The case below is from the Canadian Legal Information Institute (CanLII)

COURT FILE NO.: 02-CV-236784

DATE: 20030529

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE MATTER OF THE ARTHUR WISHART ACT (FRANCHISE DISCLOSURE), 2000, S.O. 2000, C. 3 AND IN THE MATTER OF SUBRULE 14.05(3) OF THE RULES OF CIVIL PROCEDURE

B E T W E E N:

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1368741 ONTARIO INC. and SHIRAZ ISMAIL

Applicants

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TRIPLE PIZZA (HOLDINGS) INC., 3 FOR 1 PIZZA AND WINGS (CANADA) INC., TRIPLE HOLDINGS INC., TRIPLE 3 HOLDINGS INC., REZA SOLHI and FARZAD BAGHERZADEH

Respondents

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Ernest Gutstein, for the Applicants

John Chidley-Hill, for the Respondents

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HEARD: May 12, 2003

Pitt J.

REASONS FOR JUDGMENT

[1] The application is for:

(a) A declaration that the applicants have properly rescinded the franchise agreement pursuant to section 6 of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the “Act”).

(b) A declaration that the documents executed by the applicants in connection with the franchise including without limitation all offers or agreements to purchase, amending agreements, franchise agreements, general security agreements, promissory notes, chattel mortgages, subleases, guarantees and indemnities are null and void and of no further force or effect.

(c) An order that the deposit paid by the applicants to the respondents in the sum of $35,000.00 be returned to the applicants together with interest.

[2] The grounds for the relief sought are:

(a) The respondents have not complied with the disclosure requirements provided for under the Act.

(b) The applicants had sent a notice of rescission to the respondents in accordance with the provisions of the Act.

(c) The applicants are in breach of their duty of Fair Dealing imposed by the Act.

(d) There has been a total failure of consideration on the part of the respondents.

(e) Sections 3, 5 and 6 of the Act and subrule 14.05 (3) of the Rules of Civil Procedure.

[3] As I understand the respondents’ main contention (and the only one advanced in oral argument), it is that a party cannot seek the protection of the Act unless the party “closed the transaction” that is the subject matter of agreement, since the party does not become a franchisee until the transaction is closed.

[4] The definition section of the Act provides:

“1.(1) In this Act,

“disclosure document” means the disclosure document required by section 5; (“document d’information”)

“franchise” means a right to engage in a business where the franchisee is required by contract or otherwise to make a payment or continuing payments, whether direct or indirect, or a commitment to make such payment or payments, to the franchisor, or the franchisor’s associate, in the course of operating the business or as a condition of acquiring the franchise or commencing operations and,

(a) in which,

(i) the franchisor grants the franchisee the right to sell, offer for sale or distribute goods and services that are substantially associated with the franchisor’s, or the franchisor’s associate’s, trade-mark, service mark, trade name, logo or advertising or other commercial symbol, and

(ii) the franchisor or the franchisor’s associate exercises significant control over, or offers significant assistance in, the franchisee’s method of operation, including building design and furnishings, locations, business organization, marketing techniques or training, or

(b) in which,

(i) the franchisor, or the franchisor’s associate, grants the franchisee the representational or distribution rights, whether or not a trade-mark, service mark, trade name, logo or advertising or other commercial symbol is involved, to sell, offer for sale or distribute goods or services supplied by the franchisor or a supplier designated by the franchisor, and

(ii) the franchisor, or the franchisor’s associate, or a third person designated by the franchisor, provides location assistance, including securing retail outlets or accounts for the goods or services to be sold, offered for sale or distributed or securing locations or sites for vending machines, display racks or other product sales displays used by the franchisee; (“franchise”)

“franchise agreement” means any agreement that relates to a franchise between,

(a) a franchisor or franchisor’s associates, and

(b) a franchisee; (“contrat de frachisage”)

“franchisee” means a person to whom a franchise is granted and includes,

(a) a subfranchisor with regard to that subfranchisor’s relationship with a franchisor, and

(b) a subfranchisee with regard to that subfranchisee’s relationship with a subfranchisor; (“franchisé”)

“franchise system” includes,

(a) the marketing, marketing plan or business plan of the franchise,

(b) the use of or association with a trade-mark, service mark, trade name, logo or advertising or other commercial symbol,

(c) the obligations of the franchisor and franchisee with regard to the operation of the business operated by the franchisee under the franchise agreement, and

(d) the goodwill associated with the franchise; (“système de franchise”)

“franchisor” means one or more persons who grant or offer to grant a franchise and includes a subfranchisor with regard to that subfranchisor’s relationship with a subfranchisee; (“franchiseur”)

“franchisor’s associate” means a person,

(a) who, directly or indirectly,

(i) controls or is controlled by the franchisor, or

(ii) is controlled by another person who also controls, directly or indirectly, the franchisor, and

(b) who,

(i) is directly involved in the grant of the franchise,

(A) by being involved in reviewing or approving the grant of the franchise, or

(B) by making representations to the prospective franchisee on behalf of the franchisor for the purpose of granting the franchise, marketing the franchise or otherwise offering to grant the franchise, or

(ii) exercises significant operational control over the franchisee and to whom the franchisee has a continuing financial obligation in respect of the franchise; (“personne qui a un lien”)”

ANALYSIS

[5] No authority has been cited for the proposition that the plaintiff is not entitled to a protection of the Act and I see no principled basis for accepting it. What is more, the subject transaction was closed in the sense that the vendor received the deposit and the debt instrument that secured the balance of the vendor take back loan.

[6] In its factum, the respondents also submitted, though with not much vigour, that:

(a) the disclosure required by the Act was made; and

(b) the impugned transaction involved the resale of a franchise, rather than sale by the franchsior to a franchisee.

[7] The evidence is overwhelming that the “Franchise Agreements Package” was produced by the respondents for the first time during cross-examinations. In addition, the documents were grossly deficient, a fact not seriously disputed by the respondents. Such deficiency is, I believe, the real basis for reliance on the technical defence referred to above.

[8] The subject offer to purchase executed in or around November 2001 contains all the standard provisions of an offer to purchase a franchise. There is no basis for a finding that it evidenced a resale by an existing franchisee.

See also MAA Diners Inc. v. 3 for 1 Pizza & Wings (Canada) Inc., [2003] O.J. No. 430 (S.C.J.) in which Speigel J. came to a similar conclusion in similar circumstances.

DISPOSITION

[9] The relief sought by the applicants is granted and the deposit must be returned forthwith. Judgment shall go against all respondents jointly and severally as they are all either “franchisors” or “franchisor’s associates” or “franchisor agents” as those terms are defined in the Act.

COSTS

[10] Brief written submissions on costs are to be made within 20 days of the release of these reasons.

___________________________

Pitt J.

Released: 20030529

COURT FILE NO.: 02-CV-236784

DATE: 20030529

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE MATTER OF THE ARTHUR WISHART ACT (FRANCHISE DISCLOSURE), 2000, S.O. 2000, C. 3 AND IN THE MATTER OF SUBRULE 14.05(3) OF THE RULES OF CIVIL PROCEDURE

B E T W E E N:

1368741 ONTARIO INC. and SHIRAZ ISMAIL

Applicants

- and -

TRIPLE PIZZA (HOLDINGS) INC., 3 FOR 1 PIZZA AND WINGS (CANADA) INC., TRIPLE HOLDINGS INC., TRIPLE 3 HOLDINGS INC., REZA SOLHI and FARZAD BAGHERZADEH

Respondents

REASONS FOR JUDGMENT

Pitt J.

Released: 20030529