As a potential franchisee, you expect the franchisor to disclose to you all documentation that is required at law.  However, there are numerous instances when the franchisor fails to satisfy its statutory requirements, and as a franchisee you rights to redress not only against the franchisor but also the individual(s) directly involved in the grant.

On October 5, 2010 Justice S. Chapnik released his decision in the MBCO Summerhill Inc. v. MBCO Associates Ontario Inc. proceeding.  Chapnik J. found that the franchisee was entitled to rescind the franchise agreement on a motion for summary judgment because the “’disclosure document’ in this case is so materially deficient.”

On September 28, 2007, the plaintiff MBCO Summerhill Inc. entered into a License Agreement (the “Agreement”) with the Defendant MBCO Associates Ontario Inc. (“MBCO Ontario”).  Counsel agreed that even though the Agreement was entitled “License Agreement” it was in effect a Franchise Agreement.  The franchisee rescinded the agreement alleging that it never received a disclosure document as required by the Arthur Wishart Act (Franchise Disclosure) 2000, S.O., c. 3 as amended and thus sought a declaration that License Agreement was rescinded and order for payment from the franchisor and the franchisor associate.

Chapnik J. found that the disclosure document was so deficient, as it was lacking required information such as proper financial statements or balance sheets and a certificate certifying the documents as required by s. 7(1) of the Regulation.  Since the disclosure document was materially deficient, Chapnik J. found that it amounted to no disclosure document at all and the franchisee was entitled to rescind the Agreement within two year limitation period.

Further, Chapnik  J. found that the principal of the MBCO Ontario, George Elian, was a franchisor associate because he was directly involved in the grant, he met personally with the principal of the franchisee on several occasions and he ran the day-to-day business of MBCO Ontario in Ontario.  Thus, Elian was jointly and severally liable for the franchisee’s damages.

Chapnik J. concluded that the franchisee was entitled to the damages he incurred in acquiring and setting up the franchise and held that MBCO Ontario and Elian were jointly and severally liable to the franchisee.

Citation: MBCO Summerhill Inc. v. MBCO Associates Ontario Inc, 2010 ONSC 5432

Olanyi Parsons LL.B

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