



COURT OF APPEAL FOR ONTARIO

CITATION: 2212886 Ontario Inc. v. Obsidian Group Inc., 2018
    ONCA 670

DATE: 20180727

DOCKET: C63617

Pepall, van Rensburg and Trotter JJ.A.

BETWEEN

2212886 Ontario Inc., William Porteous and
    Kirsten Porteous

Plaintiffs (Respondents)

and

Obsidian Group Inc., Obsidian Inc. and Gus
    Karamountzos

Defendants (Appellants)

Geoffrey Adair, for the appellants

Daniel MacKeigan and Cole Vegso, for the respondents

Heard: December 15, 2017

On appeal from the judgment of Justice Marc A. Garson of
    the Superior Court of Justice, dated March 21, 2017, with reasons reported at
    2017 ONSC 1643.

van Rensburg J.A.:

OVERVIEW

[1]

This is an appeal from a partial summary judgment in litigation
    concerning a franchise dispute. The franchisee and its principals were granted
    rescission of the franchise agreement and damages against the franchisor and
    its director in the sum of $964,805.33. The counterclaim was dismissed.

[2]

There were two principal issues respecting liability. The first was
    whether the disclosure document provided by the franchisor in June 2010 was so
    materially deficient as to constitute no disclosure at all, giving rise to a
    right to rescission within two years of the execution of the franchise
    agreement under s. 6(2) and compensation under s. 6(6) of the
Arthur
    Wishart Act (Franchise Disclosure), 2000
,

S.O. 2000, c. 3 (the
    AWA). The second liability issue was whether the two year period ran from the
    date the parties first executed the franchise agreement, in which case the
    claim would be out of time, or from the date the parties executed a replacement
    agreement, in which case the claim was timely.

[3]

The respondents relied on a number of allegations of non-disclosure in
    support of their claim for rescission, only one of which was accepted by the
    motion judge. He concluded that the franchisors representative provided
    revenue projections in a meeting with the principals of the franchisee in May
    2010, that the information was highly material, and that the failure to include
    the projections in the franchisors disclosure constituted no disclosure. The
    motion judge also concluded that since the franchisor insisted on a replacement
    agreement, the time for asserting the rescission rights under s. 6(2) ran from
    the date of that agreement.

[4]

The appellants principal argument on appeal is that the motion judge
    erred in determining the central disputed factual issue on which liability
    depended, where the evidence was contradictory, and where the record did not
    permit such a determination to be made.

[5]

I would allow the appeal on this basis. The motion judge properly
    identified that the key factual issue was whether the franchisor provided
    earnings projections at a meeting in 2010. However, having found that the paper
    record was inadequate to resolve the issue, he erred in concluding that it was
    in the interests of justice to decide the disputed factual issue using the fact-finding
    powers under r. 20.04(2.1) of the
Rules of Civil Procedure
, R.R.O.
    1990, Reg. 194, and then in determining the issue without oral evidence.

[6]

Because the central factual issue on which liability depends requires
    oral evidence, the balance of the motion judges conclusions respecting
    liability and damages must fall. However, I would not interfere with the motion
    judges determination that the time for asserting the s. 6(2) rescission
    rights ran from the parties execution of the replacement agreement in
    September 2010. This is a distinct determination of what is essentially a
    limitation period defence that was properly made on the record before the
    motion judge and is free of any reversible error.

[7]

I would therefore allow the appeal in part, setting aside all but the motion
    judges determination of the limitation period issue.

FACTS

[8]

The appellants are Obsidian Group Inc. (Obsidian), the franchisor for
    Crabby Joes Tap and Grill (Crabby Joes), Obsidian Inc., the franchisees
    sub-landlord, and Gus Karamountzos (referred to by the motion judge as Gus),
    the sole director of both companies. The respondent 2212886 Ontario Inc. (221)
    is a franchisee that operated a Crabby Joes restaurant in Bradford, Ontario. 221
    was incorporated by its principals, the other two respondents to this appeal,
    William Porteous (William) and Kirsten Porteous (Kirsten).

[9]

William and Kirsten communicated their interest in acquiring a Crabby
    Joes franchise in April 2009. In June 2009, they paid a deposit of $31,500 and
    they incorporated 221 in July 2009. Between September 2009 and May 2010, the
    parties, working together, identified a suitable location. On June 1, 2010 the
    franchisor provided a franchise disclosure document. On June 16, 2010 Obsidian and
    221 entered into a franchise agreement. On September 7, 2010 they signed a new
    franchise agreement (the replacement agreement) that was substantially
    identical to the first agreement, as well as a franchise amending agreement (the
    amending agreement) to replace some of the standard terms for the benefit of
    the respondents.

[10]

The
    franchisee paid a total of $660,465 for the purchase of the franchise. The
    acquisition was financed in part by a small business loan from Royal Bank of
    Canada (RBC).

[11]

The
    respondents operated their Crabby Joes franchise from March 9, 2011 until they
    served notice of rescission of the franchise agreement and related agreements
    on September 5, 2012. They demanded payment of their rescission damages by
    letter dated September 18, 2012. The franchisor purported to terminate the
    franchise agreement and related agreements on September 18, 2012. The franchise
    was transferred to a third party in January 2013. The respondents were sued by
    RBC on their small business loan (the RBC litigation), resulting in judgment in
    June 2014 against 221 and the personal respondents.

[12]

The
    present proceedings were commenced by the respondents in December 2012, claiming
    rescission of the franchise agreement and rescission damages. They also claimed
    damages for breach of contract and the appellants fair dealing obligations
    under the AWA. The appellants counterclaimed, seeking a declaration that the
    franchise agreement had been validly and properly terminated, as well as
    damages. After pleadings closed, the respondents moved for partial summary
    judgment, seeking rescission of the franchise agreement and rescission damages.

DECISION OF THE MOTION JUDGE

[13]

Here,
    I will set out only briefly the conclusions of the motion judge on the material
    issues. Later in these reasons, I will address in more detail the motion
    judges treatment of the disputed evidence respecting the May 2010 meeting.

[14]

First,
    with respect to the time for asserting the claim of rescission, the motion judge
    concluded that the franchisee was within the two-year statutory rescission
    window which ran from the date of the replacement agreement (September 7, 2010)
    rather than the date of the original agreement (June 16, 2010). Although there
    was conflicting evidence about what prompted the need for a replacement
    agreement, it was clear that this occurred at the request of the franchisor.
    The motion judge reasoned that the franchisor, having required the franchisee
    to sign a replacement agreement, could not rely on the date of the first
    agreement as the effective date for the running of the two year limitation period
    for claiming rescission.

[15]

Next,
    the motion judge considered the various deficiencies in disclosure alleged by
    the respondents. He concluded that only one of the deficiencies in disclosure
    alleged by the respondents was sufficient to ground rescission. Although there
    was conflicting evidence, he determined that the franchisors representative,
    Danny Grammenopoulos (Danny), had shown the respondents a document containing
    weekly earnings projections at a May 2010 meeting, and that the franchisors
    disclosure document of June 1, 2010 was deficient in not including this information.
    He further found that the failure to include the earnings projections and the
    underlying basis for such projections
[1]
was a fundamental and stark omission. The motion judge found the omission so
    significant and material as to constitute no disclosure and to justify
    rescission under s. 6(2). The motion judge declared that the franchise
    agreement was rescinded and awarded damages in the sum of $964,805.33.

ISSUES

[16]

The
    appellants contend that the motion judge erred:

1.

in his
    approach to summary judgment  by making determinations of credibility and
    findings on a key factual issue, where the evidence was contradictory, where
    the appellants deponent was not cross-examined, and without calling for or
    even considering the need for oral evidence;

2.

in his
    conclusion that the failure to provide the earnings projections in the
    disclosure document constituted no disclosure under s. 6(2) of the AWA;

3.

in
    failing to dismiss the claim for rescission because it was asserted more than
    two years after the original franchise agreement was signed; and

4.

in his
    assessment of damages (essentially by including amounts for lease payments made
    by 221 to Obsidian Inc.).

[17]

As
    I have indicated, it is sufficient for the determination of this appeal to
    address only the first and third issues.

ANALYSIS

A.

Did the Motion Judge Err in Granting Summary Judgment After Determining
    the Key Factual Issue on Disputed Evidence?

(i)

The Evidence in Brief

[18]

The
    motion judge noted, at para. 45 of his reasons, that the only potential
    argument for material non-disclosure was based on what occurred at a meeting in
    May 2010 between the respondents and Danny, and whether Danny showed or flashed
    them a copy of earnings projections for the franchise but did not provide them
    with a hard copy. Williams and Dannys evidence about what happened at that
    meeting was contradictory.
[2]


[19]

In
    his first affidavit, William stated that, at a meeting he and his wife attended
    in or about May 2010, Danny showed them an earnings projections table that
    predicted weekly sales of $37,500-$44,000. William said that these projections
    were later included in a business plan submitted by the franchisor to Ken
    Kaufman at RBC. Williams affidavit attached a copy of an email from Danny to
    Kaufman dated June 22, 2010 that refers to an attached business plan. In a
    second affidavit, William denied having provided a business plan to RBC. He
    stated that the same earnings projections that he and his wife were shown at
    the May 2010 meeting, and were prevented from taking away, were included in the
    business plan that Danny sent to RBC.

[20]

Dannys
    affidavit categorically denied that he ever showed the respondents earnings
    projections or withheld a copy from them in a meeting in May 2010 or at any
    other time before they signed the franchise agreement. He stated that [i]t has
    not been my practice in over 25 years in the franchise business to show or
    provide earnings projections to prospective franchisees before they enter into
    a franchise agreement, and I did not do so in this case. He then set out in
    some detail his best recollection of his involvement with the respondents and
    RBC as it related to the earnings projections and business plan. While he had
    no recollection of sending the June 22 email to RBC, he had no evidence to
    contradict the assertion that he sent the email and attached a business plan.
    Danny stated that, although he would have worked with the respondents in
    preparing a business plan and would have helped them to come up with the
    figures to be included in their earnings projection, this would not have
    occurred until after they entered into the franchise agreement as there would
    have been little point in spending time and effort on a business plan before
    the [respondents] had committed to purchasing a franchise by signing a
    franchise agreement.

[21]

William
    gave inconsistent evidence about when he first saw the earnings projections and
    business plan. In his cross-examination, William stated that he first saw the
    business plan after March 2011. In the RBC litigation William stated that
    Kaufman presented the business plan and earnings projections to him and his
    wife at a meeting in July 2010, and that this was the first time they saw an
    earnings projection, which led to their decision to proceed with the purchase
    of the franchise.

[22]

In
    an affidavit delivered after his cross-examination, William offered an
    explanation for the inconsistencies. He stated that, at the time of the meeting
    with Kaufman of RBC in July 2010 he was shown a copy of the earnings projections,
    but he was not aware that they formed part of the business plan, which he saw
    for the first time after rescission. He provided an affidavit in the RBC
    litigation referring to what he saw at the July 2010 meeting as earnings
    projections and a business plan because, by that time he knew that what he was
    shown by RBC was
part of
a business plan.

(ii)

The Motion Judges Decision to Determine the Issues by Summary Judgment

[23]

The
    motion judge followed the direction of the Supreme Court in
Hryniak v.
    Mauldin
, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 66, to first determine if
    there was a genuine issue requiring a trial based only on the evidence before
    him and without using the fact-finding powers in rr. 20.04(2.1) (to weigh the
    evidence, evaluate the credibility of a deponent, or draw reasonable inferences
    from the evidence) and 20.04(2.2) (to hear oral evidence for the purpose of exercising
    such powers).

[24]

After
    acknowledging that there was conflicting evidence about what happened at the
    May 2010 meeting, the motion judge stated that he was satisfied that he could
    not make the necessary findings of fact, and that there was a genuine issue
    that required a trial. He stated, at para. 19:

Simply put, there is extensive conflicting evidence between
    William, Danny and Gus as to what took place at a meeting in May 2010 and the
    materials before me do not allow me to have a full appreciation of this event
    or to make the necessary findings of fact to then apply the law and achieve a
    just result.

[25]

The
    motion judge then noted, at para. 21, that he must next determine whether the
    use of the expanded powers in rr. 20.04(2.1) and (2.2) would allow him to
    achieve a fair and just result that was timely, affordable and proportionate to
    the action as a whole (which is the second step identified in
Hryniak
,

at para. 66).

[26]

The
    motion judge apparently resolved the question in the affirmative. After
    describing the legal framework for rescission claims in the franchise context,
    and the evidence on the motion, including the evidence concerning the May 2010
    meeting, the motion judge stated, at para. 41, that he [had] already
    determined that it is in the interests of justice to rely on the enhanced
    fact-finding powers. He then went on to assess the evidence and to make
    findings of fact about the May 2010 meeting.

(iii)

The Motion Judges Determination of the Factual Issues

[27]

The
    central factual issues were whether Danny provided an earnings projections table
    to the respondents before the franchise agreement was signed in June 2010,
    something that was alleged to have happened at a meeting in or about May 2010,
    and if so, whether the failure to include the earnings projections in the June
    2010 disclosure was so significant as to amount to no disclosure contrary to
    the AWA.

[28]

Dannys
    evidence was key. As the motion judge stated, at para. 44, [a]lthough the
    parties agree on very little, they both accept the importance of Dannys
    evidence on this motion.

[29]

The
    motion judge rejected Dannys evidence, notwithstanding that he was not
    cross-examined. He found his evidence to be heavy on speculation and general
    practice and light on direct knowledge, that Danny failed to identify specific
    sources for his belief, and that his affidavit consisted of argument and
    allegations instead of actual facts within his knowledge. Danny had no
    independent recollection of the May 2010 meeting and relied on his practice in
    over 25 years in the franchise business to reach the conclusion that he did not
    show the respondents an earnings projection at the May 2010 meeting. The motion
    judge also took into account the fact that Danny provided a similar earnings
    projection in the business plan sent to RBC in June.

[30]

The
    motion judge concluded that [t]he absence of cogent and probative evidence
    from [Danny] leads me to conclude that there was a meeting in May 2010 and that
    he did show William an earnings projection that suggested a range of $37,500 -
    $44,000 in projected weekly earnings for the franchise.

[31]

In
    dealing with Williams evidence, the motion judge acknowledged that he had
    given different accounts about when he saw the earnings projection and business
    plan in this litigation and in the RBC litigation. He stated that he recognized
    that William took one position in the RBC litigation, a second position in his
    cross-examination where he claimed that he first heard of the business plan
    after March 2011, and a third position in the affidavit that he was shown
    earnings projections by Danny in May 2010. He noted that he accepted Williams
    explanation for the inconsistencies and that, in light of his rejection of both
    Dannys and Guss evidence, the inconsistencies were not enough to create a
    triable issue.

[32]

The
    motion judge found that the franchisors disclosure on June 1, 2010 was
    deficient in not including the earnings projections. This was a material,
    fundamental and stark omission as it was potentially the most important
    information the franchisees would want to know. This omission was so
    significant that it constituted no disclosure under s. 6(2) of the AWA. While
    the motion judge agreed with the appellants that they did not have to disclose earnings
    projections, once they were provided they had to be included in the
    franchisors disclosure.

(iv)

Discussion

[33]

In
    my view, the motion judge erred in granting summary judgment in this case.

(a)

It was not in the interest of justice to determine the issues on summary
    judgment in this case without oral evidence

[34]

Where,
    on the record, there appears to be a genuine issue requiring a trial, the motion
    judge may then consider whether the need for a trial can be avoided by using
    the powers under rr. 20.04(2.1) and (2.2). The motion judges decision to
    exercise these powers is discretionary and attracts appellate deference provided
    that their use is not against the interest of justice:
1615540 Ontario
    Inc. (c.o.b. Healing Hands Massage Therapy Clinic) v. Simon
, 2016 ONCA
    966, at para.
22.

[35]

In
    this case the motion judge concluded that the record did not permit him to make
    an order for summary judgment, and that there was a genuine issue for trial
    with respect to the May 2010 meeting. He then proceeded to invoke the
    expanded powers under (1.1) to determine the rescission claims by summary
    judgment. However, he did not consider the obvious need for oral evidence under
    (2.2).

[36]

It
    will not be against the interest of justice to use the expanded powers where
    this will lead to a fair and just result and will serve the goals of
    timeliness, affordability and proportionality in light of the litigation as a
    whole:
Hryniak
, at paras. 61-66. Relevant considerations include the
    nature and complexity of the litigation, a comparison of the evidence that will
    be available at trial and on the motion, the opportunity to fairly evaluate the
    evidence, the proportional procedure considering the nature of the issues, as
    well as the nature and strength of the evidence:
Hryniak
, at paras. 58,
    59 and 82.

[37]

In
    this case, a number of factors were relevant and ought to have been considered
    before the motion judge decided to use the enhanced powers absent oral
    evidence to determine the respondents rescission claims in a motion for summary
    judgment.

[38]

The
    motion judge ought to have considered the central role of the disputed factual
    issue in the litigation. The case for rescission depended on a finding that Danny
    had shown William and Kirsten earnings projections before they signed the
    franchise agreement. It was only if this had occurred that they could possibly
    have been entitled to rescission and rescission damages.

[39]

The
    motion judge had to consider the state of the evidence that was before him on
    the motion on the disputed factual issues. There was no cross-examination of
    the appellants deponents, including Danny, whose evidence was key. The record
    that was available to the motion judge consisted of contradictory affidavit
    evidence on the central factual dispute. It also included inconsistent evidence
    by William. This was not a case where credibility could be determined by
    reference to documents the parties exchanged that was contemporaneous or
    otherwise.

[40]

The
    more important credibility disputes are to determining key issues, the harder
    it will be to fairly adjudicate those issues solely on a paper record:
A.C.
    v.
Joyce, 2017 ONCA 49, at para. 92. The Supreme Court observed at para.
    57 of
Hryniak
that on a summary
    judgment motion, the evidence need not be equivalent to that at trial but must
    be such that the judge is confident she can fairly resolve the dispute. A
    documentary record, particularly when supplemented by the new fact-finding
    tools, including ordering oral testimony, is often sufficient to resolve
    material issues fairly and justly.

[41]

The
    motion judge ought to have determined whether, in these circumstances, it would
    have been appropriate, or indeed necessary, to hear oral evidence as he was
    entitled to require under r. 20.04(2.2). If credibility cannot be assessed on a
    written record, that should be a sign that oral evidence or a trial is required:
Trotter Estate
, 2014 ONCA 841, 122 O.R. (3d) 625, at para. 55. Here, the
    motion judge ought to have considered whether oral evidence on the key disputed
    factual issue would have enabled him to determine the rescission claims on this
    motion: see for example
Hryniak
, at para. 51;
Choquette v. Viczko
,
    2016 SKCA 52, 476 Sask. R. 273, at paras. 54-56.

(b)

The motion judge could not, on this record, adequately resolve the credibility
    issues

[42]

The
    motion judges reasons for accepting Williams evidence on the key factual
    dispute and rejecting Dannys, are not persuasive.

[43]

First,
    the concerns about Dannys evidence that were identified by the motion judge
    were not sufficient to reject his evidence out of hand, especially where he had
    not been cross-examined. The motion judge characterized Dannys evidence as heavy
    on speculation and light on direct knowledge. However, Danny was, as the
    motion judge observed, a very experienced member of the industry who sold or
    opened at least 1000 franchises prior to this matter. His affidavit contained
    clear evidence. He had no specific recollection of the May 2010 meeting, but
    denied having shown an earnings projection before the franchise agreement was
    signed. He said that [i]t has not been my practice in over 25 years in the
    franchise business to show or provide earnings projections to prospective
    franchisees before they enter into a franchise agreement. This statement was
    not speculative or argumentative. It was a statement of fact based on Dannys
    prior experience. And Danny was not challenged on this statement, as he was
    never cross-examined. Had Danny been cross-examined, the weaknesses in his
    evidence, as well as the inconsistencies between his evidence and the more
    dogmatic evidence of Gus, may well have been explored.

[44]

The
    motion judge appears to have focussed on the evidence about the business plan
    (which contained the earnings projections) having been sent to RBC, which was
    confirmed by the email of June 22, 2010. However he misstated Dannys evidence
    when he said, at paras. 11 and 50, that Danny denied preparing or providing the
    business plan to RBC and that both Gus and Danny suggested the earnings
    projections never existed. It is true that Gus, who was not present at the May
    2010 meeting, and had no personal knowledge of what transpired, denied that the
    franchisor had any involvement in the business plan. However, Danny said that while
    he had no specific recollection of sending the email to Kaufman of RBC with the
    business plan attached, he had no evidence to contradict RBCs evidence.

[45]

The
    import of Dannys evidence was that if he had prepared a business plan and sent
    it to RBC, he would have done so at the request of the respondents to assist
    them in obtaining financing. Williams own evidence confirmed that the appellants
    provided him and his wife with assistance in obtaining financing from RBC. The
    determination that the franchisor was involved in the financing  whether by
    helping the respondents to prepare a business plan, or by preparing the
    business plan in its entirety for submission to RBC  is not determinative of
    the central issue: whether the earnings projections that were ultimately
    included in the business plan were shown to William and Kirsten, as they
    alleged,
before
they signed the franchise
    agreement in June 2010.

[46]

Second,
    after rejecting Dannys evidence, the motion judge did not critically assess
    the respondents evidence. The only mention of Williams evidence was in
    respect of the inconsistencies about when he first saw the business plan and
    earnings projections, and then to say that he accepted it. The motion judge
    stated at para. 40:

The [respondents] argue that the issue in the earlier RBC case
    was not whether they saw the earnings projections but whether RBC showed [them]
    the earnings projections in July 2010. William, in his supplemental affidavit
    of October 18, 2016, explains that he reviewed the earnings projections from
    the business plan in July 2010 but did not appreciate what it was until after
    receiving a copy of the business plan after rescission. I accept this
    explanation and the distinction he draws in this regard.

[47]

With
    respect, the explanation the motion judge appears to have accepted was not
    responsive to the concern about Williams contradictory evidence. The point was
    that William took one position in his litigation with RBC  that he and his
    wife decided to proceed with the financing and purchase the franchise because
    of earnings projections first shown to them by Kaufman at a meeting in July
    2010  and made a contrary but similar assertion in this litigation  that they
    decided to sign the franchise agreement because of an earnings projection they
    were shown by Danny at a meeting in May 2010. It was not in my view sufficient
    for the motion judge to resolve the issue of credibility based on the
    acceptance of Williams explanation, without going further into the evidence.
    This court has cautioned that in the summary judgment and mini-trial context, motion
    judges must take great care t
o ensure that
    decontextualized affidavit and transcript evidence does not become the means by
    which substantive unfairness enters:
Baywood Homes Partnership v.
    Haditaghi
, 2014 ONCA 450, 120 O.R. (3d)
    438, at para. 44. The motion judges treatment of the evidence, including his
    acceptance of Williams explanation for his inconsistencies, did not ensure that
    this key issue would be fairly resolved.

[48]

The
    motion judge did not address what may have been potential weaknesses in the
    respondents evidence, including that William had several meetings with Danny,
    could not recall what transpired at other meetings, did not recall the purpose
    of the meeting at which the earnings projections were alleged to have been
    provided, and did not have any notes or any further communications with Danny
    or anyone else about the projections. Nor did he identify any particular
    strengths. In the end, if he found William to be credible, the motion judge did
    not explain why he accepted his evidence about what transpired at the May 2010
    meeting, except that he had rejected Dannys evidence. He summed up his
    assessment of the evidence by saying, at para. 48, having accepted [Williams]
    explanation for the inconsistencies, and in light of my rejection of both Danny
    and Guss evidence in this regard, the inconsistencies in Williams evidence
    are not sufficient in the circumstances to raise triable issues.

[49]

In
    this case, the respondents choice not to cross-examine the appellants
    deponents on their affidavits and not to tender evidence from Kirsten ought to
    have been taken into consideration by the motion judge before he rejected the
    appellants evidence and accepted the respondents evidence on the key disputed
    factual issue. It is trite law that each side must "put its best foot
    forward
in a motion for summary
    judgment:
Transamerica Life Insurance Co. of Canada
    v. Canada Life Assurance Co.
(1996), 28 O.R. (3d)
    423 (Gen. Div.), at p. 434;
Goudie
    v. Ottawa (City)
, 2003 SCC 14, [2003] 1 S.C.R. 141, at
    para. 32;
Ramdial v. Davis
, 2015
    ONCA 726, 341 O.A.C. 78, at para. 27;
Canada (Attorney
    General) v. Lameman
, 2008 SCC 14, [2008] 1 S.C.R. 372, at
    para. 11;
Chernet v. RBC General Insurance Company
, 2017 ONCA 337, 11
    M.V.R. (7th) 1, at para. 12. A motion judge is entitled to draw an adverse
    inference from a partys failure to adduce personal evidence:
Mazza v.
    Ornge Corporate Services Inc.
, 2016 ONCA 753, 62 B.L.R. (5th) 211, at
    para. 9. Here, the motion judge did not address the fact that there was no
    affidavit from Kirsten, who was alleged to have been at the May 2010 meeting
    when the earnings projection was shown. Kirsten did not provide her own account
    of what transpired, except in an answer to an undertaking given in Williams
    cross-examination. The absence of her direct evidence on the critical points
    ought to have been taken into account in determining whether it would be fair
    and just to grant summary judgment in this case.

[50]

I
    would therefore allow the appeal on this basis. I would not purport to venture any
    opinion on the findings that a trial judge or another judge on summary judgment
    ought to make. Rather, I have set out some of my concerns about the motion
    judges treatment of the parties evidence, simply to underscore the
    difficulties in attempting to make credibility assessments and to find key and
    material facts without the benefit of oral evidence in this case. This is a
    case where oral evidence in particular on the question of the May 2010 meeting,
    would have permitted a full appreciation of the parties evidence, and a proper
    assessment of their credibility.

B.

Is the Motion Judges Decision Supportable on Another Basis?

[51]

I
    turn to address the respondents submission in oral argument that this court
    should uphold the motion judges decision on what they argue was an alternative
    basis for his decision.

[52]

Essentially,
    the respondents say that what transpired at the May 2010 meeting is irrelevant,
    and that so long as the franchisor provided earnings projections to RBC in June
    2010 (a finding which is unassailable), they were material and therefore ought
    to have been included in the disclosure document that was given to the
    respondents on June 1, 2010. In other words, it matters not whether the
    earnings projections were provided to the franchisees in May 2010 or later (in
    the business plan to RBC); if they were provided, then it was material
    non-disclosure amounting to no disclosure at all for the earnings projections
    not to have been included in the franchisors disclosure document. The
    respondents say that this is the effect of paras. 50 to 53 of the motion
    judges reasons.

[53]

I
    disagree. The respondents position is not supported by a fair reading of the
    motion judges decision. The motion judge structured his reasons to deal first
    with whether earnings projections were shown to the respondents at the May 2010
    meeting, at paras. 41 to 45. The motion judge had already determined that the
    earnings projections had been provided by the franchisor at the May 2010
    meeting. He had to then determine the significance of the non-disclosure, which
    he discussed under the heading The Effect of the May 2010 Meeting. I read
    paras. 50 to 53 as setting out the motion judges conclusions as to the effect
    of the meeting, in light of his prior finding about earnings projections having
    been provided at the May 2010 meeting. He considered whether the subsequent failure
    to include the projections before the franchise agreement was signed amounted
    to no disclosure as required by s. 6(2) of the AWA before rescission could be
    granted within two years of the signing of the franchise agreement.

[54]

The
    motion judge would have missed the point if, as the respondents argue, he had concluded
    that the failure to provide earnings projections as part of the disclosure was
    made out because the franchisor provided such projections to RBC with the
    business plan
after
the
    franchise agreement was signed. The purpose of disclosure is to enable a
    prospective franchisee to make an informed decision about whether or not to
    invest in a franchise:
6792341 Canada Inc. et al. v. Dollar It Limited
(2009),
    95 O.R. (3d) 291 (C.A), at para. 35. Disclosure is required to be made no later
    than 14 days before the franchisee signs the franchise agreement. If there is
    defective or incomplete disclosure, rescission must be exercised within 60 days
    of the disclosure having been made (s. 6(1) AWA). For s. 6(2) to apply, and for
    rescission to be available for two years, there must have been no disclosure.
    As such, the only basis on which the failure to provide the earnings projection
    could have amounted to non-disclosure was if the respondents had received the
    earnings projections
before
they signed the
    franchise agreement, and they had not been included in the disclosure. The
    provision of such information by the franchisor at a later stage in connection
    with the respondents financing may well have given rise to other arguments
    about misrepresentation (which were not raised in the action), but could not
    found a claim of rescission based on non-disclosure.

[55]

For
    these reasons, I would set aside the summary judgment granted in this case. The
    key and essential finding that there was non-disclosure which amounted to a
    breach of s. 6(2) of the AWA and justified rescission and damages ought not to
    have been made in the circumstances of this case. That finding could not be
    made on the basis of untested evidence, and without invoking at least the
    powers under r. 20.04(2.2) to hear oral evidence.

[56]

I
    turn to the issue of the effective date of the franchise agreement for the
    purpose of a rescission remedy.

C.

Was the Rescission Claim Out of Time?

[57]

Section
    6(2) of the AWA provides that a franchisee may rescind a franchise agreement no
    later than two years after entering into the franchise agreement if the
    franchisor never provided the disclosure document.

[58]

The
    respondents signed the franchise agreement on June 16, 2010. They signed a
    replacement agreement in substantially identical terms on September 7, 2010.
    The appellants contend that the motion judge erred in concluding that the
    respondents had a right of rescission under s. 6(2) of the AWA, when the original
    franchise agreement was signed more than two years before the purported
    exercise of rescission. If this issue were determined in the appellants
    favour, the respondents action would be dismissed.

[59]

The
    appellants say that there was contradictory evidence at the motion for summary
    judgment about the reason for executing a replacement franchise agreement. Their
    evidence was that the respondents were asked to sign a new agreement after they
    had been approved for financing, which meant the franchise location could
    proceed to be developed and a closing date could be confirmed. The respondents
    evidence was that the replacement agreement was signed because the franchisor
    wanted to report the transaction in a later time period, and to avoid paying a
    commission to its broker. Guss affidavit denied this, and noted that the
    broker had been paid.

[60]

This
    conflict in the evidence is not material. Whatever the motivation for the replacement
    agreement, it is undisputed that the request originated with the franchisor. There
    was nothing to suggest that there was any benefit to the franchisee in signing
    a replacement agreement in terms that were substantially identical to the
    original agreement. The motion judge rightly concluded that [h]aving chosen to
    require the franchisees to sign and enter into a replacement agreement, the
    franchisor cannot now argue that an existing franchise agreement is already in
    place such that the protections afforded under s. 6(2) are already partially
    diluted. In arriving at this decision, he properly considered the intent and consumer
    protection purpose of the AWA.

[61]

The
    motion judges decision on the effective date of the franchise agreement for
    the purpose of s. 6(2) is entirely reasonable and supported by the evidence.
    And I do not view the credibility issues identified earlier with respect to the
    earnings projections as in any way affecting the motion judges decision on
    this issue, or that oral evidence would have been required to determine it.

[62]

I
    would therefore not interfere with the motion judges determination of this
    issue.

[63]

Considering
    my resolution of the issues above, it is not necessary to examine the issue of
    damages.

DISPOSITION

[64]

For
    these reasons, I would allow the appeal. I would set aside the judgment of the
    motion judge, with the exception of the determination that the rescission claim
    was made in time. I would award costs to the appellants in the amount agreed
    between the parties, $20,000, inclusive of HST and disbursements. As for the costs
    of the motion in the court below, if the parties are unable to agree they may
    make written submissions to this court limited to five pages each, not
    including any costs outlines, as follows: the appellants within 20 days of
    these reasons, the respondents within 15 days of receipt of the appellants
    costs submissions, with reply submissions, if any, within ten days thereafter.


K. van Rensburg J.A.

I agree S.E. Pepall J.A.

I agree G.T. Trotter J.A.

Released: July 27, 2018





[1]
Earnings projections are not required to be disclosed, but when an earnings
    projection is provided, a statement specifying the reasonable basis for the
    projection, the assumptions underlying the projections and a location where
    information is available for inspection that substantiates the projection must
    be included in the disclosure: AWA, s. 5(4); O. Reg. 581/00, s. 6(3).



[2]

Gus, who was the sole officer
    and director of the franchisor and who was not directly involved in the
    relevant dealings, also provided an affidavit denying that earnings projections
    were shown in a meeting in May 2010 and that any business plan had been
    provided by the franchisor to RBC. The appellants take no issue on appeal with
    the motion judges rejection of Gus evidence.


