In the case of Treats International Franchise Corporation v.
2247383 Ontario Inc., an Ontario court has dismissed a summary
judgment motion for rescission against a franchisor commenced by
former franchisees and its principals. The decision highlighted the
need for parties to franchise litigation to preserve their
documents or potentially face adverse judicial consequences.
The plaintiff in the action was a franchisor that grants
franchises for its coffee and baked goods concept commonly known as
"Treats." The franchisor commenced an action against the
defendant franchisees and its principals for arrears of rent and
damages owing after the franchisees abandoned the premises and
claimed rescission of their franchise agreement.
The defendants brought a motion for summary judgment seeking
damages as a consequence of the rescission and a declaration that
the franchise agreement was validly rescinded.
Just days before the issuance of the statement of defence and
counterclaim, an individual defendant (as principal of the
franchisee) made an assignment in bankruptcy. Pursuant to section
71 Bankruptcy and Insolvency Act, an action commenced by
an undischarged bankruptcy is a nullity.
Accordingly, the Court held that the statement of defence and
counterclaim were a nullity. The Court declined to exercise any
discretion it had to cure the nullity given the defendants'
admission of spoliation: the affidavit evidence indicated that
financial records of the franchisee had been intentionally
destroyed. As a result, the defendants' motion for summary
judgment was dismissed. A copy of the decision can be found here.
Though this is an extreme case, franchisors are reminded to take
the necessary steps to maintain their records, which can both
preserve and protect against claims for rescission.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).