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FRANCHISING - Disclosure requirements - Remedies - Rescission

Friday, February 16, 2018 @ 8:33 AM  

Lexis Advance® Quicklaw®
Appeal by ASWR from summary judgment granted in favour of Raibex. The parties entered a franchise agreement giving Raibex the right to acquire and operate a wings and ribs franchise. Neither the agreement nor the franchise disclosure document specified a site for the franchise. The agreement stipulated that a suitable location would be selected through reasonable best efforts by both parties. The disclosure document included an estimated range of costs for constructing an operating site from a shell, but did not provide cost estimates for converting a pre-existing restaurant, leading to a dispute between the parties. Raibex purported to rescind the franchise agreement on the basis of material non-disclosure. ASWR sought judgment for costs associated with taking over the restaurant following receipt of the notice of rescission. A summary judgment motion judge held that the franchise agreement had been validly rescinded due to the inadequacy of the disclosure document, and dismissed ASWR's claims for damages. ASWR appealed. Raibex cross-appealed the motion judge's refusal to invalidate the disclosure certificate or to award it damages for misrepresentation and breach of the duty of fair dealing.

HELD: Appeal allowed and cross-appeal dismissed. The deficiencies in the disclosure document relied upon by Raibex were, individually or collectively, insufficiently serious to support rescission arising from a lack of disclosure. The motion judge erred by failing to consider the terms of the parties' franchise agreement within her analysis of the disclosure document.  The agreement contemplated Raibex's active participation and collaboration with ASWR in the site selection process, and offered certain protections to Raibex with respect to site selection. The absence of such information in the disclosure document had little impact on Raibex's ability to make an informed investment decision. There was no basis for appellate interference with the motion judge's refusal to invalidate the disclosure certificate on technical grounds. Setting aside the rescission remedy, ASWR was awarded damages based on Raibex's failure to fulfill its financial obligations, less any benefits ASWR derived from the operation of the franchise for the duration of the lease.

Raibex Canada Ltd. v. ASWR Franchising Corp., [2018] O.J. No. 360, Ontario Court of Appeal, R.J. Sharpe, R.A. Blair and G.J. Epstein JJ.A., January 25, 2018. Digest No. TLD-Feb122018009