Executive Summary: Key Legal and Evidentiary Issues

• Sufficiency of the franchisor’s disclosure under the Arthur Wishart Act, including failure to provide a single, compliant disclosure document within the statutory timelines.
• Non-compliant financial statements, including use of compilation-level financials for the wrong corporate entity and failure to disclose the franchisor’s most recent fiscal year results or material changes.
• Alleged piecemeal disclosure through emails, brochures and meetings versus the Act’s requirement for one consolidated disclosure document delivered at one time.
• Improper or incomplete disclosure of earnings projections, cost estimates, territory description, and financing terms as required by the Regulation.
• Determination of which corporate entities and individuals qualified as “franchisor” and “franchisor’s associates” and their joint and several liability for statutory rescission damages.
• Quantification of rescission damages under section 6(6) of the Arthur Wishart Act, based on an uncontested expert report covering payments made, inventory, equipment, and operating losses.

Factual background and the franchise relationship

The case arises from the purchase and operation of a Dixie Lee Chicken franchise in Bancroft, Ontario, by EazyFoods Inc. and its principals, Noorudheen Neermunda, Nadia Gafoor and Sajid Muneer. They are the Applicants and franchisees. The Respondents are 615241 Ontario Ltd. (the franchisor) and several related parties alleged to be franchisor’s associates: 619030 Ontario Ltd., Dixie Lee Ontario Ltd., and Maria and Shawn Struik. The Applicants’ relationship with Dixie Lee began in mid-2023. In May and June 2023, they received promotional materials about acquiring the existing Bancroft location, including brochures describing the business as a “proven success” that would “earn a fantastic income” and references to strong post-COVID sales. On June 12, 2023, an application to become franchisees was sent by Maria Struik and returned by the Applicants on June 14. On June 15, 2023, the Applicants were told they were approved and a purported disclosure document, dated June 1, 2023, was provided to some of them. Over the next weeks, further information was exchanged, including discussions of required upgrades to the premises, additional conditions and an earnings/costs “Sales/Income forecast” for a typical Dixie Lee unit.

On August 24, 2023, EazyFoods Inc. signed an Agreement of Purchase and Sale to acquire the assets of the existing franchised location from the prior owner, for a total price of $599,000 (allocated as $400,000 for the property and $199,000 for the business). With extensions, closing occurred on September 29, 2023. That same day, the three individual Applicants entered into a franchise agreement with 615241 Ontario Ltd., giving them the right to operate the existing Dixie Lee Chicken franchise in Bancroft. After taking over the business, the Applicants’ financial position deteriorated. Their accountant prepared up-to-date financial statements for EazyFoods on August 30, 2024. On September 17, 2024, near the end of the two-year rescission window, the Applicants delivered a notice of rescission, purporting to rescind the franchise agreement under section 6(2) of the Arthur Wishart Act (Franchise Disclosure), 2000, based on multiple alleged “material deficiencies” in disclosure. The franchisor rejected the rescission, treated the franchise agreement as still in force and, within days, issued default notices and then a notice of termination on September 27, 2024. The Applicants commenced this application on October 10, 2024.

Statutory framework and policy context

The governing legislation is the Arthur Wishart Act (Franchise Disclosure), 2000, and its Regulation, O. Reg. 581/00. Section 5 imposes detailed pre-sale disclosure obligations on franchisors, including: a single disclosure document delivered at one time; disclosure at least 14 days before any binding agreement or payment (subject to limited deposit exceptions); and inclusion of all material facts, prescribed financial statements, copies of agreements, prescribed statements, and other prescribed information. The Regulation prescribes, among other things, that the disclosure document must include audited financial statements for the most recently completed fiscal year or, alternatively, financial statements meeting at least review-engagement standards and delivered within a 180-day grace period after the end of the franchisor’s fiscal year. It also requires clear disclosure of territory, estimates of start-up and capital costs, terms of any franchisor financing, and the basis and assumptions for any earnings or cost projections.

Section 6 provides franchisees with rescission rights if disclosure obligations are not met. Under section 6(1), rescission can be exercised within 60 days of receiving a deficient disclosure document. Under section 6(2), if a franchisor “never provided the disclosure document” within the meaning developed by the case law, rescission may be exercised up to two years after entering into the franchise agreement. If rescission is validly exercised, section 6(6) requires the franchisor or its associates, within 60 days, to refund money received (other than for inventory, supplies or equipment), repurchase inventory and supplies/equipment at cost, and compensate the franchisee for losses incurred in acquiring, setting up and operating the franchise, net of the other recoveries. The court emphasized prior Ontario Court of Appeal authority that interprets these provisions purposively in favour of franchisees, characterizing the Act as protective legislation with strict disclosure obligations and serious consequences for non-compliance. Courts have held that certain “fatal flaws” in disclosure—such as non-compliant financial statements, unsigned certificates, failure to provide a head lease, or piecemeal disclosure—can render disclosure so deficient that it is treated as “no disclosure” for the purposes of section 6(2), without needing to prove that the franchisee’s ability to make an informed investment decision was actually impaired.

Alleged disclosure deficiencies and financial statement issues

The Applicants advanced three principal “fatal flaw” arguments: that the financial statements in the disclosure were non-compliant; that disclosure was given piecemeal; and that the earnings and cost projections breached the Regulation. The court focused first on the financial statements. The key defects were: the statements were for 619030 Ontario Ltd., not the actual franchisor 615241 Ontario Ltd., even though the franchise agreement defined 615241 as the franchisor; they were prepared only to a “compilation engagement report” standard, not audited or review-engagement standard as required under section 3 of the Regulation; and the statements were for the year ending December 31, 2021, delivered more than 180 days after year-end, meaning the statutory grace period had expired. No compliant financial statements of the franchisor were ever disclosed.

On top of that, a 2022 compilation-level financial statement, showing a nearly 50% drop in net earnings compared with 2021, was prepared and dated September 12, 2023. It existed before the Applicants signed the franchise agreement on September 29, 2023, but it was not disclosed before contract execution. The court treated this as a material change that triggered a duty under section 5(5) to provide a written statement of material change, which did not occur. The judge concluded that the combination of providing the wrong entity’s financials, using a compilation standard instead of audited or review-level, and failing to provide current financial information or a material change statement amounted to serious non-compliance. Drawing on Court of Appeal authority, the judge held that these deficiencies alone were “fatal flaws” that justified rescission under section 6(2) without needing to prove actual impairment of the Applicants’ decision-making. Even on an objective basis, the absence of an accurate and up-to-date financial picture of the franchisor would have prevented a reasonable prospective franchisee from making an informed investment decision.

Piecemeal disclosure, projections and other material omissions

The Applicants also argued that the franchisor improperly disclosed material information piecemeal, contrary to section 5(3), and that the disclosure document and its surrounding communications omitted or mishandled mandatory items (territory, costs, financing, and projections). The evidentiary record showed a series of documents and communications: promotional brochures in May and June 2023 with marketing language about profitability and “fantastic income”; lists of required upgrades to the Bancroft premises with no cost estimates; a June 15 disclosure package; a June 16 email with additional conditions and references to equipment leases and upgrades; a July 10 email enclosing another copy of the disclosure plus a sales/income forecast; a July 19 in-person meeting in which Shawn Struik described the business as worth over $400,000 and emphasized that the Applicants were getting a good deal at $200,000; and July 28 and August 1 emails repeating and expanding on earnings and cost projections.

The court accepted that some of this early promotional and introductory material could fairly be characterized as marketing or general information rather than formal statutory disclosure. However, if it was not treated as part of the disclosure, then the official written disclosure document was in several respects incomplete or inaccurate. In particular: the disclosure document did not describe the franchise territory as required by section 6(12) of the Regulation, merely stating that territory would be agreed prior to signing, even though the actual territory description had been provided separately by email; the disclosure document stated that Dixie Lee did not provide any form of financing, while contemporaneous emails set out proposed leasing and financing arrangements for capital equipment with the franchisor as lessor, making the written disclosure misleading on financing terms; the cost estimates in the disclosure were only partial compared with the specific list of capital upgrades for the Bancroft location circulated by email, so the statutory obligation to estimate costs for inventories, leasehold improvements, equipment and other necessary property was not properly met; and, critically, although the disclosure document expressly said Dixie Lee was not providing earnings projections, the franchisor nevertheless provided earnings and operating cost projections by separate documents and emails (including typical store sales ranges and detailed Excel worksheets) without supplying the required reasonable basis, assumptions or inspection location mandated by sections 6(2) and 6(3) of the Regulation.

Taken together, these deficiencies either amounted to improper piecemeal disclosure outside a single document, or, if one looked only at the formal disclosure document, to serious gaps and inconsistencies that left the franchisee without the statutory level of information. While the judge was somewhat less persuaded on piecemeal disclosure as an independent fatal flaw, the court held that these problems at minimum meant the Applicants were objectively unable to make an informed investment decision, further supporting their right to rescind.

Fair dealing arguments and the franchisor’s response

The Respondents attempted to resist rescission by invoking the duty of fair dealing under section 3 of the Act and common law good faith principles. They argued that the Applicants had legal counsel involved as early as July 2023, obtained an independent business appraisal and business plan, and never raised disclosure concerns until the business later struggled financially. They characterized the rescission as a tactical move driven by funding shortfalls and poor performance, and alleged that the Applicants effectively “sat on” their rights and acted in bad faith. They relied on Supreme Court authority on good faith in contractual performance, arguing that the Applicants’ silence created a reasonable misapprehension that disclosure was acceptable.

The court rejected this line of defence. First, it found no evidence that the Applicants acted in bad faith or deliberately waited strategically; on the record, they only learned of their rescission rights when they retained new counsel around August 2024. Second, the Act expressly provides that franchisees cannot waive their statutory rights; inadequate disclosure cannot be cured by inaction, silence, or even legal advice obtained at the time. Third, following established appellate authority, the court held that the rescission remedy in section 6 operates independently of duty-of-fair-dealing claims: a franchisor cannot avoid or dilute the section 6 remedy by alleging misconduct by the franchisee. If the franchisor believes the franchisee has acted wrongfully, its recourse is to bring its own claim under sections 3 or 9 of the Act or at common law. In this case, although 615241 Ontario Ltd. had commenced a separate application (CV-25-258) and there was an earlier order that both matters be heard together, that franchisor’s application was not perfected and did not proceed. As a result, the only matter before the court was the franchisees’ rescission application; there was no live cross-application or counterclaim for the court to adjudicate.

The court also held that arguments about the Applicants’ training, management practices, attendance at the business, or comparative success of neighboring Dixie Lee locations were irrelevant to the statutory disclosure analysis. The central question was not why the business ultimately failed, but whether the franchisor satisfied the mandatory disclosure regime. On that test, the franchisor’s position failed.

Identification of the franchisor and franchisor’s associates

Because the Act imposes liability on the franchisor and its “franchisor’s associates”, the court had to determine which entities and individuals fell within this statutory definition. 615241 Ontario Ltd. was clearly the franchisor, being named as such in the franchise agreement. The evidence showed an interrelated corporate structure under the “Dixie Lee” brand, including Dixie Lee North, 619030 Ontario Ltd. and Dixie Lee Ontario Ltd., with Maria Struik as the principal and directing mind. The disclosure itself described Dixie Lee North as a wholly owned subsidiary of 615241, a division of 619030 Ontario Ltd., and noted that Dixie Lee Ontario Ltd. owned franchises outside certain territories and that Maria Struik was the court-appointed receiver of Dixie Lee Ontario Ltd. The financial statements provided in the disclosure were those of 619030 Ontario Ltd., and Maria Struik explained that she operated the franchising business through 619030 while using 615241 to hold franchisor rights. Dixie Lee Ontario Ltd. also made representations in the disclosure.

On the individuals, Maria Struik was an officer of the relevant corporate entities, signed the franchisor’s certificate and had been directly involved in operating the Dixie Lee franchise system since 1989. She was the main decision-maker in granting the franchise to the Applicants. Her son, Shawn Struik, as vice president of the Dixie Lee corporate entities, attended key meetings, prepared the list of equipment and upgrades, participated in discussions about value and pricing, and made representations that the business alone was worth over $400,000 while the Applicants were paying $200,000. He described the upgrades list as the subject of a mutual agreement between “Dixie Lee” and the Applicants and was clearly involved in marketing and granting the franchise. Applying the statutory definition, the court held that 619030 Ontario Ltd., Dixie Lee Ontario Ltd., Maria Struik and Shawn Struik all met the criteria of “franchisor’s associates”: they were under common control with the franchisor and were directly involved in granting and marketing the franchise or exercising significant operational control, with ongoing financial ties to the franchisee.

Damages assessment and monetary relief

Having found that the disclosure defects justified rescission under section 6(2), the court turned to quantify the Applicants’ entitlements under section 6(6). The Applicants relied on a detailed expert report that traced the franchisee’s actual financial records and supporting source documents. The report calculated four heads of recovery: first, money received from or on behalf of the franchisee other than for inventory, supplies or equipment, including the initial franchise fee, royalties and other payments, totalling $109,131; second, inventory purchased under the franchise agreement and remaining at the date of rescission, valued at $12,545 based on a manual count and current supplier prices; third, supplies and equipment acquired pursuant to the franchise agreement, primarily those purchased from the selling franchisee and valued (after discount) at $64,196; and fourth, other losses incurred in acquiring, setting up and operating the franchise, calculated from EazyFoods’ general ledger and adjusted to exclude sums already captured under the other heads, totalling $206,826. The combined amount of these heads yielded a rounded total of $407,000 in damages in the expert’s analysis, though that figure included pre-judgment interest.

The Respondents did not file their own expert evidence. While they had raised some challenges earlier in the process, they did not substantively contest the figures or the underlying documents once the formal expert report was produced and source materials were provided. The court found the report “robust and uncontested”, accepted its methodology and source-based calculations, and adopted the quantum with one adjustment: stripping out the pre-judgment interest component to arrive at a pure damages figure. On that basis, the court ordered the Respondents, jointly and severally, to pay $392,698 in damages under section 6(6). It then awarded pre-judgment interest at 4.8% from October 10, 2024 (the date the application was issued) to January 26, 2026 (the date of judgment), and specified that the judgment would carry post-judgment interest at 4.0% per year from January 26, 2026 onward. The court did not fix costs in the decision; instead, it encouraged the parties to agree on costs and, failing agreement, invited brief written submissions by a specified deadline, meaning the ultimate costs figure could not yet be determined from this judgment alone.

Outcome and significance of the decision

The court ultimately held that the Applicants were entitled to rescind the franchise agreement under section 6(2) because the franchisor had, in law, “never provided” a compliant disclosure document. The defects in financial disclosure—wrong entity, compilation-level statements, out-of-date year-end, and failure to disclose a material downward shift in earnings—were themselves sufficient to constitute fatal flaws. Additional problems with piecemeal disclosure, incomplete or inconsistent treatment of territory, financing, capital cost estimates and projections further reinforced that the Applicants could not objectively make an informed investment decision. The court declared that 615241 Ontario Ltd. was the franchisor, that 619030 Ontario Ltd., Dixie Lee Ontario Ltd., and Maria and Shawn Struik were franchisor’s associates, and that all were jointly and severally liable under the Arthur Wishart Act for the rescission consequences. It then declared that the franchise agreement and all related agreements had been lawfully rescinded by the Applicants’ September 17, 2024 notice.

In the result, the Applicants—EazyFoods Inc., Noorudheen Neermunda, Nadia Gafoor and Sajid Muneer—were the successful parties. The court granted their application, ordered the Respondents jointly and severally to pay $392,698 in statutory rescission damages, plus pre-judgment interest at 4.8% from October 10, 2024 to January 26, 2026, and post-judgment interest at 4.0% from January 26, 2026. The quantum of costs was left for later agreement or brief written submissions, so the precise total of all amounts (including costs) in favour of the successful party cannot yet be fully determined from this decision alone.