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The Ontario Court of Appeal recently heard an appeal of a
decision Cassels discussed in its
February 2012 e-Communique, the Ontario Superior Court of
Justice decision in 2130489 Ontario Inc. v. Philthy
McNasty's (Enterprises) Inc. (2011 ONSC 6852). In the
lower court decision, the court examined the issue of limitation
periods in respect of statutory rescission claims under the
Arthur Wishart Act (Franchise Disclosure), 2000 (the
"Act"), and held that, under the Limitations Act,
2002, a franchisee had two years from when (a) the franchisor
rejects a valid rescission claim, or (b) sixty days expire from the
delivery of the rescission notice, whichever is earlier, to bring
an action against the franchisor.
On appeal, the Ontario Court of Appeal upheld the lower court
decision and provided a precise description of how limitation
periods in statutory rescission cases are to be determined once a
valid notice of rescission has been issued: "Until the
franchisor decides to not fulfil the obligations in s. 6(6), the
franchisee has no cause of action for compensatory damages; at
most, the franchisee has a latent or potential cause of action.
Accordingly, the franchisee only has a cause of action at the
earlier of (a) when the franchisor fails to pay compensation
pursuant to s. 6(6) by the end of the 60 day period following the
effective date of the Notice of Rescission or (b) when the
franchisor communicates its refusal to do so at some point before
expiry of the 60 days, as happened in this case." Although it
is rare for litigation to not immediately follow the issuance of a
notice of rescission, the Court of Appeal has clearly determined
that the franchisee's knowledge that the franchisor will be
resisting the notice of rescission is sufficient to start the clock
for the purposes of the two-year notice period.
Again, this decision is helpful in clarifying the limitation
period with respect to rescission actions. Even if a franchisee
issues a notice of rescission within the appropriate time allowed,
the franchisee still has to ensure that an action is brought as
soon as that franchisee is aware that the franchisor will be
disputing the rescission claim. Franchisors should pay close
attention to this limitation period as a defence when dealing with
rescission claims under Ontario's franchise legislation.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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