Franchisee’s Rescission Claim Must Go to Trial Because of Disputed Facts

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Author: Anthony Pugh, Student-at-Law, Law Works P.C.

Editor: Ben Hanuka

In 1680960 Ontario Inc. v. Print Three Franchising Corporation, a May 14, 2018, decision of the Ontario Superior Court of Justice, a judge dismissed a franchisee’s motion for summary judgment in a franchise rescission case where there were many critical facts in dispute. These conflicts in the evidence meant there were genuine issues for trial.

Key facts

Carmen and Sorin Burchesin, principals of the future franchisee, 1680960 Ontario Inc., expressed an interest in acquiring a Print Three franchise at the Commercial Court in Toronto. In March 2016, Print Three provided a franchise disclosure document to Carmen Burchesin and Sorin Burchesin, 1680960 Ontario Inc.’s principals.

This disclosure document was not site-specific for the sale of a Print Three store at the Commerce Court in Toronto, and did not contain the head lease, the agreement of purchase and sale, a revenue table, or the financial statements of the seller. A disputed percentage of the existing clients of the seller were aboriginal (the seller was an aboriginal company) and therefore could not be serviced by the buying franchisees.

In May 2016, the franchisees completed the purchase of the franchise.  Sixty-four days later, the franchisees delivered their Notice of Rescission to Print Three.

The franchisees moved for summary judgment for a declaration that their franchise agreement with Print Three was validly rescinded and for rescission damages.

There were genuine issues requiring a trial

The motion judge followed the Court of Appeal for Ontario’s decision in Raibex Canada Ltd. v. ASWR Franchising Corp., finding that certain deficiencies in disclosure do not always provide grounds for rescission under section 6(2) of the Arthur Wishart Act (Franchise Disclosure), 2000. The ultimate question in disputes over certain disclosure deficiencies is whether a franchisee is able to make an informed investment decision, i.e., whether all material facts were disclosed.

Print Three argued that the evidence showed that the franchisees did not rely on any of the disclosure information other than the store financials. The franchisees argued that their claim was proven by Print Three’s alleged breaches of the Act, including Print Three’s failure to provide a head lease.

The motion judge found that there were several material facts in dispute, which would require credibility assessments, about when Print Three provided the revenue table, why the seller sold the store, whether the franchisees spoke to the seller about the financials of the store, and why the franchisees did not take on a large client account that was offered to them.

The motion judge concluded that the evidence was not sufficient for her to resolve whether the franchisees were “effectively deprived of an opportunity to make an informed business decision”. Too much of the critical evidence was in dispute.  As a result, the court dismissed the franchisees’ motion for summary judgment.

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