



COURT OF APPEAL
    FOR ONTARIO

CITATION: 2619506 Ontario Inc., v. 2082100 Ontario Inc., 2021
    ONCA 702

DATE: 20211012

DOCKET: C68814

Lauwers, Harvison
    Young and Sossin JJ.A.

BETWEEN

2619506
    Ontario Inc.
,

Respondent (Plaintiff)

and

2082100 Ontario Inc.
, Samuel Davis and Farhan
    Absar

Appellants (Defendants)

and

2619506 Ontario Inc.
, Vaishali Paralekar and
    Jayesh Paralekar

Defendants to the Countercl
aim

Martin Diegel, for the
    appellants

Alexander Hora, for the
    respondent

Heard: October 1, 2021 by video
    conference

On appeal from the
    judgment of Justice Shaun OBrien of the Superior Court of Justice, dated November
    13, 2020, with reasons reported at 2020 ONSC 6817.

REASONS FOR DECISION

[1]

This appeal arises from an order dated November 13, 2020, granting
    summary judgment to the respondent, finding that its notice of rescission was
    effective to rescind its franchise agreement with the appellants. The motion
    judge held that the financial disclosure document (FDD) the appellants provided
    was so deficient as to amount to no disclosure at all pursuant to s. 6(2) of
    the
Arthur Wishart Act (Franchise Disclosure), 2000
, S.O. 2000, c. 3
    [the Act]. The motion judge also found that both Mr. Davis and Mr. Absar met
    the definition of franchisors associates under s.1(1) the Act and that they
    were jointly and severally liable for damages pursuant to s. 6(6).

[2]

Briefly, the appellants and the respondent executed a franchise
    agreement in May 2018 pursuant to which the respondent 2619506 Ontario Inc,
    through its president, Vaishali Paralekar, became a franchisee of the
    franchisors Fit for Life chain of quick service restaurants. After Ms.
    Paralekar began operating, she found that the sales were much lower than expected.
    After trying to sell the franchise, she ultimately served a notice of
    rescission through her counsel in May 2019.

[3]

The appellants raise two main grounds of appeal. First, they argue that
    the motion judge misapplied the informed investment decision test in finding
    that the deficiencies in the disclosure document amounted to absence of
    disclosure, thus allowing rescission pursuant to s. 6(2) of the Act within two
    years. In particular, they argue that
Raibex Canada Ltd. v. ASWR
    Franchising Corp
., 2018 ONCA 62, 419 D.L.R. (4th) 53 obliged her to
    conduct a more detailed analysis of whether a potential franchisee is able to
    make a properly informed investment decision. The motion judges failure to do
    so constituted a reversible error of law.

[4]

Second, they submit that the motion judge erred in finding that the
    appellants were franchisors associates pursuant to ss.1(1) and 6(6) of the
    Act. Third, and relatedly, they argue that the motion judge erred in imposing
    joint and several liability upon both Mr. Davis and Mr. Absar.

[5]

For the following reasons, we conclude that that the appeal must be
    dismissed.

[6]

We do not agree that the motion judge erred in her articulation or
    application of the test under s. 6(2). We do not agree that this is an
    extricable question of law attracting a correctness standard of review. Rather,
    it raises a question of mixed law and fact, thus attracting the standard of palpable
    and overriding error:
Housen v. Nikolaisen
, 2002 SCC 33, [2002] 2
    S.C.R. 235, at paras. 36-37.

[7]

In applying the informed investor test, the motion judge considered both
    the purpose of the Act and the evolution of the test. She began by observing
    that this court has repeatedly emphasized that the Act is intended to redress
    the imbalance of power between franchisors and franchisees and that it does so
    by imposing rigorous disclosure obligations on franchisors, with strict
    penalties for non-compliance:
Salah v. Timothys Coffees of the World Inc.
,
    2010 ONCA 673, 268 O.A.C. 279, at para. 26;
Mendoza v. Active Tire &
    Auto Inc.
, 2017 ONCA 471, 139 O.R. (3d) 230, at paras. 13, 26;
6792341
    Canada Inc. v. Dollar It Limited
, 2009 ONCA 385, 95 O.R. (3d) 291, at
    para. 13. She continued with the following statement:

Two guiding principles have
    emerged from the Court of Appeal with respect to the interpretation of s. 6(2)
    in particular. The first is that non-compliance with s. 5 of the Act does not
    always provide sufficient grounds for rescission under s. 6(2). As set out in
Raibex
    Canada Ltd. v. ASWR Franchising Corp.
, 2018 ONCA 62, at para. 46: [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. 73, this court warned that conflating
    those two scenarios would frustrate clear legislative intent.

[8]

The motion judge also correctly observed at para. 18 that a purported
    disclosure document may be so deficient as to effectively amount to no
    disclosure, thereby permitting rescission under s. 6(2):
Raibex,
at
    para. 47. There is no doubt that financial disclosure is of the utmost
    importance in enabling a prospective franchisee to make a properly informed
    investment decision:
Dollar It
, at para. 35. In short, she was alive
    to and set out the appropriate test to be applied.

[9]

On the facts of this case, the only financial information provided to
    the respondents was unaudited 2016 financial statements, despite the clear
    requirement in the applicable regulation for the franchisor to include the 2017
    financial statement, which it failed to do. Nor was there any evidence as to
    whether 2018 financial statements were available when the franchise agreement
    was executed. In any event, neither 2017 nor 2018 financial statements were
    ever provided. Nor was there any recent financial information at all, such as
    sales information for that location. The motion judge concluded that

in the circumstances of this
    case, the absence of any recent financial information rendered the FDD so
    deficient as to amount to no disclosure at all. As a result, the Plaintiff was
    entitled to rescind under s. 6(2) of the Act.

[10]

In our view, the motion judge concisely and accurately set out the
    considerations to be taken into account and applied those to the facts before
    her in reaching her conclusion that the FDD was so deficient as to amount to no
    disclosure at all.

[11]

We also do not agree that the motion judge erred in finding that both Mr.
    Davis and Mr. Absar were franchisors associates as defined in the Act.

[12]

As was the case below, the counsel for Mr. Davis did not seriously
    pursue the argument that he was not an associate under the Act. As the sole
    director and shareholder, as well as the president and CEO of the franchisor,
    he directly controlled the franchisor and clearly falls within clause (a)(i) of
    subsection 6(6) of the Act as a person who controls the franchisor. As the
    person who signed the FDD disclosure certificate, he was directly involved in
    the grant of the franchise, falling within the conjunctive provision of clause
    (b)(i)(A).

[13]

The appellants argue that Mr. Absar, however, was merely an employee of
    the franchisor. Finding that Mr. Absar was a franchisors associate and
    imposing joint and several liability, would, they argue, open the door to finding
    that any employee, such as a receptionist answering telephone calls from
    potential franchisees could be found to be franchisors associates subject to
    joint and several liability.

[14]

As the motion judge concluded, Mr. Absar was not a mere employee. First,
    she found that he was controlled by another person who also controls directly
    or indirectly the franchisor, that is Mr. Davis. She reached this conclusion
    on the basis of the appellants own documents. The franchisors own
    organizational chart, and Mr. Absars e-mail signature, identified him as the
    Director of Franchising and Development for the Davis Group of companies, which
    included Fit for Life. Although the Davis Group was not itself a corporation,
    Mr. Davis was the head of the Davis Group and owned all of the Davis Group of
    companies. We see no error in her finding that Mr. Absar fell within the first
    part of the definition as he was controlled by a person, Mr. Davis, who
    controlled the franchisor.

[15]

In addition, we see no error with her finding that Mr. Absar met the
    second part of the definition in clause (b)(i)(B) because he made 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. This finding was well grounded in the record. Mr. Absar
    advertised Fit for Life franchises to generate leads and met with potential
    franchisees to discuss their application. He acknowledged that he had been
    involved in the marketing of the specific franchise location in issue and that
    he had personal communications with Ms. Paralekar about the franchise. Her
    undisputed evidence was that she met with him to discuss her application and
    that he provided her with the FDD.

[16]

Finally, we see no error in the motion judges imposition of joint and
    several liability on both appellants. The appellants contend that the liability
    can be imposed on the franchisor or franchisors associate pursuant to s.
    6(6). However, there was no suggestion before the motion judge that liability
    for damages should be imposed on any basis other than joint and several
    liability. Although the appellants cite
2122994 Ontario Inc. v. Lettieri
,
    2016 ONSC 6209, affd 2017 ONCA 830, in support of its position, we do not find
    this case to be of any assistance them.

[17]

Finally, the appellants submit that this matter should not have been
    determined on a motion for summary judgment because the affidavit evidence
    contained numerous inconsistencies. While it is true, as the motion judge
    recognized, that the parties did not agree on all factual matters, she found
    that there was no dispute about the primary facts upon which she decided the
    issues before her. Her reasons make it clear that she was careful to determine
    the issues before her on the basis of undisputed facts and we see no error in
    her determination that there were no genuine issues that required a trial:
Hryniak
    v. Mauldin
, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 49.

[18]

The appeal is dismissed. Costs are payable by the appellants to the
    respondent in the amount of $8,600, inclusive of disbursements and HST.

P. Lauwers J.A.

A. Harvison Young
    J.A.

L. Sossin J.A.


