Cassels Brock has successfully resisted a franchisee's
appeal to the Ontario Court of Appeal regarding a lower court's
decision to strike the franchisee's statutory rescission
claims. Specifically, the Court of Appeal agreed that the
limitation period for delivering a notice of rescission under
section 6(2) of the Arthur Wishart Act (Franchise Disclosure),
2000 (the "Act"), is a strict two years from the
date of entering into the franchise agreement. This Court of Appeal
decision is a helpful precedent that will hopefully remove any
perceived ambiguity about the limitation period.
In late 2011, Cassels Brock, on behalf of its client, the Cora
Franchise Group ('Cora's"), was successful in striking
a franchisee's claim for statutory rescission of its franchise
agreement under section 6(2) of the Act on the ground that the
claim was statute-barred due to the express limitation period for
delivering notices of rescission under the Act. Under the Act, a
franchisee has two years from "entering into the franchise
agreement" to issue a rescission notice in cases where there
has allegedly been no disclosure. In this case, the franchisee
claimed that there was insufficient disclosure that amounted to no
disclosure, but also waited almost three years to issue the notice
of rescission. Shortly after issuing the notice, the franchisee
issued its statement of claim seeking rescission damages under
section 6 of the Act. In response, Cora's brought a motion to
strike the statutory disclosure claim, as well as various other
portions of the pleading.
The Ontario Superior Court of Justice found in Cora's favour
on the motion and struck the statutory rescission claim (as well as
other claims). Justice Hainey of the Ontario Superior Court of
Justice declined to accept the franchisee's argument that the
words "entering into the franchise agreement" in section
6(2) should be interpreted to mean when the franchise operation had
commenced business operations. Justice Hainey also rejected the
franchisee's argument that "discoverability
principles" apply to section 6(2) of the Act for the purposes
of extending the limitation period.
In June 2012, the franchisee appealed this decision to the
Ontario Court of Appeal, which unanimously confirmed the lower
court's decision, stating that "we agree with the motion
judge's reading of s. 6(2). The notice of rescission was
provided more than two years after the franchise agreement was
entered into. It is therefore plain and obvious that the claim for
statutory rescission cannot succeed."
Franchisors can take comfort in the Ontario Court of Appeal
unequivocally supporting the strict two-year limitation period for
issuing a notice of rescission. This should allow franchisors to
obtain peace of mind concerning potential statutory rescission
claims once two years from the date of executing their franchise
agreements has passed.
Cora's was represented by Derek Ronde, a litigator in
Cassels Brock's Franchise Law Group, and Jonathan Wansbrough,
an articling student. A copy of the Ontario Court of Appeal
decision can be found here. The original Ontario Superior Court of
Justice decision is currently unreported.
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