Franchisor challenges post-rescission damages, alleges exemption to disclosure
The Ontario Court of Appeal has ruled that the grant of a franchise was “effected by or through” the franchisor, such that a disclosure was necessary under s. 5(1) of Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000.
In 2355305 Ontario Inc. v. Savannah Wells Holdings Inc., 2025 ONCA 505, the franchisee’s action under the Arthur Wishart Act sought damages after the rescission of the franchise agreement based on non-disclosure.
On Feb. 10, 2023, Justice Jasmine Akbarali of the Ontario Superior Court of Justice determined that the franchisor could not rely on the statutory exemption to disclosure in ss. 5(7)(a) and 5(8)(a) of the Arthur Wishart Act.
The trial judge also found that the respondents:
- validly rescinded the franchise and ancillary agreements under the Arthur Wishart Act
- should receive statutory compensation under s. 6(6) of the Act
- deserved costs on a substantial indemnity basis
The judge held that the June 2013 franchise agreement provided by the respondents at trial and signed by one of the franchisor’s associates was legitimate.
The judge noted that the franchisor required the respondents to sign a new franchise agreement and thus could not assert that they already had an agreement, such that it would be exempt from the disclosure requirement.
The judge said the appellants could not claim an exemption under s. 5(7)(a), which applied to reselling a franchise if the grant of the franchise was not effected by or through the franchisor, because the grant of the franchise in this case was effected by or through the franchisor.
The judge added that the franchisor could not rely on s. 5(8)(a), which applied if the franchisor merely passively consented to the transfer of the franchise, since the franchisor played more than a passive role in this case through Mr. Chandiok’s involvement in the transaction.
The judge accepted the respondents’ evidence that they believed Mr. Chandiok was associated with the business and helped them purchase a franchise.
Regarding costs, the respondents requested $392,387.05. The judge agreed they were entitled to substantial indemnity costs, but reduced the requested amount to $250,000.
Appeal denied
The appellants – the franchisor and its associates – appealed the trial judge’s findings. The Court of Appeal for Ontario dismissed the appeal and awarded the respondents partial indemnity appeal costs amounting to $20,000, all inclusive.
First, the appeal court saw no error in the judge’s conclusion that the franchisor did not meet the criteria required to rely on the statutory exemption from disclosure under ss. 5(7)(a) and 5(8)(a) of the Arthur Wishart Act.
The appeal court ruled that the judge had ample evidence to find that the grant of the franchise was effected through the franchisor, and Mr. Chandiok acted as its representative to steer the respondents toward the franchise and give them information about it.
The appeal court noted that Mr. Chandiok sent an e-mail stating that he would bring the respondents to the head office in June 2013 for their franchise agreement, had access to the business systems and knowledge of how to operate them, and had information that could only have originated from the business.
Second, the appeal court saw no error in the judge’s conclusion that the respondents validly rescinded their franchise agreement and ancillary agreements with the franchisor and deserved statutory compensation under s. 6(6).
The appeal court noted that the respondents served a notice of rescission on the franchisor and gave up the franchise after they suffered losses when running it for 18 months.
The appeal court rejected the appellants’ challenge to the damages of $325,000 for purchasing supplies and equipment. The appeal court found the judge entitled to accept the calculations of the respondents’ expert, who was a forensic accountant.
Lastly, the appeal court affirmed the judge’s costs award. The appeal court said the appellants failed to establish any error in principle in the judge’s approach.
