On the coattails of the recent Supreme Court of Canada decision
in Hryniak permitting the broader use of summary judgment
motions, the franchisor of Caffé Demetre restaurants has won
its motion for summary judgment against a former franchisee. (A
Cassels Brock summary of the Hryniak decision can be found
In the judgment of Caffé Demetre Franchising Corp v 2249027
Ontario Inc, Justice T.A. Heeney of the Ontario Superior
Court of Justice dismissed the defendants' counterclaim seeking
the statutory rescission of the franchise agreement. The Court
ruled that the alleged deficiencies of the disclosure document did
not amount to material facts that should have been included or were
not so egregious as to amount to no disclosure at all.
In this case, after failing to cure a number of defaults, the
franchisor terminated the franchise agreement. In the meantime, the
defendants' served a notice on the franchisor rescinding the
franchise agreement and demanding payment of $926,500 within 60
The franchisor attempted to take possession of the restaurant
but the defendants retook possession and continued to operate a
competing business at the location under the name "Sugar'n
Spice Café." As a result, the franchisor commenced
In the Statement of Defence and Counterclaim, the defendants
sought the rescission of the franchise agreement on the basis that
it failed to provide the requisite disclosure as per s.5(4) of the
Arthur Wishart Act. The defendants alleged that the
franchisor failed to disclose that it was involved in litigation
with a former franchisee, contemplating modification of its
"Tip Out Policy" and ice cream manufacturing policy and
required the defendants to remodel and renovate the franchise
The defendants further counterclaimed for damages of $926,500
for misrepresentation, breach of contract and breach of fair
The franchisor moved for summary judgment with respect to the
portion of the Counterclaim seeking rescission of the franchise
agreement. The summary issue before Justice T.A. Heeney was whether
there was a genuine issue for trial to the question: are the
alleged defects in the disclosure document so egregious as to
amount to no disclosure at all, thereby entitling the defendants to
rescind the franchise agreement under s.6(2) of the Arthur
In his decision, Justice T.A. Heeney surveyed the statutory
disclosure requirements of a franchisor and the ability of a
franchisee to rescind a franchise agreement. In light of the new
summary judgment rules, Justice T.A. Heeney then analysed the facts
and evidence against the applicable law to determine whether there
was a genuine issue for trial as to the defendants' right to
The Court found that it was in the interests of justice to
summarily adjudicate the matter and ruled that three of the four
claimed deficiencies of the disclosure document did not amount to a
material fact that should have been disclosed to the defendants. As
for the undisclosed litigation, the deficiency was not so egregious
to conclude that it amounted to no disclosure at all. Accordingly,
the Court dismissed the Counterclaim for rescission of the
While the parties may still proceed to trial to determine the
merits of the defendants' claims for misrepresentation, breach
of contract and breach of fair dealing, this case demonstrates the
Court's willingness to summarily adjudicate matters in the
franchise context in order to avoid lengthy and costly trials and
to promote the resolution of disputes.
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