In 2313103 Ontario Inc. et. al.
("231") v JM Food Services Ltd.
et. al. ("JM"),
the Ontario Superior Court of Justice (the
"Court") considered whether the
shareholders of a corporate franchisee
("Franchisee") can invoke the same
statutory rights afforded to franchisees under the Arthur
Wishart Act (Ontario) (the "Act").
The ruling of the Court confirms that shareholders of a Franchisee
must look to the remedies and rights afforded to them in applicable
corporate legislation (in this case the Business Corporations
Act (Ontario) (the "OBCA")) rather
than the Act unless such shareholders can adduce appropriate
evidence to justify that they, together with the Franchisee, have
been treated as one entity for the purpose of franchise
Three individual plaintiffs (collectively, the
"Amos Group") incorporated 231, the
plaintiff company, to facilitate a franchise transaction with JM,
the defendant franchisor, in order to operate JM's pizza stores
in Ontario. The Amos Group, through 231, and JM co-invested on a
50/50 basis to form a third company, F.S. Food Services Ontario
Inc. ("FS"), to act as master franchisee
of JM pursuant to a master franchise agreement.
Unfortunately, business for the FS pizza franchise in Ontario
was poor and soon ran out of money. The Amos Group abandoned its
operational roles with FS and issued a notice of rescission of the
master franchise agreement to JM.
As a matter of strategy, the plaintiffs decided to bring their
claim under the Act. JM argued that the plaintiffs lacked standing
to bring this action or any claims under the Act given that FS, and
not the Amos Group or 231, was the "franchisee" within
the meaning of the Act.
In refusing to recognize any of the plaintiffs as franchisees
under the Act, the Court made a number of findings. First, the
relevant franchise documents, including the master franchise
agreement, designated FS as the master franchisee. Second, the
plaintiffs led no evidence to demonstrate that they guaranteed any
of the ongoing obligations of FS under the master franchise
agreement. Third, Justice Dunphy concluded that the Plaintiffs
failed to satisfy the Court that the franchise was granted to any
of them in the sense of a sale or disposition from the franchisor;
the obvious candidate for the grant was from JM to FS and there was
no basis to argue for multiple instances of a "grant" of
the same franchise.
The Court found that the plaintiffs were not
"franchisees" within the meaning of the Act and therefore
had no standing under the Act. Instead, any claims should have been
brought by the plaintiffs pursuant to the OBCA. The Court also held
that it was inappropriate to characterize 231 and the Amos Group as
"franchisees" under the Act as a result of their equity
ownership of FS since it would be akin to creating a new class of
"franchisee's associate" under the Act.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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