Disclosure so inadequate that it constituted none at all

FRANCHISE AGREEMENTS

Disclosure so inadequate that it constituted none at all

Corporate plaintiff entered into coffee shop franchise agreement expiring February 2006, subject to renewal. Individual plaintiffs guaranteed corporation’s obligations. Plaintiffs entered into sublease for operation of store. Plaintiff’s position they renewed franchise agreement for five-year term effective April 2006. Plaintiffs alleged defendants made inadequate disclosure under Arthur Wishart Act (Franchise Disclosure), 2000 (Ont.), such that entitled to rescission and damages, and breached duty of good faith, such that entitled to punitive damages. Defendants denied any renewal, disclosure obligations, or right to rescission or damages. Defendant counterclaimed for $47,000 unpaid fees pursuant to guarantee. Claim and counterclaim allowed. Defendant’s May 2007 letter a franchise agreement as broadly defined under Act, where related to franchise, sublease of premises, ongoing payments and potential renovation costs. Letter signed by plaintiffs and created binding agreement. Where agreement created new franchise agreement for five-year term, disclosure required. Disclosure so inadequate that constituted none at all. Defendant deliberately concealed fundamental information, i.e. that lease would at end of December 2007. Two-year rescission period at s. 6(2) applied. Plaintiff’s March 2009 notice of rescission timely. Plaintiffs awarded damages for base rent, CAM, tax installment, sign rent, loan for cappuccino machine, advertising fees, equipment purchases and value of inventory totaling $187,730. Damages claim for moneys advanced to franchise by personal plaintiff denied. No way to know whether moneys used to pay expenses for which damages awarded. No entitlement to double recovery. Punitive damages for misrepresentation denied. Keeping critical lease information from plaintiffs, while actively leading plaintiffs to believe lease renewed, a breach of duty of good faith. No mental suffering claim. Damages of $25,000 awarded. Defendants entitlement under counterclaim and guarantee acknowledged. Set-off of $48,824 awarded.

1159607 Ontario Inc. v. Country Style Food Services Inc. (Feb. 6, 2012, Ont. S.C.J., Mesbur J., File No. 08-CL-7458) 213 A.C.W.S. (3d) 332 (25 pp.).