In January 2018, the Ontario Court of Appeal released its decision in Raibex Canada Ltd. v. ASWR Franchising Corp., (2018 ONCA 62) (“Raibex”). In Raibex the ONCA narrowed the availability of rescission for franchisees, stating that the availability of rescission under s. 6(2) of the Arthur Wishart Act (Franchise Disclosure) (the “Act”) was dependent on whether the franchisee was effectively deprived of the opportunity to make an “informed investment decision”.
Franchise litigation lawyers have been seeking further guidance about the application of Raibex since it was released, and in the recent decision of 2483038 Ontario Inc. v. 2082100 Ontario Inc., (2020 ONSC 475) (“Fit For Life”), the Ontario Superior Court of Justice provided clarification on this issue and on who might constitute a franchisor’s associate (a defined term) pursuant to the Act.
Facts
In Fit For Life, the plaintiffs (the “Franchisees”) were provided with a Franchise Disclosure Document (the “FDD”) prior to their purchase of a “Fit For Life” franchise (the “Franchise”). The first four pages of the FDD contained some prescribed information about the franchise system. Following this information, there was a signature block on page 4 of the FDD which was signed by Samuel Davis (“Davis”), the sole director and officer of the franchisor, 2082100 Ontario Inc. (the “Franchisor”). This signature block was not a part of any certificate, and the actual certificate at page 27 of the FDD did not contain a signature block and was not endorsed by Davis. Davis testified that it was his intention to endorse the FDD in its entirety and be personally liable when he had signed on page 4.
The parties entered into a franchise agreement and its ancillary agreements in September 2015. On or about August 11, 2017, the Franchisees issued a notice of rescission pursuant to their rights under subsection 6(2) of the Act, alleging that there had been no disclosure at all, primarily because the FDD did not contain a signed certificate. The Franchisees claimed damages in the amount of $624,821.06 pursuant to subsection 6(6) of the Act (rescission damages), or alternatively, under subsection 7(1) of the Act (failure to comply with section 5 of the Act or misrepresentation). The Franchisees alleged that Davis was a franchisor’s associate.
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