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Suspension of limitation periods and statutory franchise notice of rescission

Monday, April 06, 2020 @ 1:17 PM | By Ben Hanuka

Ben Hanuka %>
Ben Hanuka
On March 17, the Ontario government passed Order in Council 518/2020 (Ontario Regulation 50/20) (the Order) which, among other things, suspended limitation periods in Ontario retroactively as of March 16, for the duration of the current emergency. The Order deals with limitation periods and time limits for any step in a proceeding. This article addresses the first — the suspension of limitation periods.  

The relevant part of the Order is broad in its wording. It states that any provision of any statute, etc, establishing any limitation period, is suspended.

Does the Order apply to the statutory time limits for the delivery of notices of rescission under the Arthur Wishart Act (Franchise Disclosure), 2000? I assume for purposes of this article that there are underlying rescission legal grounds (see earlier article addressing this issue).

The legal difficulty in the analysis of whether the statutory notice of rescission time limits constitute “limitation periods” under the Order is this: the time limits in the Wishart Act for the delivery of a notice of rescission do not directly relate to the bringing of a claim or the commencement of a proceeding.

The most common application of the term “limitation period” is in the context of a commencement of a proceeding in respect of a claim (borrowing from the definition of a basic limitation period in s. 4 of the Limitations Act, 2002). However, it does not strictly address the meaning of a limitation period.

As many readers know, most franchise statutes in Canada contain two different time limits for the delivery of notices of rescission: 60 days from the date of receipt of a disclosure document (s. 6(1)), and two years from the date of entering into a franchise agreement (s. 6(2)).

In The Law of Limitations (See Mew, Graeme et al., The Law of Limitations, 3rd Edition. Toronto, LexisNexis, 2016), the authors define a limitation period as a “stated period of time, the expiry of which extinguishes a party’s legal remedies and also, in some cases, a party’s legal rights.” Based on this definition, “limitation period” is a time limit that a party must meet (presumably to take a certain step) so that its legal remedies and (if applicable) its legal rights are not extinguished.

Yet, the delivery of a notice of rescission does not, in and of itself, create a cause of action under franchise legislation. Under the franchise jurisprudence relating to rescission claims, a cause of action for rescission does not arise merely with the delivery of a notice of rescission. The delivery of a notice of rescission is the first of two necessary steps. The second is a decision of a franchisor within statutory time limits whether to pay out the claimed amounts. The rescission cause of action only arises after both these requirements are met (if the franchisor does not agree to pay out the amounts claimed in the notice of rescission).

Once these requirements are met, a franchisee then has two years to commence a claim under the Limitations Act, 2002 (which time limit is suspended under the Order).

Coming back to the key issue at hand — does each of the statutory time limits for the delivery of a notice of rescission constitute a “limitation period” within the meaning of the Order?

Would failure to deliver the notice of rescission within the statutory time limits extinguish a franchisee’s rescission cause of action? It cannot be disputed that failure to deliver a notice of rescission within the statutory time limits would immediately end a franchisee’s right to pursue a rescission claim. This may be the key legal element to the analysis. Regardless of whether a franchisor pays out the demands set out in a notice of rescission or a franchisee commences a claim — the first and fundamental procedural step to the rescission cause of action is the delivery of a notice of rescission. Failure to do so puts an end to the cause of action; it extinguishes the cause of action.  

In addition, the wording of the Order is expressed in broad terms, as noted earlier, with use of the word “any” in reference to the types of provisions (any provision), the type of law (any statute, regulation, etc.), and the type of a limitation period (any limitation period).

Further, helpful analysis comes from the statute underlying the Order, the Emergency Management and Civil Protection Act (the EMCP). The Order expressly refers to the criteria set out in s. 7.1(2) of the EMCP being met. It is arguable that the analysis set out above fits with the purpose in s. 7.1 of the EMCP. Among other things, its purpose is to address situations where the operation of the law in an emergency results in prejudice. The purpose of the Order is to alleviate such prejudice. It is not hard to foresee prejudice, including access to lawyers on a timely basis to assess rescission grounds and prepare a notice of rescission and complying with the notice of rescission delivery requirements.

It is therefore arguable that the 60-day and two-year statutory time limits for the delivery of a notice of rescission under the Wishart Act qualify as “limitation periods” under paragraph 1 of the Order and that they are therefore suspended.

Ben Hanuka is a member of the Ontario and British Columbia bars and practises in the areas of commercial and franchise litigation and arbitration. He is principal of Law Works®P.C. (in Ontario) and Law Works®L.C. (in British Columbia). He is a fellow of the Chartered Institute of Arbitrators. The author wishes to thank Anthony Pugh, associate at Law Works P.C., for researching some of the issues in this article.

Photo credit anass bachar / ISTOCKPHOTO.COM

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