COURT FILE NO.: CV-17-4185

DATE: 2022 11 15

SUPERIOR COURT OF JUSTICE - ONTARIO

BETWEEN:

2462192 Ontario Ltd., Plaintiff

AND:

Paramount Franchise Group Inc. and Mohamad Fakih, Defendants

AND BETWEEN:

Paramount Franchise Group Inc., Plaintiff by Counterclaim

AND:

2462192 Ontario Ltd., Maher Obeid, Jason Rappazzo and Nader Obeid, Defendants to the Counterclaim

BEFORE: Coats J.

COUNSEL: Dillon Collett, for the Plaintiff and Defendants to the Counterclaim

Jacob Svirsky and Lara Di Genova, for the Defendants and Plaintiff by Counterclaim

HEARD: June 15, 2022

ENDORSEMENT

ISSUES:

[1] The Defendant (Plaintiff by Counterclaim), Paramount Franchise Group Inc., (“Paramount”), seeks summary judgment in its Counterclaim against the Plaintiff (Defendant to the Counterclaim), 2462192 Ontario Ltd., (“246 Ontario”) and against the additional Defendants to the Counterclaim Maher Obeid, Jason Rappazzo and Nader Obeid (the “Guarantors”). In Paramount’s Amended Notice of Motion, Paramount seeks the following relief:

a. A declaration that the Franchise Agreement dated October 28, 2015 was repudiated by 246 Ontario;

b. A declaration that, as a result of the foregoing, Paramount and Mohamad Fakih validly terminated the Franchise Agreement and sublease, dated October 28, 2015, on November 3, 2017, except for those provisions that survive termination;

c. An order for summary judgment recognizing and enforcing Paramount’s termination of the Franchise Agreement and the sublease dated October 28, 2015, and its rights therein, as set out in the Statement of Defence and Counterclaim;

d. A declaration that the Defendants to the Counterclaim, Maher Obeid, Jason Rappazzo and Nader Obeid, are jointly and severally liable to Paramount for all monies owed by 246 Ontario to Paramount in connection with the Franchise Agreement, and particularly the Guarantee dated October 28, 2015;

e. An order requiring the Defendants to the Counterclaim, 246 Ontario, Maher Obeid, Jason Rappazzo and Nader Obeid to pay all damages, jointly and/or severally to Paramount;

f. A declaration that, pursuant to the Guarantee, the Guarantors are jointly and severally liable to Paramount and Mr. Fakih for the payment of costs in the amount of $159,841.11;

g. The costs of the motion on a substantial indemnity basis;

h. Such further and other Relief as to this Honourable Court may seem just.

[2] Paramount is also seeking summary judgment in the action bearing court file number CV-2100666905-000, which is a separate action Paramount commenced against Maher Obeid, Jason Rappazzo and Nader Obeid in Toronto (the “Guarantee Action”).

BACKGROUND:

The Parties:

[3] Paramount is a corporation incorporated under the laws of Ontario. It operates a franchise system of specialty restaurants offering Middle Eastern food. Paramount is a Defendant in this action and the Plaintiff in the Counterclaim in this action. Paramount is also the Plaintiff in the Guarantee Action. The Defendant Mohamad Fakih is Paramount’s founder, president and chief executive officer.

[4] The Plaintiff and Defendant to the Counterclaim, 246 Ontario is also a corporation incorporated under the laws of Ontario. It was the franchisee that operated the Paramount restaurant located at 2515 Appleby Line, Burlington, Ontario.

[5] Maher Obeid, Jason Rappazzo and Nader Obeid, are officers, directors and shareholders of 246 Ontario. They are Defendants to the Counterclaim in this action.

The Franchise:

[6] 246 Ontario and Paramount entered into several agreements on October 28, 2015, including a franchise agreement and a sublease (collectively the “Franchise Agreement”) with respect to the operation of the franchise.

[7] The shareholders of 246 Ontario executed certain schedules to the Franchise Agreement. One of these included a guarantee, pursuant to which Maher Obeid, Jason Rappazzo and Nader Obeid each personally guaranteed 246 Ontario’s obligations under the Franchise Agreement.

[8] 246 Ontario operated the franchise from June 20, 2016 to November 2017.

[9] Over the course of establishing and operating the franchise, Paramount issued several notices of non-compliance with respect to the Franchise Agreement. The last notice of default was delivered on August 21, 2017.

[10] On August 22, 2017, 246 Ontario delivered Paramount a notice of rescission of the Franchise Agreement. 246 Ontario took the position that Paramount had not provided it with certain documents in advance of signing the Franchise Agreement. 246 Ontario demanded that Paramount pay it the sum of $2,200,000.00.

HISTORY OF PROCEEDINGS:

[11] 246 Ontario issued a Statement of Claim in this action on October 24, 2017 (the “Rescission Action”). 246 Ontario sought, among other things, a declaration that the Franchise Agreement was validly rescinded and a declaration that Paramount and Mr. Fakih were jointly and severally liable for damages in the amount of $2,500,000.00 related to 246 Ontario’s rescission of the Franchise Agreement.

[12] On November 29, 2017, Paramount and Mr. Fakih defended the Rescission Action and Paramount counterclaimed for, among other things, damages arising out of 246 Ontario’s and the Guarantors’ breach of the Franchise Agreement and all related agreements.

[13] The Statement of Claim and the Statement of Defence and Counterclaim were subsequently amended on April 6, 2018 and June 7, 2018, respectively.

246 Ontario’s Motion for Summary Judgment:

[14] 246 Ontario brought a motion seeking summary judgment of its claim in the Rescission Action. The motion was initially returnable in August 2018 and then adjourned to May 14, 2019.

[15] The Honourable Mr. Justice Gray dismissed 246 Ontario’s motion and ordered the matter to proceed to trial. 246 Ontario was also ordered to pay costs of $150,000 to Paramount and Mr. Fakih within 30 days (the “Cost Award”). The costs were awarded only against 246 Ontario and not the Guarantors.

[16] On January 20, 2020, Paramount retained new counsel, Teplitsky, Colson LLP.

Motion to Strike the Statement of Claim:

[17] Despite subsequent demands for payment of the Cost Award, 246 Ontario failed to pay.

[18] Paramount and Mr. Fakih brought a motion to strike the Rescission Claim based on 246 Ontario’s failure to pay the Cost Award. The motion was returnable September 17, 2020.

[19] The parties agreed to settle the motion to strike on the basis that:

i. 246 Ontario would pay the Cost Award by October 16, 2020;

ii. If 246 Ontario failed to do so, upon filing of an affidavit on behalf of Paramount and Mr. Fakih, the Registrar could dismiss the Rescission Claim both with prejudice and with costs; and

iii. 246 Ontario would pay costs of the motion in the amount of $5,000.

[20] In this regard, a motion in writing and on consent was filed on September 29, 2020 and I granted the order.

The Statement of Claim is Dismissed with Prejudice:

[21] 246 Ontario failed to pay the Cost Award by October 16, 2020 and an affidavit on behalf of Paramount and Mr. Fakih was submitted to the Court.

[22] I received the affidavit and requested the parties to attend a telephone conference on October 26, 2020. On this date I confirmed with counsel for 246 Ontario that it consented to the dismissal of its action, with prejudice, and signed the order (the “Dismissal Order”).

[23] On December 1, 2020 Paramount filed a Notice of Election to Proceed with the Counterclaim.

The Within Motion:

[24] Paramount moves for summary judgment on its Counterclaim as set out in the Amended Statement of Defence and Counterclaim in the Recission Action; or in the alternative, on its claims in the Guarantee Action.

The Guarantee Action:

[25] On August 10, 2021, in light of the outstanding Cost Awards, Paramount commenced a separate action against the Guarantors in Toronto, under the simplified rules of procedure, to recover the Cost Awards from the Guarantors.

[26] On March 2, 2022, further to a motion brought by Paramount, the Honourable Mr. Justice Trimble ordered that the Guarantee Action be transferred to Milton, to be heard together with the Recission Action.

[27] At the time the within motion was heard before me the Guarantee Action file had not yet arrived in Milton.

[28] Paramount moves for summary judgment on the Counterclaim and, in the event that Paramount is successful in obtaining this relief, it does not seek to double recover and will take steps to discontinue the Guarantee Action.

ANALYSIS:

Test for Summary Judgment:

[29] There is no issue between the parties regarding the test for summary judgment. Pursuant to Rule 20.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the court must grant summary judgment if there is no genuine issue requiring a trial.

[30] As set out in Hryniak v. Mauldin, 2014 SCC 7, at para. 49, there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits based only on the evidence before him or her, and the process:

i. allows the judge to make the necessary finding of fact;

ii. allows the judge to apply the law to the facts; and

iii. is a proportionate, more expeditious, and less expensive means to achieve a just result.

Application to this Motion:

[31] Paramount is seeking summary judgment on its Counterclaim as set out in the Amended Statement of Defence and Counterclaim, amended June 7, 2018.

[32] Paramount seeks the following relief in the Counterclaim:

The Franchisor, repeating and relying on the defined terms set out above in the Statement of Defence, claims against the Plaintiff and each of the Guarantors:

a) Damages for breach of the Financial Covenants of the Franchise Agreement and Sublease in the amount of $15,000.00;

b) Damages for the Franchisor’s lost profits and other losses caused by the Plaintiff’s wrongful repudiation of the Franchise Agreement in the amount of $350,000.00;

c) Damages for harm caused to the Franchisor’s system, brand and reputation as a result of the Plaintiff’s operational defaults under the Franchise Agreement in the amount of $100,000.00;

d) Interest at the rate of 18% per annum as prescribed in Section 7.12 of the Franchise Agreement;

e) Damages for breach of the Franchisee’s duty of good faith owed to the Franchisor, in the amount of $75,000.00;

f) Pre-judgment and post-judgment interest pursuant to the Courts of Justice Act, R.S.O. 1990, c. C43 as amended;

g) Costs of this action on a substantial indemnity basis, plus applicable harmonized sales tax; and

h) Such further and other relief as counsel shall advise and this Honourable Court permit.

[33] Counsel for Paramount acknowledged on June 15, 2022 that Paramount was not seeking any damages under headings (a), (b), (c), or (e) of the above..

[34] In my view, this acknowledgement is fatal to Paramount seeking, in this motion, the relief it is claiming, as set out in para. 1 of this Endorsement. Paramount cannot seek summary judgment on the Counterclaim when Paramount acknowledges that it is not claiming damages under any head of relief of damages as set out in the Counterclaim.

[35] In this motion Paramount is seeking declaratory relief, which it did not seek in the Counterclaim. Even if it could be argued that a declaration that 246 Ontario repudiated the Franchise Agreement and a declaration that Paramount validly terminated the Franchise Agreement were inherent claims of relief captured by the heads of damages that Paramount was seeking in the Counterclaim, this can only be in the context of actual damages that Paramount is seeking in the Counterclaim. As set out above, Paramount is not seeking damages under any claim in the Counterclaim. Paramount is ultimately seeking an order in this motion that, pursuant to the Guarantee, the Guarantors are jointly and severally liable to Paramount and Mr. Fakih for the payment of the costs in the amount of $159,841.11, which is the Costs Awards plus interest. This does not fall under any head of relief sought in the Counterclaim.

[36] Paramount did claim “such further and other relief as counsel shall advise and this Honourable Court permit.” However in my view, this cannot be used to seek the relief Paramount is claiming in the Notice of Motion. This is particularly so when Paramount started a separate action on the Guarantee, seeking precisely the relief it is seeking on this motion. The Counterclaim in the Rescission Action was never amended to reflect the claims made in this summary judgment motion.

[37] When this motion was before me, the Guarantee Action file had not actually been transferred to Milton. It was not before me. Paramount tried to tie the Guarantee Action to the motion before me by referencing same in the amended Notice of Motion and Factum. The style of cause in the Notice of Motion referred to the Rescission Action only. All affidavits were filed in the Rescission Action. Paramount cannot put a matter before me simply by referencing same in these two documents. The claims Paramount is advancing in the summary judgment motion were not advanced in the Counterclaim in the Rescission Action. Paramount cannot move on a claim in the Guarantee Action when this Action is not before this court. The damages claimed in this summary judgment motion are not encompassed by any of the heads of damages in the Counterclaim. Counsel for Paramount confirmed on June 15, 2022 that Paramount did not move in the Guarantee Action because it was not in Milton in time and that there was no motion before me in that action.

[38] To determine whether 246 Ontario repudiated the Franchise Agreement and whether Mr. Fakih or Paramount validly terminated the Franchise Agreement in the Rescission Action is to determine these aspects in a vacuum.

[39] 246 Ontario requested that the Guarantee Action be dismissed. As set out above the Guarantee Action is not before me. I make no order in that action.

CONCLUSION:

[40] Paramount’s summary judgment motion is dismissed. This is without prejudice to it seeking summary judgment in the Guarantee Action, in a motion properly constituted as part of that action. The Counterclaim is dismissed. Paramount has confirmed that it is not seeking any damages under any of the heads of relief in its Counterclaim.

COSTS:

[41] I encourage the parties to resolve the issue of costs of the summary judgment motion. If they are unable to do so, the Plaintiff/Defendants by Counterclaim shall serve and file brief written submissions as to costs, limited to two pages (double spaced with regular font and margins), with a bill of costs attached, to be served and filed within 30 days of today.

[42] The Defendants/Plaintiff by Counterclaim shall serve and file brief written responding submissions as to costs, limited to two pages (double spaced with regular font and margins), to be served and filed within 60 days of today.

[43] The Plaintiff may serve and file a one-page submission in reply (double spaced with regular font and margins), within 75 days of today.

Coats J.

Date: November 15, 2022