COURT FILE NOS.: CV-19-627066; CV-19-626608; CV-19-626608-00A1; CV-19-626971; CV-19-626918

MOTION HEARD: 20220405

REASONS RELEASED: 20220730

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

2601523 ONTARIO INC. and JENNIFER IENTILE

Plaintiffs

• and-

MUSA SULEMAN and 15001747 ONTARIO INC.

Defendants

BEFORE: ASSOCIATE JUSTICE McGRAW

COUNSEL: J. Finkel

Email: jfinkel@gilbertsondavis.com

-Counsel for the Plaintiffs

A. Jiwa

Email: jiwalaw@yahoo.ca

-Counsel for the Defendant Musa Suleman

REASONS RELEASED: July 30, 2022

Reasons for Endorsement

I. Introduction

[1] The Plaintiffs commenced 4 actions (the “Actions”) arising from a franchise dispute:

i.) on August 30, 2019 against the Defendants Highfield Holdings Inc. carrying on business as Trade Secrets (“Highfield”), Trade Secrets Inc. (“TSI”) and Doug Warren (the “Trade Secrets Defendants”) and Sultan Esmail and 2237480 Ontario Inc. (“223”) (the “Esmail Defendants”)(the “Trade Secrets Action”). The Trade Secrets Defendants delivered a Statement of Defence and Highfield and TSI commenced a Counterclaim (the “Counterclaim”) against the Plaintiffs on November 5, 2019;

ii.) on September 10, 2019 this action against the Defendants Musa Suleman and 1501747 Ontario Inc. (“150”) (the “Suleman Defendants”) (the “Suleman Action”). Mr. Suleman delivered a Statement of Defence on November 27, 2019 and 150 has been noted in default;

iii.) on September 6, 2019 against the Defendants Devry Smith Frank LLP and Florendo P. Llameg (the “Devry Defendants”)(the “Devry Action”); and

iv.) on September 6, 2019 against the Defendants Michael Argue Chartered Accountant Professional Corporation (“MACAP”) and Michael Ronald Argue (the “Argue Defendants”)(the “Argue Action”).

[2] On September 14, 2020, the Plaintiffs, as Defendants by Counterclaim in the Trade Secrets Action, commenced a Third Party Claim against Mr. Warren, the Suleman Defendants, the Devry Defendants and the Argue Defendants (the “Third Party Claim”).

[3] The Plaintiffs are the same in the Actions and the Third Party Claim. Each of the Third Parties in the Third Party Claim are Defendants in one of the other 4 Actions.

[4] The Plaintiffs seek an order consolidating the Trade Secrets Action (including the Counterclaim), the Suleman Action, the Argue Action and the Devry Action into a single proceeding with common pleadings, with the Plaintiffs’ claims in each of these actions, as against each of the Defendants being asserted and continued in the Trade Secrets Action (the “Consolidated Action”). If the Actions are consolidated, the Plaintiffs also seek an order that the Third Party Claim be heard at the same time or immediately after the Consolidated Action.

[5] All parties except Mr. Suleman consent to the relief sought by the Plaintiffs. Mr. Suleman initially consented but subsequently withdrew his consent.

II. Background

[6] Highfield is a corporation operating as Trade Secrets, a franchisor with retail stores in Ontario and Quebec which sells beauty care products and cosmetics and operates nail and hair salons. TSI is the sublessor of the lease for the Location. Mr. Warren is employed by Highfield as the Director of Franchising for Trade Secrets.

[7] The Plaintiff Jennifer Ientile is the sole officer, director and shareholder of the Plaintiff 2601522 Ontario Inc. (“260”), which operated a Trade Secrets franchise (the “Franchise”) at 77 King Street West, Toronto (the “Location”) pursuant to Franchise Agreements and related agreements dated November 7, 2017. The Plaintiffs operated the Franchise from December 2017 until they delivered a Notice of Recission of the Franchise Agreements on June 3, 2019.

[8] Mr. Esmail was the principal of 223, a company which operated a Trade Secrets franchise at the Location prior to 260. Mr. Suleman is an accredited accountant who was the principal accountant of 150, an accounting firm retained by 223.

[9] Mr. Argue is a chartered professional accountant employed by MACAP, an accounting firm which provides consulting services on the purchase and sale of businesses which was retained by the Plaintiffs to advise on the Franchise transaction. Mr. Llameg is a lawyer with Devry which was retained by the Plaintiffs to advise on the purchase.

[10] The Plaintiffs allege that Mr. Warren made inaccurate and false written and oral representations regarding past and prospective sales for the Location and provided insufficient disclosure which induced the Plaintiffs to enter into the Franchise Agreements. The alleged misrepresentations include those based on 223’s financial statements which were prepared by the Suleman Defendants. The Plaintiffs allege that, contrary to Mr. Warren’s representations, the Franchise incurred operating losses and 260 was unable to pay Ms. Ientile a salary. In the Trade Secrets Action, the Plaintiffs seek rescission remedies pursuant to the Arthur Wishart Act (Franchise Disclosure)(Ontario)(the “Act”). Alternatively, they claim damages of $528,197 for misrepresentation or fraudulent or negligent misrepresentation, or $250,000 for breach of contract, good faith and the statutory duty of fair dealing under the Act and $200,000 in punitive damages.

[11] In the Suleman Action, the Plaintiffs claim that they relied on 223’s financial statements to enter into the Franchise Agreements. The Plaintiffs allege that the financial statements misstated the cost of inventory or alternatively, provided misleading profit margins for the business and an inaccurate fiscal narrative of the Location’s profitability. The Plaintiffs claim damages of $1,000,000 for civil fraud and fraudulent misrepresentation or alternatively, negligence and negligent misrepresentation or in the further alternative, deceit.

[12] In the Argue Action, the Plaintiffs allege that the Argue Defendants did not warn or alert the Plaintiffs that Highfield’s and 223’s financial statements were inaccurate, seek out underlying documents or advise that a national class action had been commenced against 150 for the misappropriation of funds. The Plaintiffs further allege that they entered into the Franchise Agreements in reliance on the Argue Defendants’ advice discovering later that the financial statements provided by Highland and 223 were untrue, misleading or inaccurate. The Plaintiffs claim damages of $1,000,000 for negligence and/or breach of contract.

[13] In the Devry Action, the Plaintiffs allege that the Devry Defendants reviewed the Franchise Agreements and disclosure documentation and failed to provide considered legal advice regarding the Plaintiffs’ rights, obligations and remedies with respect to disclosure, limitation periods and rescission. The Plaintiffs claim damages of $1,000,000 for negligence and/or breach of contract from the Devry Defendants.

[14] The parties first appeared before me at a case conference on November 8, 2021 to speak to Mr. Suleman’s request to schedule his summary judgment motion. At that time, this consolidation motion was already scheduled for March 22, 2022. The parties had attended at Civil Practice Court (“CPC”) before Sanfilippo J. on May 18, 2021 to speak to Mr. Suleman’s request. Sanfilippo J. ordered the parties to attend a judicial case conference. Counsel subsequently attended at CPC before Wilson J. on September 28, 2021 who declined to schedule the summary judgment motion directing that it could be reconsidered after the actions were consolidated and pleadings closed. As set out in my Endorsement dated November 8, 2021, I declined to schedule the summary judgment motion as it had already been spoken to at CPC (the proper forum) with Wilson J. ordering that it be reconsidered after this motion.

III. The Law and Analysis

[15] The primary issue on this motion is whether the Suleman Action should be consolidated with the Trade Secrets Action, the Argue Action and the Devry Action. If this relief is granted, then the court must consider whether the Third Party Claim should be heard at the same time or immediately after the Consolidated Action.

[16] Rule 6.01 states:

(1) Where two or more proceedings are pending in the court and it appears to the court that,

(a) they have a question of law or fact in common;

(b) the relief claimed in them arises out of the same transaction or occurrence or series of transactions or occurrences; or

(c) for any other reason an order ought to be made under this rule,

the court may order that,

(d) the proceedings be consolidated, or heard at the same time or one immediately after the other; or

(e) any of the proceedings be,

(i) stayed until after the determination of any other of them, or

(ii) asserted by way of counterclaim in any other of them.

(2) In the order, the court may give such directions as are just to avoid unnecessary costs or delay and, for that purpose, the court may dispense with service of a notice of listing for trial and abridge the time for placing an action on the trial list.

[17] Section 138 of the Courts of Justice Act (Ontario) states that “as far as possible, multiplicity of proceedings shall be avoided”.

[18] The proper approach and relevant considerations are set out in Master Dash’s oft-cited decision in 1014864 Ontario Ltd. v. 1721789 Ontario Inc., 2010 ONSC 3306:

17 In my view the proper approach on a motion for consolidation or trial together is to first ascertain whether the moving party has satisfied one or more of the three "gateway" criteria set out in rule 6.01(1)(a), (b) or (c) and then consider all relevant factors as well as section 138 of the Courts of Justice Act which directs the court to avoid a multiplicity of proceedings whenever possible, in order to exercise the court's discretion and make such order as is just. I will attempt to set out a list of factors courts have considered on motions for trial together as well as some of the "bifurcation factors" modified appropriately to reflect that this is a motion to try actions together, not sever issues within an action. I point out that the list that follows are considerations for ordering trial together of various actions, which is the relief sought on this motion, and not full consolidation of various actions, for which some different factors may apply.

18 A non-exhaustive list of some of the considerations on ordering trial together may, depending on the circumstances, include:

(a)the extent to which the issues in each action are interwoven;

(b)whether the same damages are sought in both actions, in whole or in part;

(c)whether damages overlap and whether a global assessment of damages is required;

(d)whether there is expected to be a significant overlap of evidence or of witnesses among the various actions;

(e)whether the parties the same;

(f)whether the lawyers are the same;

(g)whether there is a risk of inconsistent findings or judgment if the actions are not joined;

(h)whether the issues in one action are relatively straight forward compared to the complexity of the other actions;

(i)whether a decision in one action, if kept separate and tried first would likely put an end to the other actions or significantly narrow the issues for the other actions or significantly increase the likelihood of settlement;

(j)the litigation status of each action;

(k)whether there is a jury notice in one or more but not all of the actions;

(l)whether, if the actions are combined, certain interlocutory steps not yet taken in some of the actions, such as examinations for discovery, may be avoided by relying on transcripts from the more advanced action;

(m)the timing of the motion and the possibility of delay;

(n)whether any of the parties will save costs or alternatively have their costs increased if the actions are tried together;

(o)any advantage or prejudice the parties are likely to experience if the actions are kept separate or if they are to be tried together;

(p)whether trial together of all of the actions would result in undue procedural complexities that cannot easily be dealt with by the trial judge;

(q)whether the motion is brought on consent or over the objection of one or more parties.

[19] For the reasons that follow, I conclude that the Actions should be consolidated and that the Third Party Claim should be heard at the same time or immediately after the Consolidated Action.

[20] I agree with Mr. Suleman that the consent of the other parties is not binding on him nor should it be determinative of this motion. Therefore, while I have necessarily focused on Mr. Suleman as the only non-consenting party and the Suleman Action, my conclusions are based on the application of the relevant factors below. While Mr. Suleman made submissions about why the other Actions should not be consolidated notwithstanding the parties’ consent, he largely advanced the position that the Suleman Action should proceed separately. I also make no findings with respect to the Plaintiffs’ assertion that Mr. Suleman withdrew his consent based on his belief that consolidation of the Suleman Action would make it more difficult to succeed on his summary judgment motion.

[21] In my view, the Plaintiffs have met the “gateway” criteria. As set out in Rule 6.01(1)(b), the relief claimed in the Actions arises out of the same transaction or occurrence or series of transactions or occurrences. Specifically, the relief sought by the Plaintiffs arises in part out of the Plaintiffs’ alleged reliance on 223’s financial statements in entering into the Franchise Agreements. 223’s financial statements were prepared by the Suleman Defendants, provided by Mr. Esmail to the Plaintiffs, used and repeated by Mr. Warren in discussions with the Plaintiffs and reviewed by the Argue Defendants.

[22] In the Trade Secrets Action, the Plaintiffs claim recission remedies under the Act and damages. The damages claimed arise in part from the Plaintiffs’ allegations of misrepresentations related to 223’s financial statements which they allege were inaccurate, grossly understated the true cost of inventory and created a fiscal narrative that they knew to be false. In the Suleman Action, the Plaintiffs claim damages for fraud, fraudulent and negligent misrepresentation and other grounds with respect to the preparation of 223’s financial statements. The claim against the Argue Defendants arises from allegations that they did not properly warn the Plaintiffs of the possibility that 223’s financial statements were inaccurate or that the Suleman Defendants were subject to the class action.

[23] In my view, the relief sought in all of the Actions arises from the same transaction, the Plaintiffs entering into the Franchise Agreements and related steps. However, the connection is even more specific. The relief with respect to misrepresentations arises in part due to the Plaintiffs’ alleged reliance on the same document, 223’s financial statements and the roles of multiple Defendants in their preparation, delivery, use and review.

[24] Although it is not necessary for the Plaintiffs to satisfy all of the grounds under Rule 6.01(1), for similar reasons, I am also satisfied that the alleged misrepresentations and the inaccuracy of 223’s financial statements is a common factual issue between the Suleman Action and the other Actions pursuant to Rule 6.01(1)(a). In my view, based on the pleadings, this is an issue that bears sufficient importance in relation to the other facts and issues in the Actions such that it is desirable that consolidation be ordered (Coulls v. Pinto, 2007 CanLII 46242 (ONSC) at para. 33). The Plaintiffs did not assert that the Suleman Action has a question of law in common with the other Actions and I draw no conclusions on this issue.

[25] Master Dash further held that the factors listed in 1014864 Ontario Ltd. are also relevant to a consideration of whether there is any other reason an order ought to be made under Rule 6.01(1)(c)(1014864 Ontario Ltd.at para. 28). Based on my review of the factors below, I conclude that other reasons exist to order consolidation under Rule 6.01(1)(c) and that an order of consolidation is just in the circumstances.

[26] Turning to these factors, the Plaintiffs and their lawyers are the same in the Actions. Issues in the Actions are linked and interwoven and the Actions are relatively the same in complexity. As set out above, the alleged inaccuracy of 223’s financial statements is a material issue in the Trade Secrets Action, the Suleman Action and the Argue Action. Given this overlap, Mr. Suleman will be a necessary witness in all 3 Actions. This issue raises a risk of inconsistent findings regarding whether 223’s financial statements were inaccurate, false or misleading, their preparation, use and review and the Plaintiffs’ reliance on them. Mr. Suleman’s suggestion that the Trade Secrets Action is predominantly focused on claims against the Trade Secrets Defendants for rescission remedies and insufficient disclosure under the Act or that the issues in the Actions do not overlap does not accurately reflect the true scope of the Actions. There is also overlap between the damages claimed by the Plaintiffs particularly with respect to misrepresentation and a global assessment of damages will be required.

[27] The Actions are still in the pleadings stage such that consolidation would permit common discoveries, mediation and a pre-trial. This would streamline the proceedings and result in efficiencies and costs savings without the risk of delays due to any Action being at a different stage. There are also no jury notices in any of the Actions. I disagree with Mr. Suleman’s claim that consolidation would have no benefits, inconvenience all parties, complicate the proceedings and lead to longer, more costly litigation. This ignores the economies of scale that would be lost if the Actions were to proceed separately with individual discoveries, pre-trials and mediation including duplicative efforts to consider 223’s financial statements in multiple Actions. I also reject Mr. Suleman’s assertion that he would be “gravely” impacted by consolidation because he and his counsel would be required to, among other things, attend extensive trial days unrelated to the Suleman Action. As set out above, Mr. Suleman is a necessary witness in multiple Actions and would otherwise be required to attend 3 separate trials. With consolidation, issues such as counsel and witness attendances can be effectively managed by the trial Judge.

[28] I accept that there is the possibility that having the Trade Secrets Action tried separately might narrow the issues or facilitate settlement of other Actions. However, given the likely benefits to the parties and the weight of the factors above, I am satisfied that the balance of convenience favours consolidation (Soilmec North America Inc. v. D’Elia, 2011 ONSC 5214 at para. 14; Rabba v. Rabba, 2019 ONSC 5205 at paras. 25-33).

[29] In my view, the cases relied on by Mr. Suleman where consolidation was denied are distinguishable. In 8518076 Canada Inc. v. Quizno’s Canada Restaurant Corporation, 2018 ONSC 1519 the court declined to consolidate a Superior Court action under s. 107 of the Courts of Justice Act with 2 Small Claims Court actions arising from the same franchise agreement. Unlike the present case, the court held that the Superior Court action, based on disclosure and misrepresentation, had no facts in common with the Small Claims Court actions. The court also held that transferring the Small Claims Court actions to Superior Court would increase costs and complexity. In Soilmec, the court held that the parties and issues were different. In Rabba v. Rabba, 2019 ONSC 5205, the court denied the consolidation of an action and an Application where there were 34 parties not in common, the proceedings were at different stages, there was no overlap of issues and they were not equal in complexity.

[30] Mr. Suleman also made substantial submissions on the merits of the Plaintiffs’ claim against him. He submits since the Plaintiffs did not retain the Suleman Defendants or have any direct relationship with them, he does not owe them a duty of care. He also relies on the Notice to Reader on the financial statements which states that they were for management use, that he did not perform an audit and does not express an opinion. He therefore argues that the Plaintiffs cannot ground a claim against him and the Suleman Action should proceed separately so that it can be determined by way of summary judgment motion. I do not accept that the potential merits of the Plaintiffs’ claim is a proper consideration on this motion and Mr. Suleman has not referred me to any authority in support of this proposition.

[31] Having concluded that the Actions should be consolidated, I am also satisfied that the Third Party Claim should be tried at the same time or immediately after the Consolidated Action at the discretion of the trial Judge. In the Third Party Claim, the Plaintiffs seek contribution and indemnity for the relief claimed in the Counterclaim. In the Counterclaim, Highland and TSI seek damages for alleged breaches of the Franchise Agreements and payment of outstanding invoices. The Plaintiffs request this relief due to the fact that a claim for contribution and indemnity does not arise under s. 18 of the Limitations Act (Ontario) until the Counterclaim was served and the fact that the relief on the Third Party Claim arising from the Counterclaim is independent of the Trade Secrets Action (Maynards v. Cincinnati Industrial Auctioneers, Inc., 2011 ONSC 2656 at paras. 21-23). Mr. Suleman did not make any specific submissions on this relief. Given the commonality of parties with the Consolidated Action and related issues, I am satisfied that the Third Party Claim should proceed at the same time or immediately after at the discretion of the trial Judge.

[32] I conclude that the relief sought by the Plaintiffs is just in the circumstances and furthers the objective of avoiding a multiplicity of proceedings. It is also consistent with Rule 1.04(1) which requires a liberal interpretation of the Rules to secure the just, most expeditious and least expensive determination on the merits and is proportionate to the issues in the litigation and the amount claimed.

IV. Disposition and Costs

[33] Order to go substantially in the form filed by the Plaintiffs, subject to any further amendments agreed to by the parties. Counsel may schedule a telephone case conference with me to speak to the terms of the Order if necessary.

[34] If the parties cannot agree on the costs of this motion, they may file written costs submissions not to exceed 3 pages (excluding Costs Outlines) on a timetable to be agreed upon by counsel.

Released: July 30, 2022

Associate Justice McGraw