invest. The third alleged deficiency was also material. While the franchisee knew that the unit was available to be built out by the time the franchise agreement was signed, and also knew that a head lease had not been entered into, the failure to disclose a negotiated agreement to lease in the disclosure document or at least the material terms was a material fact that ought to have been disclosed. Regarding the fourth alleged deficiency, there was a comprehensive disclosure document that addressed all the required elements. The fact that the franchisee received other documents relative to the franchise outside the disclosure document did not constitute piecemeal disclosure. The fact that the franchise location was the first retail one to be in a non-mall setting was a material fact that should have been explicitly referenced in the disclosure document. There was no track record for the success of the business in non-mall settings, which in and of itself posed a potential risk to the financial viability of the venture. A reference to the Master was directed to determine the proper personal loss of income-based compensation under an unpaid labour model set out in expert evidence. Irrespective of the outcome of the reference, the statutory compensation to the franchisee was ordered in the amount of $231,781 for leasehold improvements and the initial franchise fee, plus $74,800 for purchase of supplies and equipment.
Raibex Canada Ltd. v. ASWR Franchising Corp., [2018] O.J. No. 360, 2018 ONCA 62, 419 D.L.R. (4th) 53, 84 B.L.R. (5th) 20; 2189205 Ontario Inc. v. Springdale Pizza Depot Ltd., [2013] O.J. No. 4664, 2013 ONCA 626; Mendoza v. Active Tire and Auto Inc. (2017), 139 O.R. (3d) 230, [2017] O.J. No. 2964, 2017 ONCA 471, 414 D.L.R. (4th) 676, 70 B.L.R. (5th) 25; 2483038 Ontario Inc. v. 2082100 Ontario Inc., [2020] O.J. No. 580, 2020 ONSC 475, 10 B.L.R. (6th) 298 (S.C.J.), apld
New Vision Renaissance MX Ltd. v. Symposium Café Inc., [2020] O.J. No. 902, 2020 ONSC 1119 (S.C.J.), not folld
Other cases referred to
1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd., 2005 CanLII 25181 (ON CA), [2005] O.J. No. 3040, 256 D.L.R. (4th) 451, 201 O.A.C. 95, 7 B.L.R. (4th) 1; 1706228 Ontario Ltd. v. Grill It Up Holdings Inc., [2011] O.J. No. 2206, 2011 ONSC 2735, 88 B.L.R. (4th) 191 (S.C.J.); Caffé Demitre Franchising Corp. v. 2249027 Ontario Inc. (2015), 125 O.R. (3d) 498, [2015] O.J. No. 1866, 2015 ONCA 258, 330 O.A.C. 312, 42 B.L.R. (5th) 26; 4287975 Canada Inc. v. Imvescor Restaurants Inc. (2009), 98 O.R. (3d) 187, [2009] O.J. No. 1508, 2009 ONCA 308, 305 D.L.R. (4th) 193, 247 O.A.C. 391, 56 B.L.R. (4th) 161, 73 C.P.R. (4th) 297, 2009 CCLG para. 25-022; 6792341 Canada Inc. v. Dollar It Ltd. (2009), 95 O.R. (3d) 291, [2009] O.J. No. 1881, 2009 ONCA 385, 310 D.L.R. (4th) 683, 250 O.A.C. 280, 60 B.L.R. (4th) 1; Dodd v. Prime Restaurants of Canada Inc., [2012] O.J. No. 1087, 2012 ONSC 1578 (S.C.J.)
Statutes referred to
Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3, ss. 1(1) [as am.], 5 [as am.], (4), (a), 6, (1), (2), (3), (6), (a), (b), (c), (d), 7
Courts of Justice Act, R.S.O. 1990, c. C.43 [as am.]
Rules and regulations referred to
General, O. Reg. 581/00 [as am.], ss. 3(1)(b), (2), 6.1.ii., 7(2)
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 38.10(2)
Authorities referred to
Sugar, Stephanie, Franchise Law in Canada (Toronto: LexisNexis Canada, 2019) [page361]
APPLICATION to terminate a franchise agreement.
Adrienne Boudreau and Daniel Hamson, for applicants.
Jonathan Kulathungam and M. Theresa Cesareo, for respondents.
VELLA J.: —
Introduction
[1] This is an application brought by 2611707 Ontario Inc., as franchisee, and Mr. Yeboah, as guarantor ("Yeboah"), (collectively referred to as the "franchisee") for rescission of its franchise agreement with Freshly Squeezed Franchise Juice Corporation (the "franchisor") under s. 6(2) of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 ("Wishart Act" or the "Act"). This application was consolidated with application CV-20-644513-0000 (also brought by the applicants), by order dated November 9, 2020.
[2] As well, there is a related action, CV-20-00643035 in which the respondent is the plaintiff and the applicants are the defendants (the "action"). The action which has been held in abeyance, on consent, pending the disposition of this proceeding.
[3] The franchise disclosure document at issue is dated December 2017 and was delivered to the franchisee at a meeting held on December 18, 2017 (the "disclosure document").
[4] The franchise agreement was entered into on January 8, 2018 ("franchise agreement").
[5] The franchisee began operating in or about March 2018 in a unit located in the RioCan Food Hall of Mount Sinai Hospital (the "hospital") in Toronto.
[6] The franchisee ceased operating in or around the fall of 2018 after delivery of a statutory notice of rescission dated September 10, 2018 under the Wishart Act. The notice of rescission was issued under s. 6(2) of the Wishart Act for "non-disclosure, amongst other things" and demanded the sum of $387,317.18 pursuant to s. 6(6) of the Act.
[7] The franchisee retained new counsel and issued a revised and updated notice of rescission dated January 3, 2020 pursuant to s. 6(2) of the Wishart Act ("revised notice of rescission").
[8] The franchisee revised the sum being sought by way of statutory compensation to $370,849 in its revised notice of rescission.
[9] The notice of rescission and revised notice of rescission are acknowledged to have been received by the franchisor within the two-year period stipulated by s. 6(2) but beyond the six-month period stipulated by s. 6(1) of the Wishart Act. [page362]
[10] The franchisee concedes, for purposes of this application, that it received the disclosure document within the timeframe required by s. 5 of the Wishart Act.
Materials Relied Upon
[11] The franchisee filed a Consolidated Application Record which consisted of the consolidated notices of application, four affidavits sworn by Mr. Yeboah, and the affidavit of E. Stulberg. In addition, the transcripts of the cross of examination of Yeboah and Samadi, respectively were filed. The franchisor filed a responding Application Record consisting of the affidavit of Talal Samadi sworn April 15, 2019, and a copy of the March 24, 2019 Yeboah affidavit. As well, a Supplementary Respondents' Application Record consisting of a further affidavit of Samadi, and an affidavit of Bruno Piva, and a Second Supplementary Application record were filed by the franchisor consisting of a third affidavit of Samadi. In addition, the applicants and respondents each filed a factum, book of authorities and additional case law was handed up to the court.
Issues
The main issues to be resolved are:
(a) Did the disclosure document contain one or more material and other deficiencies justifying rescission under s. 6(2) of the Wishart Act?
If the first question is answered in the affirmative, then:
(b) Is Talal Samadi a franchisor's associate? and
(c) What is the amount of statutory compensation under s. 6(6) of the Wishart Act owed to the franchisee?
Preliminary Issue
[12] At the outset of the hearing of the application, the franchisor raised an objection with respect to the appropriateness of this procedure on the basis that the evidentiary record filed demonstrates significant discrepancies that would require findings of fact based on an assessment of credibility. Accordingly, the franchisor requested that this application be converted into a trial or a trial of an issue pursuant to rule 38.10(2) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194].
[13] In response, the franchisee made the following stipulations but only for purposes of the hearing of this application (to be withdrawn should I ultimately decide to direct a trial or a trial of [page363] an issue on this application) to avert the need to engage in a credibility assessment on any material facts in dispute:
(a) The Disclosure Agreement dated December 2017 (Exhibit 2 to the Affidavit of Talal Samadi, sworn September 29, 2020) was received by Yeboah at a meeting with Samadi held on December 18, 2017;
(b) The Franchisee will only rely upon the evidence of the Franchisor, particularly the cross-examination of Samadi, and the evidence of the Franchisee where not in conflict with the evidence of the Franchisor. The evidence includes, of course, the exhibits to the various affidavits filed where not disputed by the Franchisor.
[14] Of note, for purposes of this application only (and not any directed trial of an issue or trial), the franchisee withdrew the allegation disputing whether Yeboah ever received the disclosure agreement. However, should I direct a trial of an issue or convert this application into a trial, this allegation will be renewed.
[15] The parties have also agreed that at the trial of the related action, the parties will not relitigate the issue of the validity of the rescission and will be bound by my finding in that regard.
[16] The franchisor was content to proceed by way of the application on this basis.
[17] Having heard the submissions, and on consent of the franchisor, I was satisfied that with these stipulations, there is no material fact that will be the subject of a finding involving an assessment of credibility. Therefore, it is appropriate for me to proceed to determine the application on the merits. This means that in determining the issues on this application, where evidence is in dispute, the franchisor's evidence will prevail.
Overview
[18] The franchisee advanced what it characterized as four "fatal flaws" or "material deficiencies" (as phrased in the jurisprudence) with the disclosure document that it claims will each, on its own, validate its rescission under s. 6(2) of the Wishart Act:
(a) The Franchisor's certificate required under s. 5 of the Wishart Act only had the signature of one of the two officers of the Franchisor,
(b) The financial disclosure report was incomplete because the notes to the financial balance sheet were not included in the copy produced in the Disclosure Document, [page364]
(c) There was no disclosure of the fact that the Franchisor had not yet entered into a head lease and there was no escape clause in the Disclosure Document that would give the Franchisee comfort should the rents and terms of the head lease end up not being acceptable to it, and
(d) The disclosure was made in a piecemeal fashion.
[19] The franchisee also advances two grounds as deficiencies in the disclosure document on the basis they ought to have been disclosed as material facts:
(a) Failure to disclose a negotiated Agreement to Lease between Landlord and Franchisor and, in particular, two clauses within that document pertaining to the availability of the Franchisee's unit and the right reserved by the head landlord to terminate the lease prematurely, without compensation, should the Hospital decide to demolish, renovate or redevelop the space that housed the Franchisee's unit, and
(b) Failure to advise that the designated location (in the food hall of a hospital) was the only and first ever non-mall retail location that this franchise business would be operating in.
[20] The franchisee submits that if I find that any of the four material deficiencies occurred, then the rescission is valid. In the alternative, if any two or more of the above six listed deficiencies occurred then, cumulatively, they justify the s. 6(2) rescission.
[21] The issue therefore comes down to whether any of the alleged statutory non-compliance with the content requirements of the disclosure document constitute material deficiencies that were tantamount to the franchisor having made no disclosure at all. To reach this threshold under s. 6(2) of the Wishart Act, the franchisee must demonstrate that, by virtue of the alleged deficiencies in the disclosure document, it was prevented from making an informed investment decision. If the franchisee has not satisfied its burden of proof in this regard, then the rescission was not valid, and the application must fail. The franchisee is not relying on s. 6(1) of the Wishart Act and cannot since the Notice of Rescission was delivered more than six months after the franchise agreement was signed.
[22] The franchisee also seeks related declarations, including a declaration that Samadi is a franchisor's associate within the meaning of s. 1(1) of the Wishart Act and that he is jointly and severally liable with the franchisor for any sum found owing to the franchisee under s. 6(6) of the Act. [page365]
Statutory Framework
[23] While the franchisee is only relying upon s. 6(2) of the Wishart Act, s. 6(1) provides relevant context to this analysis:
Rescission for late disclosure
6(1) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than 60 days after receiving the disclosure document, if the franchisor failed to provide the disclosure document or a statement of material change within the time required by section 5 or if the contents of the disclosure document did not meet the requirements of section 5.
Rescission for no disclosure
(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.
(Emphasis added)
[24] The relevant subsections of s. 5 of the Wishart Act, in turn, set out the requirements relative to a franchise disclosure document:
Franchisor's obligation to disclose
5(1) A franchisor shall provide a prospective franchisee with a disclosure document and the prospective franchisee shall receive the disclosure document not less than 14 days before the earlier of,
(a) the signing by the prospective franchisee of the franchise agreement or any other agreement relating to the franchise, other than an agreement described in subsection (1.1); and
(b) the payment of any consideration by or on behalf of the prospective franchisee to the franchisor or franchisor's associate relating to the franchise, excluding the payment of a deposit if it,
(i) does not exceed the prescribed amount,
(ii) is refundable without any deductions, and
(iii) is given under an agreement that in no way binds the prospective franchisee to enter into a franchise agreement.
Methods of delivery
(2) A disclosure document may be delivered personally, by registered mail or by any other prescribed method
Same
(3) A disclosure document must be one document, delivered as required under subsections (1) and (2) as one document at one time.
Contents of disclosure document
(4) The disclosure document shall contain,
(a) all material facts, including material facts as prescribed; [page366]
(b) financial statements as prescribed;
(c) copies of all proposed franchise agreements and other agreements relating to the franchise to be signed by the prospective franchisee;
(d) statements as prescribed for the purposes of assisting the prospective franchisee in making informed investment decisions; and
(e) other information and copies of documents as prescribed.
[25] The "prescribed" content requirements referenced in s. 5(4) above are set out in O. Reg. 581/00 General under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the "Regulation"). For purposes of this analysis, the material provisions are found at ss. 3(1) (b) and (2), and 6.1.ii.:
3(1) Every disclosure document shall include,
(b) a financial statement for the most recently completed fiscal year of the franchisor's operations, prepared in accordance with generally accepted accounting principles that meet the review and reporting standards applicable to review engagements as set out,
(i) in the CPA Canada Handbook -- Accounting,
(ii) by the Financial Accounting Standards Board of the United States, or
(iii) by the International Accounting Standards Board;
(2) Despite subsection (1), if 180 days have not yet passed since the end of the most recently completed fiscal year and a financial statement has not been prepared and reported for that year, the disclosure document shall include a financial statement for the previous fiscal year that is prepared in accordance with the requirements in clause (1) (a) or (b).
For the purposes of clause 5 (4) (a) of the Act, every disclosure document shall include the following presented together in one part of the document:
A list of all of the franchisee's costs associated with the establishment of the franchise, including,
ii. an estimate of the costs for inventory, leasehold improvements, equipment, leases, rentals and all other tangible and intangible property necessary to establish the franchise and an explanation of any assumptions underlying the estimate.
[26] Also relevant to the statutory framework and analysis germane to this application is the definition of "material fact" set out in s. 1(1) of the Wishart Act. A material fact includes any information about the business, operations, capital or control of the [page367] franchise or for the franchise system that would reasonably be expected to have a significant effect on the value or price of the franchise to be granted or the decision to acquire the franchise.
[27] Finally, s. 7(2) of the Regulation is relevant as setting out the requirement for a signed certificate:
7(2) A certificate referred to in subsection (1) shall be signed and dated by,
(b) in the case of a franchisor that is incorporated and has only one director or officer, by that person;
(c) in the case of a franchisor that is incorporated and has more than one officer or director, by at least two persons who are officers or directors.
[28] The franchisee submits that the test for satisfying s. 6(2) is whether the alleged deficiency in the disclosure document was material in the sense that it deprived the franchisee of the ability to make an informed investment decision. The franchisee states that this is an objective test, and that therefore it does not have to show that its ability to make an informed investment decision was, in fact, impaired by the alleged deficiency. Further, in order to satisfy the test, it need only prove the existence of one material deficiency.
[29] The franchisor disagrees with the franchisee's statement of the test. It submits that in order for the franchisee to prove that the disclosure document was so deficient as to amount to no disclosure at all, the franchisee must demonstrate, in addition to the existence of material deficiencies in the content of the disclosure document (which deficiencies it disputes), some degree of actual impairment to its ability to have made an informed investment decision flowing from the alleged deficiencies. The franchisor submits that in the absence of evidence of actual impairment, the application must fail.
Analysis
[30] Both parties rely heavily on Raibex Canada Ltd. v. ASWR Franchising Corp., [2018] O.J. No. 360, 2018 ONCA 62, 419 D.L.R. (4th) 53 ("Raibex").
[31] In Raibex, the Court of Appeal provided a fulsome analysis of the requirements of s. 6(2) of the Wishart Act and a helpful review of the case law. In that case, the alleged deficiencies were the failure of the franchisor to have included, in its franchise disclosure document, a properly signed franchisor's certificate and a copy of the head lease. The court found that the certificate was been properly signed. With respect to the head lease, at the time of the disclosure, the franchisor had not yet entered into a head [page368] lease. Accordingly, it could not be included in the disclosure document. The Court of Appeal determined that the disclosure document met the statutory requirements, notwithstanding the lack of a head lease, because the franchisor had taken appropriate steps to disclose and account for the absence of the head lease. First, the disclosure document stated that a head lease had not been entered into yet. Second, the franchisee was involved in the lease negotiations with the landlord. Third, the franchisee was provided with an option to cancel the sublease and franchise agreement without penalty should the head lease end up being unacceptable to it. Accordingly, the Court of Appeal found that, on the facts of that case, rescission under s. 6(2) was not valid.
[32] Raibex affirmed that courts are not to conflate s. 6(1) and (2) as to do so would frustrate the legislature's determination that two different limitation periods apply to two distinct set of circumstances. The Court of Appeal also affirmed that the Wishart Act provides franchisees with an "extraordinary remedy" in the form of statutory rescission.
[33] At the same time, the court reiterated that the Wishart Act is a piece of consumer protection legislation for the benefit of franchisees and a statutory interpretation analysis must be consistent with a purposive approach in harmony with the nature of the legislation.
[34] The Court of Appeal emphasized that s. 6(2) sets out a much higher threshold for franchisees to meet in order to justify rescission of a franchise agreement than is required under a s. 6(1) rescission. Courts must give effect to the legislature's expressed intention to distinguish between a mere failure to comply with s. 5 disclosure requirements, and a failure to deliver an "effective" disclosure document.
[35] The Court of Appeal reiterated its prior findings in cases such as 4287975 Canada Inc. v. Imvescor Restaurants Inc. (2009), 98 O.R. (3d) 187, [2009] O.J. No. 1508, 2009 ONCA 308 ("Imvescor"); 6792341 Canada Inc. v. Dollar It Ltd. (2009), 95 O.R. (3d) 291, [2009] O.J. No. 1881, 2009 ONCA 385 ("Dollar It"); Mendoza v. Active Tire and Auto Inc. (2017), 139 O.R. (3d) 230, [2017] O.J. No. 2964, 2017 ONCA 471 ("Mendoza"); 2189205 Ontario Inc. v. Springdale Pizza Depot Ltd., [2013] O.J. No. 4664, 2013 ONCA 626 ("Springdale"); Caffé Demitre Franchising Corp. v. 2249027 Ontario Inc. (2015), 125 O.R. (3d) 498, [2015] O.J. No. 1866, 2015 ONCA 258 ("Caffé Demitre"); and 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd., 2005 CanLII 25181 (ON CA), [2005] O.J. No. 3040, 256 D.L.R. (4th) 451, 201 O.A.C. 95 ("Dig This Garden"). In short, the alleged deficiencies in the disclosure document must be so serious as fall short of delivery of a meaningful disclosure document. This is [page369] assessed within the context of determining whether or not the subject deficiencies were material and whether they, either on their own or cumulatively, effectively deprived the franchisee of the opportunity of making an informed investment decision. In order to justify s. 6(2) recession, mere imperfect compliance on its own is not sufficient and is left to the realm of s. 6(1) rescission.
[36] In Raibex at para. 40, the Court of Appeal explained that the way to distinguish noncompliance with s. 5 as justifying a s. 6(1) rescission from relying on those same factors as justifying a s. 6(2) rescission as follows:
To justify rescission in these circumstances [s. 6(2)], the Franchisee must not only demonstrate that the FDD was deficient, but also show that it was so deficient that the Franchisor effectively 'never provided [a] disclosure document'.
Various terms have been used in the jurisprudence to describe the requisite level of deficiency to validate a s. 6(2) rescission such as serious, egregious and material.
[37] The court further stated at para. 46:
On one hand, and franchisor's failure to comply with s. 5 of the AWA does not always provide sufficient grounds for rescission under s. 6(2): Imvescor at para. 43; Vijh v. Mediterranean Franchise Inc., 2012 ONSC 3845, (Ont. S.C.J.), at para. 6, aff'd 2013 ONCA 698 (Ont. C.A.). A franchisee that receives imperfect disclosure does not necessarily stand in the same position as a franchisee that was "never provided [with a] disclosure document." In Imvescor, at para. 37, this court warned that conflating those two scenarios would frustrate clear legislative intent:
The [AWA] . . . is clear that a rescission remedy is available to the franchisee in two separate situations, and that the two situations are not to be blurred into one. This interpretation is further bolstered by the purpose of the Act, which is in part to ensure that the franchisee has at least 14 days to review a disclosure document before signing an agreement. The legislature clearly chose to reserve the two-year remedy for instances of a complete failure to provide a disclosure document.
(Emphasis in the original)
[38] At para. 49 of Raibex, the court makes it clear that whether or not a deficiency reaches the level of a material deficiency or is merely an imperfect disclosure will be determined on the facts of each case. The court added:
Whatever terminology is employed, the inquiry into whether disclosure deficiencies are such that they justify rescission under s. 6(2) ultimately focuses on whether the franchisee has been "effectively deprived . . . of the opportunity to make an informed [investment] decision": Caffé Demetre Franchising Corp. v. 2249027 Ontario Inc., 2015 ONCA 258, 125 O.R. (3d) 498 (Ont. C.A.), at para. 63. In my view, the seriousness of any given the failure to comply with s. 5 must be measured by reference to the underlying purpose of section 5 and the AWA more broadly: to "obligate a franchisor to make full and accurate disclosure to a potential franchisee so that the latter can make a properly [page370] informed decision about whether or not to invest in a franchise": 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd. (2005), 2005 CanLII 25181 (ON CA), 256 D.L.R. (4th) 451 (Ont. C.A.), at para. 16 (emphasis added); Dollar It, at para. 16; Mendoza, at para. 14. For example this court found that the disclosure document in Dollar It amounted to a complete lack of disclosure because there was "simply no way anyone reviewing the document could make an informed decision about whether or not to invest in the franchise": Dollar It, at para. 68.
[39] Finally, at para. 52 of Raibex:
. . . [W]hether a breach of s. 5 is sufficiently serious to engage s. 6(2) should be determined on a case-by-case basis, with a view to all relevant circumstances bearing on whether the franchisee can make a properly informed about whether or not to invest. This inquiry requires, where appropriate, taking into account the terms of the parties' franchise agreement.
[40] In my view, based on Raibex and the appellate jurisprudence to date including Springdale, the test for determining whether alleged deficiencies are serious enough such that they impaired the ability of the franchisee to make an informed investment decision is still an objective one. However, the objective standard must take into account the particular facts of each case, including the terms of the franchise agreement, in determining whether the alleged deficiencies reasonably impaired the ability of a prospective franchisee from having the opportunity to make an informed investment decision.
[41] As such, I reject the franchisor's submission that, in order to be successful in proving the alleged material deficiencies justified a s. 6(2) rescission, the franchisee had to put forth evidence demonstrating that his ability to make an informed investment decision was actually impaired. To do so would, in my view, be inconsistent with the objective of this consumer protection-oriented legislation, much in the same way as the Court of Appeal observed in Mendoza, at para. 26, and repeated in Raibex, at paras. 49 and 52.
[42] The case law has also developed a strong presumption that certain deficiencies will generally meet the s. 6(2) test, such as the requirement of a signed and dated certificate. However, in my view, Raibex recognized that these identified "material" deficiencies can be rebutted where the factual circumstances of a case require it. The inclusion of a head lease in the disclosure document is always deemed to be material. However, in Raibex it was impossible for the franchisor to disclose the head lease in its disclosure document because it was not yet in existence. Therefore, consistent with the principle of business efficacy, the court reasoned that the non-compliance of this material requirement was rectifiable by putting in place the safeguards the franchisor did as referenced above. By doing so, the franchisor was acting in a transparent manner with the franchisee and the franchisee had [page371] the information it needed to make an informed investment decision based on the disclosure document.
[43] Sugar, in her textbook, Franchise Law in Canada (Toronto: LexisNexis Canada, 2019), at s. 4.7.3, p. 130, identifies the following deficiencies as "fatal flaws" that justify a s. 6(2) rescission:
(a) Unsigned Certificates: reflecting the necessity that every Disclosure document contain a certificate that is signed and dated by the requisite number of directors;
(b) Head leases: to be included in the disclosure document but only if it is in existence at the time of disclosure, and if not then the franchisee is to be made aware of that fact, and be given some ability to cancel the lease without penalty;
(c) Financial Statements: prepared to the acceptable accounting standard and in compliance with the timing requirements under the Regulation; and
(d) Piecemeal disclosure: meaning the disclosure must be delivered by way of a single document.
[44] The franchisor relies on New Vision Renaissance MX Ltd. v. Symposium Café Inc., [2020] O.J. No. 902, 2020 ONSC 1119 (S.C.J.) ("New Vision") for the proposition that it is incumbent on a franchisee to adduce evidence showing that its ability to make an informed investment decision was actually impaired in order to reach the threshold for a s. 6(2) rescission (see, for example, New Vision, at paras. 116 and 119). For the reasons stated above, I respectfully disagree with that aspect of New Vision, and note that in any event those statements were made in obiter, as the franchisee had signed a Release that the court found was a complete answer to the claims under ss. 6 and 7 of the Wishart Act.
[45] The key to this court's analysis is to determine whether the disclosure document was so deficient, in the circumstances of this case, that it was tantamount to there having been no delivery of an effective disclosure document at all, and not a mere imperfect compliance with s. 5(4) of the Wishart Act.
First alleged deficiency: The certificate does not contain the requisite number of signatures on behalf of the franchisor
[46] It is a mandatory statutory requirement, under s. 5(4) (a) of the Act, that a franchisor's certificate be signed by a minimum of two officers and/or directors of the franchise when the franchisor has two or more officers and/or directors. [page372]
[47] The franchisee alleges that the franchisor had two officers (one of whom was also a director) at the time of the entry into the franchise agreement.
[48] The failure of the franchisor to comply with this statutory requirement has been characterized by the Court of Appeal and other courts as a material deficiency that on its own will justify a s. 6(2) rescission. The important purpose of requiring that the director(s) and/or officer(s) to have signed this certificate and included it in the franchise disclosure document has been described in Sugar (at pp. 12-14) and Mendoza, at paras. 22 and 27, by way of example.
[49] The franchisee relied on the Corporation Profile Report filed by the franchisor that was in effect at the time of the execution of the franchisor's certificate to show that in addition to Samadi being listed as director and president, Mr. Norm Larsen ("Larsen") was the secretary of the franchisor. This would be prima facie proof of the existence of two corporate officers at the time the certificate was signed.
[50] However, in his cross-examination, Samadi explained that Larsen had in fact resigned as director and officer (president and secretary) in September 2014 and that it was through inadvertence that Larsen's name was left on the corporate profile register as secretary.
[51] Samadi also deposed in his affidavit that he is the sole officer and director of the franchisor, and maintained this position in his cross-examination.
[52] Samadi produced confirmation that a Notice of Change dated September 11, 2020 had been filed, rectifying the error retroactive to September 3, 2014. The Notice of Change removed Larsen and listed Samadi as the sole officer and director as at the date of the certificate in the disclosure document. He also produced Larsen's resignation letter dated September 3, 2014 stating that Larsen had resigned as "director" and "President" but was silent as to his position as secretary.
[53] As the franchisee has stipulated that it can only rely on evidence not contradicted by the franchisor, Samadi's evidence must prevail unless it is patently unreasonable. I do not accept the franchisee's argument that Samadi's reference in his affidavit to Larsen having resigned as "an officer and director" means that he admitted that Larsen resigned only from the office of president and not secretary. I find Samadi's explanation to be reasonable and supported in the documentary evidence filed.
[54] Therefore, this argument must fail. I find that the certificate was properly signed by the sole director and officer of the franchisor, Samadi. [page373]
Second alleged deficiency: The financial statements disclosed were incomplete
[55] The franchisee states that the financial statements contained in the disclosure document were materially deficient because they did not include, as an attachment to the financial statement, the notes referenced beside certain line items. For example, the financial statements reference Note 3 to the line item that relates to the accounts receivables owed to the franchisor from third parties. The accounts receivables represent about 73 per cent of the franchisor's assets. Also, the financial statements reference Note 6 to the line item that relates to customer's deposits, which represented about 60 per cent of the franchisor's liabilities. These appear to be significant components to assessing the overall financial health of this franchise system, and yet the explanatory notes are merely referenced, and not attached. Indeed, none of the explanatory notes are attached to the financial statements produced in the disclosure document.
[56] The franchisor submits that this issue of an incomplete financial statement was not raised in the notice of application, in the notice of rescission, or put to Samadi in cross-examination and therefore they are taken off guard by this argument. The notice of rescission and revised notice of rescission are very sparse and do not set out the specific grounds in support of its s. 6(2) rescission. However, they comply with s. 6(3) of the Act. Further, both notices of application put the financial statements squarely at issue. The notices state that the financial statements did not meet the requirements of the Act. In addition, the franchisor did not produce the subject 2017 disclosure document until in or around the end of September 2020, as an exhibit to Samadi's affidavit and hence the omission was not discovered until then.
[57] In any event, the franchisee's factum provided its argument on the facts and law concerning the failure to attach the notes to the financial statements, and in oral argument. The franchisor also addressed this argument in its factum and in oral argument. Accordingly, I will proceed to consider this alleged deficiency.
[58] The failure to comply with the requirement to include the prescribed financial statements in a disclosure document has been characterized by the courts as "fundamentally important", a "foundational part of disclosure", "by itself constitutes a material deficiency" and therefore rising to the level of non-delivery of a meaningful disclosure statement. This conclusion flows from the prime importance to all franchisees of knowing the complete financial picture of the franchisor's business in making an informed [page374] investment decision (Caffe Demetre, at para. 21; Mendoza, at paras. 33-34; Springdale, at paras. 56-58).
[59] In Springdale, the franchisor produced a complete financial statement but under the wrong standard (a notice to reader standard, rather than the review engagement standard under the Regulation). The Court of Appeal, at paras. 56-58, specifically recognized that prospective franchisees often lack business experience and therefore must be able to rely particularly on the information given to them relating to the franchisor's financial circumstances, justifying the s. 6(2) rescission.
[60] In Mendoza, at paras. 33-35, the franchisor produced a complete financial statement, but it was stale dated. The Court of Appeal found this to be a material deficiency and, together with other deficiencies, found it to meet the threshold of effective non-delivery of a disclosure document under s. 6(2).
[61] The franchisee did not adduce any evidence attesting as to whether the referenced notes to financial statements are required to be included in order for the financial statements to meet the requisite standard accounting principles (referenced in the Regulation). Instead, the franchisee attached excerpts from the website of Business Development Bank of Canada and from the MaRS Startup Toolkit expounding on the potential importance of the Notes to properly understand the subject Financial Statements. However, this is not evidence for purposes of demonstrating the utility and importance of notes to financial statements.
[62] On the other hand, the franchisor did not produce the missing notes to the financial statements in its evidence filed.
[63] It is evident on the face of the Review Engagement Report that is included in the disclosure document, that notes were specifically referenced in relation to various line items in the financial statements and were enclosed with the original Review Engagement Report, but were not included in the version attached to the disclosure document as Exhibit "A". Incomplete financial statements do not comply with the Regulation and, in any event, did not provide the franchisee with the full information to which it was entitled so that it could assess the financial health of the franchise system in which it was about to invest.
[64] In Mendoza, at para. 14, the Court of Appeal drove home the requirement to make complete financial disclosure:
The scheme of the Act is to impose a number of requirements on franchisors to fully disclose the type of financial and other information a prospective franchisee would normally need in order to decide whether to become a franchisee. It then provides remedies to the franchisee where the franchisor does not meet the statutory obligations, including certain rights of rescission in s. 6 and damages in s. 7.
(Emphasis added) [page375]
[65] As such, I find that the failure to disclose a complete version of the financial statements in the disclosure document is a material deficiency.
Third alleged deficiency: Franchisor's failure to disclose the absence of a head lease, and the negotiated agreement to lease
[66] The franchisee submits that franchisor's failure to disclose in the disclosure document the fact that a head lease for the designated unit had not yet been secured, together with the failure to include protection for the franchisee to back out of the franchise agreement and sublease should the terms of the head lease ultimately be unacceptable to the franchisee was a material deficiency as the franchisee did not know the exact terms including amount of rent and other costs it would have to ultimately pay.
[67] Furthermore, the franchisee says that an agreement to lease, which had been negotiated by the franchisor with RioCan (the "landlord") and signed by the franchisor before the disclosure document was delivered, should have been included in the disclosure document.
[68] The franchisee submits that failing to include a copy of the agreement to lease in the disclosure document is a material deficiency. The franchisee points out that there was a clause in the head lease stating that the landlord would not guarantee that the subject unit would be built, and, in another clause, the landlord reserved the right to terminate the ten-year lease early without compensation if the hospital decided to demolish, redevelop or renovate the food hall space. These clauses were reflected in an agreement to lease but were not disclosed in the disclosure document.
[69] The agreement to lease was negotiated, and executed by the franchisor, in or around June 2017 (prior to the delivery of the disclosure document). The landlord, however, did not execute the agreement to lease until in or around March 2018 (after delivery of the disclosure document). Samadi deposed that the reason he did not receive the fully executed agreement to lease until later was because the landlord had to delay execution until it could give vacant possession of the subject unit (the former tenant had abandoned the subject unit but there was apparently a dispute as to who was entitled to the chattels left on the premises).
[70] The draft franchise agreement, appended to the disclosure document, addressed the leasing of the subject unit. It required the franchisee to assume the costs and obligations associated with possession of the unit as defined by the head lease. This included all rent-related obligations. [page376]
[71] The disclosure document fails to state that a head lease had not been entered into, nor does it reveal that an agreement to lease had been negotiated in or around June 2017 and what the essential terms were. The disclosure document does not attach a copy of the partially executed agreement to lease. The disclosure document does attach a draft sublease, but it is clearly a template and lacks information that is unique to the specific franchise such as basic rent chargeable and a description of the proposed unit, etc.
[72] Furthermore, Samadi confirmed on cross-examination that, although he made Yeboah aware of the lack of a head lease, Yeboah was not involved in the leasing negotiations with the head landlord, and there was no option to cancel either the ensuing franchise agreement or the sublease under any circumstances. Samadi also admitted under cross-examination that he was in possession of the agreement to lease entered into with the landlord by June 2017 but did not include it or reference it in the disclosure document.
[73] In addition to the lack of disclosure of the specific monetary obligations (basic rent additional rent, common area expenses, utilities, etc.), two provisions reflected in the agreement to lease and ultimately the head lease were of particular concern to the franchisee:
(a) Paragraph 14(d) of the agreement to lease stipulated that the Landlord was not obligated to complete the construction of the Rio-Can Food Hall, or any part thereof "for any reason whatsoever in its sole discretion". Therefore, the Landlord was entitled to unilaterally terminate the head lease. That was material because it meant it was possible that the turn-key premises that the franchisee had paid for might never have been built out.
(b) Paragraph 14(k) of the agreement to lease provided that the Landlord was permitted to terminate the head lease following three months' notice "without any compensation or contribution from the landlord whatsoever" in the event a decision was made to demolish, renovate or redevelop the Food Hall.
[74] The franchisee says that these clauses, in particular, were important as he was basing his decision to invest in the up-front capital costs for building out the unit, in part, on the basis of having the premises for approximately ten years. If the head lease was terminated prematurely, then his investment would not be as lucrative. [page377]
[75] On the other hand, Samadi deposed that he advised the franchisee of the approximate cost, all inclusive, would be approximately $10,000 per month plus a proportionate share of the property taxes and HST, that apart from the base rent, all other amounts fluctuated, and that there would be a year-end adjustment by the landlord for "additional rent". The evidence also shows that the then-lawyer for the franchisee was aware of the fact that the head lease had not been finalized and signed as of the date of the delivery of the disclosure document, and was aware of key terms of the head lease including: the location of the unit, the base rent per square foot, the square footage, and the length of the term. Furthermore, the franchisee knew that the unit existed and had visited it. The franchisee was assuming the unit from a pre-existing tenant -- it was not a shell.
[76] In Yeboah's fourth affidavit sworn October 23, 2020, he admitted he knew what the approximate rent would be based on prior information provided to him by the franchisor. In the end the difference between the estimated rent and the actual rent was about $1,800 a month, which is not material in the overall operational and capital cost of this franchise.
[77] Again, as in Raibex, the facts show that a head lease had not yet been signed and therefore could not be attached to the disclosure document. However, unlike Raibex, the franchisor did not disclose in the disclosure document that it had yet to secure the head lease, nor did it provide an option in the franchise agreement for the franchisee to cancel the franchise agreement and sublease without penalty in the event it disagreed with the terms of the head lease ultimately negotiated or an opportunity to be engaged in the leasing negotiations with the landlord. The franchisee was not provided with any "contractual comfort". These factual considerations were given much weight by the Court of Appeal in Raibex in its ultimate holding that the failure to have attached the head lease was not tantamount to a failure to deliver a disclosure document within the meaning of s. 6(2).
[78] The failure to disclose the existence of a head lease in the disclosure document in this case is mitigated by the fact that Yeboah knew that a head lease had not yet been entered into before he and the franchisor signed the franchise agreement.
[79] Furthermore, the fact that Yeboah visited the site and knew it was in existence mitigated, to an extent, the failure to disclose the agreement to lease, and the concern posed by para. 14(d) in particular.
[80] The franchisor submitted that the sublease ultimately signed with the franchisee was the same in form as the one attached to the disclosure document (entitled "Typical Form of [page378] Sublease and Indemnity agreement"). However, a review of that draft sublease confirms that no rental rates were inserted, that there was no clause that mirrored either 14(d) or (k) from the agreement to lease, and the franchisee, as subtenant was obliged to honour the covenants of the yet to be disclosed head lease.
[81] While the franchisee knew that the unit was available to be built out by the time he signed the franchise agreement, and also knew that a head lease had not been entered into, I find that nonetheless, in the circumstances of this case, the failure to disclose the negotiated (partly executed) agreement to lease in the disclosure document or at least the material terms was a material fact that ought to have been disclosed pursuant to s. 5(4)(a) of the Act. Also, had the agreement to lease been attached to the disclosure document, it would have been obvious that no head lease had been entered into as of that date.
[82] In the absence of having provided the franchisee with the contractual comfort of having the option to cancel the franchise agreement and sublease upon receipt of the Head Lease, or any other safeguards, I find that this non-disclosure is a material deficiency.
Fourth alleged deficiency: The disclosure was made in piecemeal fashion
[83] The franchisee submits that the disclosure was made in more than one document. In Dig This Garden, MacFarland J. affirmed that piecemeal disclosure does not meet the requirement for comprehensive disclosure by way of one signal document (under s. 5 of the Wishart Act) justifying, rescission under s. 6(2). In Dig This Garden (at paras. 21 and 22), the Court of Appeal characterized this type of deficiency as always being a material deficiency and therefore justifying a s. 6(2) rescission. This is based on the fact that s. 6(1) is premised on there being a single disclosure document on the plain language of that provision.
[84] However, if a disclosure document is comprehensive and addresses all of the required elements, then the fact that the franchisee received other documents relative to the franchise outside the disclosure document is not inconsistent with the disclosure requirements and does not constitute piece meal disclosure. (See: Dodd v. Prime Restaurants of Canada Inc., [2012] O.J. No. 1087, 2012 ONSC 1578 (S.C.J.), at para. 52.)
[85] In this case, the franchisor stipulated that it is only relying on the disclosure document as the sole source of the disclosure required under the Wishart Act. Therefore, there was no piecemeal disclosure and no deficiency in this regard. [page379]
Fifth alleged deficiency: The franchisor failed to disclose that this franchise location would be the first "non-mall" location
[86] The franchisee submits that the fact that the selected location was to be the first franchise operating in a non-mall setting was a material fact that should have been disclosed in the disclosure document.
[87] The franchisee admitted on cross-examination it knew that the location was in a hospital and that he visited three other locations and telephoned all of the other currently operating franchise locations as part of his due diligence. Also, the disclosure document listed all addresses of all the current and terminated franchises so the raw data was there from which the franchisee could, arguably, have extrapolated this fact with some investigation.
[88] However, the point of the strict disclosure requirements set out in the Wishart Act is to ensure uniform documentary disclosure to all prospective franchisees, so that all of the material facts are contained in a single disclosure document to allow the prospective franchisee to make an informed investment decision.
[89] The fact that this franchise location was the first retail one to be in a non-mall setting was a material fact that should have been explicitly referenced in the disclosure document. There was no track record for the success of this franchise business in non-mall settings and that, in and of itself, could be pose a risk to the financial viability of this particular venture. This was a material fact that was relevant to a franchisee's ability to make an informed investment decision within the meaning of s. 5(4)(a).
[90] Accordingly, the failure to have disclosed this material fact was in non-compliance with s. 5(4)(a).
Conclusion
[91] The task that remains is to determine whether the material deficiencies and non-disclosure of material facts in the disclosure document were sufficiently egregious such that it was tantamount to not having delivered a disclosure document at all.
[92] The key factor in this case is that the franchisor withheld information that was within its power to disclose; namely, the provisions of the negotiated agreement to lease, production of the notes to financial statements, and to make it clear that this franchise location would be the first one to be operated in a non-mall retail environment. The franchisor could have provided [page380] contractual comfort to the franchisee by providing a penalty free cancellation clause or some other safeguards in case the head lease setting out the terms and obligations binding ended up being unacceptable to the franchisee, as was done in Raibex. As a result of the material deficiencies and non-disclosure, the franchisor failed to act in a transparent manner with the franchisee -- and this failure, in my view, goes to the heart of the purpose of the Wishart Act. The Wishart Act was enacted to ensure fair, frank and uniform disclosure by the franchisor to promote transparency with respect to the proposed franchise opportunity so that the prospective franchisee can make an informed investment decision.
[93] As stated by the Court of Appeal in Dollar It,at para. 72, "The purpose of the legislation is to protect franchisees and the mechanism for so doing is the imposition of rigorous disclosure requirements and strict penalties for non-compliance."
[94] The franchisor failed to act in a transparent manner here, and the deficiencies in question reach the threshold for a s. 6(2) rescission. The disclosure document failed to provide the franchisee, on the facts of this case, with the information needed for it to have the opportunity to make an informed investment decision and as required by the Wishart Act. It was thus tantamount to the non-delivery of an effective disclosure document within the meaning of s. 6(2) of the Wishart Act.
Rescission Remedy -- Section 6(6) of the Wishart Act
[95] The franchisee seeks statutory compensation under s. 6(6) of the Wishart Act.
[96] The franchisee relies on the expert affidavit and report of E. Stulberg sworn and dated on August 20, 2020 in support of his claim. Mr. Stulberg was not cross-examined, and the franchisor did not file a responding expert report.
[97] The Mr. Stulberg calculated the sums owing under s. 6(6) of the Act as follows:
(a) return of money paid to the franchisor under s. 6(6) (a), consisting of leasehold improvements and the initial franchise fee: $231,781;
(b) purchase of Supplies and Equipment under s. 6(6) (c): $74,800; and
(c) personal losses for unpaid labour of Yeboah under s. 6(6) (d): $43,935 (scenario 1) or $64,267 (scenario 2).
[98] The personal loss calculation for loss of income was based on two alternative scenarios. The first scenario was calculated [page381] under the unpaid labour model. Under this scenario, the calculation is based on the wages that would have been paid to a third party to do the work that Yeboah did. This calculation is based on data from the 2016 Canadian Census published by Statistics Canada using the median annual salary for a manager in the food service and accommodation industry (NOC063) in Toronto which was $53,000. This annual salary is multiplied by .83 being the portion of the year Yeboah operated the franchise (June 2018 to March 2019) for the sum of $43,395.
[99] The second scenario is based on the "opportunity cost method". Under this method, the expert took the 2017 (full year) employment income Yeboah earned as a banker which was approximately $77,000 and multiplied that figure again by .83 for the sum of $64,267. Yeboah quit his job as a banker in order to take up the franchise opportunity as a full-time endeavor. The franchisee submits that this is the more appropriate method.
[100] The franchisor takes no issue with the calculations put forward by Mr. Stulberg for return of money ($231,781) and purchase of supplies and equipment ($74,800) and agrees this is owing if the rescission is valid.
[101] The franchisor disputes the franchisee's claim for personal losses in the form of income loss or replacement, however.
[102] The franchisor says that the assessment of the statutory compensation should be sent to a reference for an accounting because Yeboah continued to operate the franchise but has not accounted for the profits he may have made. There is no evidence concerning what profits, if any, Yeboah earned. The franchisor submits that if any profits were made, they should be set off against the rescission remedy claimed.
[103] In addition, the franchisor states that the lost opportunity model advanced by Mr. Stulberg is not an appropriate model for calculation of personal losses under s. 6(6). It distinguishes the case relied upon by the franchisee, 1706228 Ontario Ltd. v. Grill It Up Holdings Inc., [2011] O.J. No. 2206, 2011 ONSC 2735 (S.C.J.), because in that case the franchisee never had the opportunity to operate the franchise but had already quit his job in anticipation.
[104] In 2483038 Ontario Inc. v. 2082100 Ontario Inc., [2020] O.J. No. 580, 2020 ONSC 475, 10 B.L.R. (6th) 298 (S.C.J.) ("2483038 Ontario Inc."), at para. 75, the court recognized that "loss" under s. 6(6)(d) requires an accounting for revenues and expenses. Fairness dictates that double recovery ought not be permitted under s. 6(6) statutory compensation claims. Therefore, I will direct a reference to a master to determine the proper [page382] personal loss of income-based compensation under the unpaid labour model set out by the expert.
[105] On the other hand, in 2483038 Ontario Inc., the court also acknowledged that amounts payable to a franchisee under s. 6(6)(a)-(c) are to be determined and are payable without regard to any earnings of the franchisee and must be paid regardless of any accounting for net profits or losses under s. 6(6)(d).
[106] Therefore, I order that statutory compensation under s. 6(6)(a) and (c) in the total sum claimed of $306,581 is payable irrespective of the outcome of the reference I have directed, together with prejudgment and post-judgment interest under the Courts of Justice Act, R.S.O. 1990, c. C.43.
[107] As Samadi admits that he is a "franchisor's associate" within the meaning of s. 1(1) of the Wishart Act (and I would have made that finding in any event), the sums owing to the franchisee will be payable by both respondents on a joint and several basis.
Costs and Disposition
[108] As a result of my findings, an order will go as follows:
(a) A declaration that the franchise agreement was validly rescinded by the Notice of Rescission and revised notice of rescission pursuant to s. 6(2) of the Wishart Act;
(b) A declaration that Talal Samadi is a franchisor's associate of Freshly Squeezed Franchise Juice Corporation;
(c) An award of statutory compensation in the sum of $231,781 for leasehold improvements and the initial franchise fee paid pursuant to s. 6(6)(a) and $74,800 for purchase of supplies and equipment under s. 6(6)(c) of the Wishart Act, payable by Freshly Squeezed Franchise Juice Corporation and Talal Samadi on a joint and several basis with pre- and post-judgment interest on these amount in accordance with the Courts of Justice Act;
(d) If the applicants wish to pursue the claim for losses in relation to a loss of income based claim, under s. 6(6) (d), that is to be determined by a master on a reference, using the unpaid labour model and calculations advanced by its expert, E. Stulberg and an accounting of the franchisee's revenues and expenses while operating the franchise.
[108] Costs of the reference are reserved to the master hearing it. [page383]
[109] In the event the parties cannot agree on an amount of costs for this application, the applicants are to deliver their cost outline and written submissions (not to exceed three pages, double spaced) by April 12, 2021 and the respondent is to deliver its cost outline and written submissions (same page limit) by April 19, 2021.
Application allowed.
End of Document