Khagen Investments Ltd. v. 710497 Ontario Ltd. | Franchise Litigation Lawyers

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Khagen Investments Ltd. v. 710497 Ontario Ltd.

Between
Khagen Investments Ltd., plaintiff, and
710497 Ontario Ltd. and Baker's Dozen Donuts Corporation,
defendants
And between
Baker's Dozen Donuts Corporation, plaintiff by counterclaim,
and
Khagen Investments Ltd. and Vazgen Khachik, defendants by
counterclaim

[1999] O.J. No. 2152
Court File No. C4333/91

Ontario Superior Court of Justice
Brampton, Ontario
Mossip J.

May 20, 1999.
(46 pp.)

Counsel:

Tonu Toome, for the plaintiff, defendants by counterclaim.
David Rothwell, for the defendant, plaintiff by counterclaim.

MOSSIP J.:—

Introduction

1 Vazgen Khachik immigrated to Canada in 1983. He wanted to own his own business. After determining that a Tim Horton franchise was too expensive, he decided to purchase a Baker's Dozen Donuts franchise on Steeles Avenue at Highway 10, in Brampton. This decision was a financial disaster for the plaintiff. Mr. Khachik blames Baker's Dozen Donuts Corporation for the loss of his life savings. Baker's Dozen Donuts Corporation says the financial failure of this franchise location had nothing to do with them. Moreover, Baker's Dozen Donuts claims that Vazgen Khachik owes it a significant amount of money, the basis of which is set out in the counterclaim.

Issues to be determined

1.		Did the defendant, Baker's Dozen Donuts Corporation (hereinafter called Baker's Dozen), notwithstanding it was not the actual vendor of the franchise to the plaintiff, fraudulently and/or negligently misrepresent to the plaintiff the financial position and prospects of the franchise location the plaintiff purchased? Did the plaintiff rely on this financial information to its detriment, such that Baker's Dozen is liable for any damages suffered by the plaintiff?
2.		Were the plaintiff and defendant, Baker's Dozen, "partners" in the franchise such that a duty of care was owed by one to the other in their dealings throughout the franchise?
3.		Did the defendant, Baker's Dozen, breach its contract with the plaintiff by not complying with the terms of the franchise agreement signed between the plaintiff and defendant thereby causing damage to the plaintiff which the defendant, Baker's Dozen is liable for? The particulars of the breach of contract allegation are set out in paragraphs 11,12 and 13 of the statement of claim.
4.		Has the defendant proven the facts set out in the counterclaim, namely the liquidated damages for unpaid rent, supplies not paid for, and the amount due under the promissory note?

Background facts

3 The following relevant facts are not in dispute:

1.		The plaintiff, Khagen Investments Ltd., purchased a Baker's Dozen franchise from 710497 Ontario Limited on or about March 25, 1988. The purchase price was $205,000.00.
2.		The franchise purchased by Khagen had opened originally in July of 1987.
3.		A cheque for $86,300.00 was paid by the plaintiff on closing. The balance of the purchase price was financed by the Toronto-Dominion Bank for $115,000.00 and for a promissory note to Baker's Dozen in the amount of $30,877.39.
4.		The Khagen franchise doors were locked by Kaneff Real Estate, the head landlord, on July 5, 1990. At the time of the closing of the franchise Khagen Investments Ltd. and Vazgen Khachik were indebted to Baker's Dozen for unpaid rent, for unpaid supplies, and for the amount owing under the promissory note.
5.		The financing provided to Khagen Investments Ltd. was provided by the Toronto-Dominion Bank at a branch that was utilized by Baker's Dozen head office. That bank subsequently sold the assets of the plaintiff to satisfy the outstanding balance owing to it by the plaintiff.
6.		The funds on closing, and the amount owing under the promissory note, were payable to Baker's Dozen and not to 710497 Ontario Limited or to the principals of that corporation.

The following relevant facts are in dispute:

1.		The extent to which Baker's Dozen corporate head office was involved in the sale of the franchise to the plaintiff and, in particular, what representations were made to the plaintiff by representatives and employees of the corporate head office.
2.		The extent to which Baker's Dozen carried out their obligations under the franchise agreement.
3.		The existence of a pro forma sheet, which set out the profitability of the plaintiff's franchise previous to the purchase by the plaintiff, and projected such profitability for the future. The parties dispute who prepared this document, who provided the document to the plaintiff and when it was provided.
4.		The extent to which the plaintiff tried to mitigate its losses once the franchise was determined not to be as profitable as projected.

Summary of relevant evidence from trial
(a) Plaintiff's case

5 The plaintiff is the limited company, Khagen Investments Ltd. The sole shareholder of this company is Vazgen Khachik. The plaintiff is referred to by the personal shareholder, Vazgen Khachik throughout this judgment. The evidence of the plaintiff and his brother Vahik Khachik was very similar. That is not to suggest that these two witnesses colluded with respect to their evidence. The fact is that the plaintiff's brother attended all of the meetings prior to the purchase and accordingly his recollection of what happened was very similar to the plaintiff's.

6 The evidence of the plaintiff and Vahik Khachik can be summarized as follows: The plaintiff contacted the head office of Baker's Dozen in approximately December, 1987 to discuss purchasing a Baker's Dozen franchise. The plaintiff's evidence was that a representative of the head office, namely Miranta Kolokotronis, entered into discussions and negotiations with him about the purchase of a franchise. These discussions also included, from time to time, the president of the defendant corporation, namely Ted Paraskakis. These discussions involved all aspects of the purchase of the franchise including the location and the financing for the franchise. The plaintiff's evidence was that he had difficulty arranging a loan for the purchase, but eventually, with the assistance of Ms. Kolokotronis, he obtained financing with the Toronto-Dominion Bank, at a branch that the corporate head office used for business. Eventually, the plaintiff purchased the franchise at Steeles Avenue and Highway 10 in Brampton for $205,000.00. The plaintiff put in cash of $86,300.00 plus a deposit of $1,000.00 plus a small amount for some closing costs. The balance of the purchase price was financed by a loan from the Toronto-Dominion Bank, and a promissory note taken back by Baker's Dozen.

7 The plaintiff's evidence was that the defendant corporation, through both Mr. Paraskakis and Ms. Kolokotronis, held out that the Highway 10 and Steeles Avenue location was a "gold mine". He testified he was told that any difficulty with the franchise by the existing owners was because of their inability to run the franchise properly, and because of personal difficulties between the partners. Mr. Khachik testified that he was shown numerous documents before he entered into the purchase and sale agreement setting out what the franchisor would deliver to the franchisee, once he was in operation. These services included advertising, promotion, training, and other backup to ensure the franchise's success. The plaintiff testified that there was a median which affected the entrance to the plaza, where the franchise was located, when cars were travelling westbound on Steeles Avenue. The plaintiff testified that he was assured by Baker's Dozen that they were going to do something about this median so that the entrance to the plaza would be more readily accessible.

8 The plaintiff's evidence was that he was given a pro forma document by someone from head office, which was filed as Tab 8 of Exhibit 3 of the plaintiff's documentation. This pro forma document was, according to the plaintiff, crucial in his decision-making process to purchase the franchise. The document set out the past sales of the franchise, the expenses associated with those sales, and projected these numbers for the future. There was a disclaimer at the bottom of this form with respect to the reliability of these numbers.

9 There was other contentious evidence given by the plaintiff such as whether a cheque for $41,000.00 was given to him by Mr. Parskakis which he was told not to cash, but to take to the banks when applying for a loan; whether he was given a cheque for $10,000.00 from the head office to show that he had cash flow to fund the beginning of the operation. I do not find either of these facts, or other similar financial details, about the purchase necessary to determine the issues before me.

10 The agreement of purchase and sale with respect to the franchise was entered into between 710497 Ontario Ltd., which was owned by the two principals of that corporation, namely Ilias Kotsovolas and Emanuel Fassoulakis. This transaction closed on March 25, 1998.

11 The plaintiff testified that he received no real training with respect to running the franchise from the head office as it had agreed to do. As well, the plaintiff testified that there was no training with respect to the financial aspects of the franchise or any other training for the running of the business. The plaintiff testified that he relied on Baker's Dozen with respect to their expertise regarding the site selection and its viability. The plaintiff testified that he did call head office to complain about the problems with the franchise right from the beginning of his operation of it. The plaintiff testified that there was very little supervision or assistance once he owned the franchise. In terms of the promotional material and advertising material given prior to the purchase of the franchise, the plaintiff's evidence was that these things were non-existent once the franchise was opened.

12 The plaintiff testified that the maximum sales that the franchise reached after it was opened was $15,000.00 to $16,000.00 per month. He testified that most months the sales were below $13,000.00. The plaintiff testified that he and his brother worked very hard in the franchise and that all they did was work in the franchise.

13 The plaintiff testified that he ran into trouble with the rent and supplies right from the beginning because of cash flow problems. The plaintiff testified that neither he nor his brother took a salary and that all they did was work in the franchise. The plaintiff testified that he received money from a brother in West Germany to assist with the purchase of the franchise, and that this brother sent money on a monthly basis to help him with the cash flow in the business.

14 On cross-examination the plaintiff confirmed that as of July 5, 1990 he owed Baker's Dozen $27,516.48 in rent; $11,119.14 in supplies; and $30,877.39 on the promissory note. Defendant's counsel filed as Exhibit 9, a calculation of the total of these amounts owing, plus interest to the date of trial. The plaintiff confirmed on cross-examination that the premises were repossessed as of July 5, 1990. The plaintiff confirmed that he transferred a home registered in his name into his brother's name on July 16, 1990. A copy of this transfer was filed as Exhibit 10. The plaintiff testified that he owed his brother money and that is why he transferred the house.

15 The plaintiff confirmed that he purchased the Blue and White Dry Cleaners in the same plaza as Baker's Dozen thirteen months after he had purchased the Baker's Dozen franchise. He confirmed that he was put out of possession of the Blue and White Dry Cleaners on the same day that he was put out of possession of his Baker's Dozen franchise.

16 The plaintiff confirmed on cross-examination that he was qualified as an engineer in England, being a building construction engineer. He confirmed he did manage some construction sites. He confirmed he did costing, estimating, and was a quantity surveyor with respect to construction sites. He testified that he was trained in all those areas and that he did well in those areas. He confirmed that he immigrated to Canada in 1983. He confirmed he was licensed as a real estate agent in Ontario and that this occurred at the same time as he managed a Pizza, Pizza business. The plaintiff confirmed on cross-examination that he did not tell any of the banks, when he applied for a loan, that he had qualifications as a renovator, civil engineer, and some experience managing a Pizza, Pizza business. The plaintiff confirmed that he thought the plaza was a good place to buy a second business when he purchased the dry cleaning business. The plaintiff testified on cross-examination that he put all the money from sales of donuts through the cash register. He confirmed that the dry cleaning business was a cash business and that he had no records for Blue and White. He testified that he had lost these financial papers. The plaintiff confirmed that he borrowed $50,000.00 from the Bank of Nova Scotia to buy the dry cleaning business. The bank sued the plaintiff following the failure of this business. Default judgment was obtained against the plaintiff personally. A copy of this judgment was filed as Exhibit 12. The plaintiff testified that he put down a $10,000.00 deposit, but he does not remember where that deposit money came from. The plaintiff confirmed that he never asked for Baker's Dozen approval to try to sell his business. The plaintiff testified that he tried to sell the business in the last three or four months of its operation. He confirmed that he did not prepare any documents to try to sell the business and that he cannot recall if there was a formal listing price established with an agent to try to sell the business.

17 The plaintiff on cross-examination confirmed that he did not have any documents to show any money coming to him from his brother in Germany. He confirmed that he made entries in the black book that he kept as a ledger, which was filed as part of Exhibit 14 in this trial. He confirmed that there were numbers that were changed in that black book. He testified that he changed them because he may have initially written down the wrong number and then had to go back and change it.

18 Lastly, the plaintiff testified under cross-examination that he realized the sales of donuts were low in the first month. He confirmed that he did not make any written complaint to the Baker's Dozen head office. He confirmed that he did not reduce the amount of supplies he was ordering from head office based on lower sales than expected.

19 The plaintiff's brother, Vahik Khachik, confirmed much of what the plaintiff said regarding the statements made by representatives of Baker's Dozen head office. He also confirmed the plaintiff's evidence that they worked full-time in the business and did the best they could. He testified that the franchise never did as well as they were told it would do.

20 The evidence of Mr. David Ashworth, who was the plaintiff's account manager at the Toronto-Dominion Bank, was quite informative, in my view, as to the involvement of the Baker's Dozen head office in the purchase of the franchise by the plaintiff. I find that the information set out in the internal bank document at Tab 8 of Exhibit 3, could only have been provided by the head office. The language in this document with respect to the prior operation of the franchise demonstrates that the information must have been provided by representatives of Baker's Dozen head office. The evidence of Mr. Ashworth was that the information in the internal bank document about the franchise, and the pro forma document were provided by Baker's Dozen head office, and I find that to have been the case. The notation of Mr. Ashworth on that pro forma was that he spoke to Stuart Hardacre at the Baker's Dozen head office and I accept Mr. Ashworth's evidence on this point. Mr. Ashworth testified that it was his practice to speak to head office to confirm the numbers in the pro forma and I find he did so on this occasion as well. A reasonable explanation was provided to Mr. Ashworth as to why the sales were not up to the usual sales performance of a Baker's Dozen franchise, and I find that he must have been told this by a representative of the Baker's Dozen Corporation.

21 The evidence of Mr. Ashworth that the usual sales for a franchise were between $20,000.00 to $25,000.00 per month was based on his experience with other Baker's Dozen franchise stores. Mr. Ashworth relied on Mr. Hardacre with respect to the actual sales performance of this franchise in assisting him with the plaintiff's loan application. I find that the information provided by Baker's Dozen head office was included in the loan application, and this information was a major factor in the bank's decision to grant the plaintiff a loan to purchase the franchise.

22 Mr. Ashworth does not recall any conversations specifically with the plaintiff about what the actual sales were based on the bank records he had of the previous owners' business. Mr. Ashworth did not recall what the plaintiff's knowledge of the actual sales numbers were. Mr. Ashworth also confirmed under cross-examination that Baker's Dozen had no right to sell the franchise assets of the plaintiff. The bank sold those assets under their legal right to do so when the loan went into default. The subsequent purchaser of the franchise paid essentially what was owing to the bank on the plaintiff's loan, and a small franchise fee.

23 Mr. Greenberg was the lawyer for the plaintiff at the time of the purchase of the franchise. He confirmed that there was a credit to the purchaser set out on the statement of adjustments in the amount of $30,877.39. The statement of adjustments was prepared by Mr. Boguski's office, who was the lawyer acting for Baker's Dozen. Mr. Greenberg presumed that the plaintiff had made that payment directly to Baker's Dozen prior to the closing of the purchase. He testified that he had not seen the promissory note for the amount set out in the statement of adjustments.

24 On cross-examination Mr. Greenberg indicated that he did not know why the cheque on closing was made payable to Baker's Dozen and not to 710497 Ontario Ltd. He testified that the plaintiff called a couple of months after the closing to complain about the business. He testified that he did not know why the plaintiff's home was transferred to his brother in July 1990.

25 A further witness for the plaintiff was Mr. Hardacre , who had been the comptroller for Baker's Dozen from 1986 to 1988. Mr. Hardacre testified that he recalled that the previous owners of the franchise, the principals of 710497 Ontario Ltd., were disappointed with the amount of revenue that the franchise generated. He testified that he had developed the pro forma document found at Tab 8 in the Toronto-Dominion Bank file marked as Exhibit 3. He testified that the form was used to help a potential franchisee with financing when they went to their lender. He testified that it was important to put in a disclaimer at the bottom of this form and that there was one at the bottom of this form. The disclaimer was put in so that the franchisee could not hold Baker's Dozen Corporation to a guarantee of the numbers, representing sales and expenses set out on the form. He testified that the bank used these pro forma documents in their assessment of the feasibility of a franchise for lending purposes. Mr. Hardacre testified that while he was at the branch no franchises were taken back by the Baker's Dozen head office. He testified that it did not seem to him that the goal of Baker's Dozen was to take back franchises from the owners.

26 Under cross-examination, Mr. Hardacre testified that he did not recall being asked to prepare the pro forma document found at Tab 8. He testified that it was possible that the pro forma was requested by anyone. The pro forma was created from the records of the franchise and by comparing the supplies ordered from Baker's Dozen head office by the franchise to the sales reported by the franchise.

27 The next witness was Ilias Kotsovolas. He was one of the principals of 710497 Ontario Ltd. that sold the franchise to the plaintiff. Mr. Kotsovolas testified that when he and his partner purchased the franchise he thought there was an infusion of $80,000.00. He testified that he and his partner each put in $40,000.00. He testified that he had no documentation to evidence these advances for the purchase price. I do not find the details of the purchase of the franchise by the previous owners, or the involvement of Baker's Dozen in assisting with that purchase to be necessary to determine the issues before me.

28 Mr. Kotsovolas testified that at the time of the sale of the franchise to the plaintiff he was a "silent partner". He was working at head office and Mr. Fassoulakis was actually operating the store. He was the trainer for the bakers at various Baker's Dozen franchises. Mr. Kotsovolas testified that his franchise opened in July 1987, and that for the nine months he owned it, he thought the store did relatively well. He testified that the franchise was sold because of personal disagreements between him and his partner, and not because the store did not meet their expectations. He testified that he did not discuss the monthly sales with Mr. Paraskakis. Mr. Kotsovolas did not say that he considered the franchise was "successful". Mr. Kotsovolas had virtually no recollection of meeting the plaintiff and his brother. If he did meet them, he probably met them at the Baker's Dozen head office. Mr. Kotsovolas had no knowledge as to why the funds on the sale of his franchise to the plaintiff were made payable to Baker's Dozen and not to 710497 Ontario Ltd. He was not operating the store at the time so he does not know whether the deposits to the bank account which, were filed at Tab 27 as Exhibit 1, accurately reflect the sales of the franchise.

29 Under cross-examination Mr. Kotsovolas testified that as far as he knew, help regarding the operation of the franchise was available to the plaintiff if he wanted it, and asked for it from Baker's Dozen head office. He did not recall the plaintiff asking for help from the Baker's Dozen head office with respect to the operation of his franchise.

30 The evidence of Mr. Kotsovolas convinced me that the sale of the franchise to the plaintiff was for all intents and purpose conducted through Baker's Dozen head office by representatives of head office. Mr. Kotsovolas was either deliberately unhelpful in giving information to the court with respect to the sale, or he simply did not know any of the details. Mr. Kotsovolas was clearly sympathetic to Mr. Paraskakis and his evidence demonstrated his desire to assist Mr. Paraskakis in this lawsuit. I find that Mr. Kotsovolas simply did not know the details with respect to the sale, because the head office was in charge of that sale.

31 Mr. Boguski was the lawyer for Baker's Dozen starting around 1984 or 1985. Mr. Boguski testified as to the details of the franchise sale to the plaintiff. He relied on the documents that were presented to him to describe the transaction. He did not recall specific details of the transaction as it occurred many years earlier. Mr. Boguski could not remember why Mr. Fassoulakis was not on the reporting letter found at Tab 99 of Exhibit 2. He presumed that the money on closing was payable to Baker's Dozen, as opposed to 710497 Ontario Ltd., because 710497 Ontario Ltd. owed money to Baker's Dozen. He frankly recalled very little of the details, other than what he saw on the documentation. He confirmed that Baker's Dozen head office sometimes did want to assist in completing the sale of a franchise, and this may be why a promissory note was taken back from a purchaser if they were short of cash for the closing. Mr. Boguski agreed that his recollection of the actual events as they related to the matter before the court was dim after 10 years. He confirmed that he had not reviewed any of the documents with plaintiff's counsel prior to testifying today.

32 A further witness for the plaintiff was Mr. George Berzins. In March 1987 he was the vice-president for commercial properties for Kaneff. He testified that when the store first opened there was some disappointment about the numbers representing sales, and initially there was some difficulty by the owners, prior to the plaintiff, paying rent. In March 1988 when the property was purchased by the plaintiff he recalls some discussions with respect to access difficulty to the plaza. He met with the City of Brampton and tried to get lane access to the plaza changed, but the City refused.

33 On cross-examination Mr. Berzins agreed that anyone who went to the franchise location would see the median, which affected the access to the plaza if you were travelling westbound on Steeles Avenue. He agreed that an observer would see the traffic pattern into the plaza. Mr. Berzins agreed that the plaintiff purchased the dry cleaner in the same plaza a year after he had bought the Baker's Dozen. He confirmed that at the time of this purchase, the driving pattern was the same with respect to the entrance to the plaza.

34 The plaintiff's next witness was Jeff Lupton. He worked for Baker's Dozen from approximately May 1989 to November 1991. He was involved in the finances with respect to head office. He testified that the Baker's Dozen supervisors did visit the franchise locations weekly. He testified that the supervisors were spread fairly thin and therefore did not spend much time with the individual franchise operators. Mr. Lupton became aggressively involved with the plaintiff when they were in arrears of rent. He visited the franchise location several times to arrange for payments of the arrears of rent.

35 Mr. Lupton confirmed under cross-examination that he was the one who was pushing for the close of the franchise store. He confirmed that Mr. Paraskakis did not initially want to close the franchise. He confirmed that Mr. Paraskakis liked to be able to say "I've never closed a store".

36 The plaintiff hired Mr. Matwijec to create the financial statements for the franchise. Mr. Matwijec used information provided by the plaintiff, the bank statements for the franchise and the plaintiff, and whatever other records were available to create these financial statements. Most of this information is compiled in Exhibit 6. Mr. Matwijec candidly described the financial original source documents as a "dog's breakfast". Mr. Matwijec did the best he could to create the financial statements. These statements were filed at Tabs 8 to 12, of Exhibit 6, in this proceeding. Mr. Matwijec created a Cash Input into Business statement, which was filed as Exhibit 17. This statement set out the plaintiff's initial contribution, the deposit towards the purchase, bank fees, and cash paid plus the losses for the business and loan payments to the bank. The total of all these figures was $231,000.00 which represented the total cash put into the business by the plaintiff. At Tab 6 of the financial documentation in Exhibit 6, Mr. Matwijec compared the forecasted sales, cost of sales, and wages set out in the pro forma document, to the actual numbers for these categories for the plaintiff's franchise. Mr. Matwijec testified that most of the financial information was given to him by the plaintiff. He also testified that the black ledger book, Exhibit 14, which was incomplete at best, had changes made to the entries in the book. Mr. Matwijec described this book as the "next best thing to useless". Mr. Matwijec agreed on cross-examination that if someone wanted to keep track of their business, he would have expected much better records.

37 The business valuator hired by the plaintiff was Thomas Koger. He filed his report as Exhibit 18 in the proceeding. The information for this summary of the alleged financial loss of the plaintiff was taken from the financial statements prepared by Mr. Matwijec and by information provided by the plaintiff. He testified that Mr. Matwijec only prepared a compilation of figures and that there was no forensic checking of the numbers that were supplied for the completion of the financial statements and which were therefore incorporated into his report.

38 On page 8 of his report, Mr. Koger sets out his methodology for determining the plaintiff's damages. He states:

I have attempted to place Messrs. Vazgen and Vahik Khachik in the same financial position had the investment in Baker's Dozen through Khagen Investments not been made. Had they not made this investment, Messrs. Vazgen and Vahik Khachik would not have been out of pocket for the purchase price of the franchise, advances made to Khagen Investments for working capital and both would have been in a position to work and earn money through employment.

39 Mr. Koger calculated this loss at $373,000.00 with the adjustment for inflation, and $441,000.00 including interest.

40 At trial, the plaintiff chose to rely on the damage calculation prepared by Mr. Matwijec, which was based on the same principle as that applied by Mr. Koger. As set out in this calculation, filed as Exhibit 17, the plaintiff claims a loss of $231,000.00. The interest calculation on this amount was filed as Exhibit 19, for a total claim for damages of $485,000.00.

41 Mr. Koger agreed under cross-examination that even if the sales and expense numbers on the pro forma documents had been realized, once wages, interest, and depreciation were taken into account, the first year of the franchise business would have operated at a loss. He further agreed that the cost of sales were reasonably similar between the pro forma figures and the actual figures.

42 Mr. Koger testified that the record keeping by the plaintiff was definitely of the "shoe box" style. Mr. Koger testified that a reasonable person would balance his purchase of supplies with his sales. Mr. Koger agreed that a new business usually incurred a loss in the first year and sometimes in the first two years. He agreed with the defendants' counsel that the plaintiff could figure out he was not making the pro forma sales numbers by checking his records.

(b) Defendant's case.

43 Mr. Paraskakis testified on behalf of the defendant corporation Baker's Dozen. Mr. Paraskakis was born in 1946 in Greece. He has a grade 6 education and cannot fluently read or write English. He immigrated to Canada in 1969.

44 Mr. Paraskakis wanted to own his own business. He had a friend who had a Tim Horton franchise and he learned the franchise business from him. In 1977 Baker's Dozen opened its first location at 1225 Dundas Street East in Mississauga. By 1984 another five locations were opened. Mr. Paraskakis and his brother owned all the locations at that time. In 1985 the first franchise store was sold and opened.

45 Mr. Paraskakis testified that Ilias Kotsovolas and Emanuel Fassoulakis wanted to sell the franchise that the plaintiff purchased because of personal difficulties involving Mr. Fassoulakis' daughter. The difficulties between the partners had nothing to do with the business. At this time the head office did not have computers and all of the information was kept manually. If a franchisee sold a location the original file owned by the previous owners was thrown out. A new file was started with the new franchise owner.

46 Mr. Paraskakis testified that from the time of the franchise opening in July 1987 to March 1988, when it was sold to the plaintiff, as far as he was aware the franchise operated fine. He did not know if all the cash sales were recorded.

47 Mr. Paraskakis testified that when Mr. Khachik and his brother came to the head office they came in like other potential buyers and asked questions. Ms. Kolokotronis was the franchise director and she looked after the potential franchisees. Sometimes Mr. Paraskakis was involved with the potential franchisees and sometimes he was not.

48 Mr. Paraskakis testified that Mr. Khachik and his brother saw several possible franchise locations. He testified that they saw the Highway 10 and Steeles location and liked that location. He testified that they went to that location several times. Mr. Paraskakis recalls that the plaintiff told him that they were in the real estate business and they exchanged business cards. He testified that they said they had experience in the food service business and, in particular, with a Pizza Pizza business. He testified that Baker's Dozen itself did not do a credit check on potential franchisees, but relied on the bank's willingness to lend them money.

49 With respect to the financial aspects of the purchase, Mr. Paraskakis testified that he never saw the cheque for $41,000.00 set out at Tab 92 of Exhibit 2 before this lawsuit. He testified that he did not suggest that the plaintiff take this cheque to a bank. He testified that the banks liked him at this time and that he would not mislead the bank. He testified that he did not direct the lawyer with respect to the approximately $30,000.00 credit to the purchaser on the statement of adjustments. Mr. Paraskakis testified that he agreed to hold the promissory note for the balance owing of the purchase price, because Mr. Fassoulakis and Mr. Kotsovolas were having personal difficulties. He was to receive the money and decide who was to get what. Mr. Paraskakis testified that he dealt with the partners as to who was to get what portion of the money from the closing, and the partners were satisfied. He testified that he took what was owing to Baker's Dozen and then divided the rest between Mr. Fassoulakis and Mr. Kotsovolas.

50 Mr. Paraskakis testified that personnel from Baker's Dozen head office go to a new franchise for three weeks for training when a new store is opened. On a re-sale it is the responsibility of the franchisee who is selling the franchise to train the new people. Baker's Dozen was not personally involved in training the plaintiff. He testified that after the store was sold to the plaintiff he saw him a couple of times. He testified that he had dinner on social occasions with the plaintiff and his girlfriend and on another occasion they discussed putting a patio at the store. He testified that he did not hear the complaints from the plaintiff on any of those occasions, that he has heard at the trial. There were no written complaints to the head office before the statement of claim was issued. There was no demand letter from the lawyer with respect to complaints about the franchise before the statement of claim was issued.

51 With respect to the pro forma document which is found at Tab 8 in Exhibit 1, Mr. Paraskakis testified that the first time he saw this document was on his examination for discovery. He testified that he did not prepare the document and did not ask anyone to prepare the document. Mr. Paraskakis testified that he cannot comment on the truth of Mr. Lupton's statement that this document was in the file.

52 On cross-examination Mr. Paraskakis testified that his answer at this trial as to what happened regarding the sale proceeds of the franchise from 710497 Ontario Ltd. to the plaintiff, was different than on his examination for discovery, because at the time of the discovery, when he testified that he did not remember what happened to those proceeds, he did so because he did not want to expose the family problems of Mr. Kotsovolas and Mr. Fassoulakis.

53 On his cross-examination Mr. Paraskakis testified that he did not really know anything about the promissory note. He testified that he had not seen the note before the trial. He testified that although the promissory note sets out that the money is owed to Baker's Dozen, if you asked him about the note he does not know anything about it. He does not really know why the money was owed to Baker's Dozen, and not 710497 Ontario Ltd. He does not know who gave the promissory note to the plaintiff and asked him to sign it. He does not remember Mr. Boguski giving a fully executed note to Baker's Dozen to sign.

54 Mr. Paraskakis testified that he did not say to the plaintiff and his brother that they had "better grab it, quick, someone else is interested" in reference to the franchise at Highway 10 and Steeles Avenue. Mr. Paraskakis testified that he never had that conversation with the plaintiff.

55 With respect to the median on Steeles Avenue, Mr. Paraskakis testified that Baker's Dozen was aware that they could not do anything about it. He and others from head office had discussions with the landlord, Kaneff Properties, and someone from Kaneff was going to try to do something about the problem, such as approaching the adjacent church for access permission, to facilitate the access to the plaza. Baker's Dozen had these discussions with Kaneff when they first took the store. He testified that there were no subsequent discussions with the plaintiff promising that the median would be removed.

56 With respect to the sales figures shown in the corporate bank statements of 710497 Ontario Ltd. filed at Tab 7 of Exhibit 6, which shows sales of approximately $8,000.00 per month, that is not Mr. Paraskakis' recollection of what the sales of the franchise were. It was his understanding that the store made $18,000.00 to $20,000.00 per month in sales. This belief was based on what Mr. Kotsovolas and Mr. Fassoulakis told him about the sales.

57 With respect to the document found at Tab 8 of Exhibit 3, being the loan application completed by Mr. Ashworth, Mr. Paraskakis testified that he does not know where the information came from on page two that sets out that the franchise was "mismanaged". He does not know who gave any of that information to Mr. Ashworth. He does not know whether the information could come from anywhere else but head office. Mr. Paraskakis was adamant that he did not know who gave that information to the bank. Mr. Paraskakis testified that he had no comment on the evidence of Mr. Hardacre, that the pro forma form was prepared by Baker's Dozen. He testified that he had not seen that form until May, 1994. Mr. Paraskakis repeated several times that he did not know how the bank got the information about the plaintiff's franchise and that he did not know who gave the bank the information about the financial situation of the previous franchise owners.

58 Mr. Paraskakis testified that he did not know that the plaintiff was in financial trouble with its operation until 1 to 1-1/2 years after he had taken it over, when Mr. Lupton came to him about the problems with the franchise. Mr. Paraskakis testified that he went to see the plaintiff at the franchise every couple of months.

59 The business valuator retained by the defendant was William Dovey. His report was filed as Exhibit 24. Mr. Dovey's curriculum vitae was found at Tab 12 of that exhibit.

60 Mr. Dovey reviewed the report of Mr. Koger and the financial statements prepared by Mr. Matwijec. Mr. Dovey testified that the financial records of the plaintiff's business were incomplete both as to the nature of the documents and what was in the documents. Mr. Dovey testified that there was insufficient material available to an owner, in his view, to prudently run a small business. He testified that Mr. Koger's analysis of the plaintiff's loss, was to put the plaintiff back in the same position as if he had not invested his money in the Baker's Dozen franchise. Mr. Koger looked at returning Mr. Khachik's money that he had allegedly put into the franchise. He testified that he could track with certainty the sum of $86,300.00 that was put into the business by the plaintiff, but that was all he could trace. Mr. Dovey testified that the records did not provide insight into what contributions were made to the business after the initial investment of $86,300.00. He testified that there was nothing to show money coming from Iran or Germany, and that there was nothing to relate to the $132,000.00 loss that the report of Mr. Koger set out. Based on the financial documents that he saw the only capital contribution to the franchise that Mr. Dovey could clearly identify was the $86,300.00.

61 Mr. Dovey testified that the plaintiff was not reaching his expectations regarding sales from the first month of the operation of the franchise. He testified that there was a substantial shortfall from the pro forma numbers right from the outset. Mr. Dovey testified that he would have expected the owner/manager to realize right away that he was not meeting the monthly projections and he should have taken steps immediately to reduce the loss and investigate the nature of the loss. The actual profitability according to the financial documents produced showed considerably less profitability than on the pro forma forms. Mr. Dovey testified that as far as he could ascertain, there was product ordered that did not translate into reported sales. There were two possible reasons for this according to Mr. Dovey. One was that the franchise was being run inefficiently, and the product was going bad. Alternatively, it could be that cash sales were not being accurately reported. Based on the information he was given there was not sufficient information for him to determine what the cause of the problem was at the plaintiff's franchise.

62 Mr. Dovey analysed the calculations of damages by Mr. Koger. On page 10 of Mr. Dovey's report the accountant categorically states that the $86,300.00 is the only loss that he can determine that can be supported by the accounting records. Mr. Dovey then goes on to deal with the issue of mitigation and the plaintiff's obligation with respect to mitigating his losses. Mr. Dovey, in Schedule 2 of his report, sets out what the actual loss would have been if the plaintiff had adjusted his buying and paid attention to the profit results at this franchise. Based on the calculations set out in Schedule 2 of Mr. Dovey's report, he calculates the plaintiff's damages at approximately $19,178.00 or $12,785.00 depending on when the plaintiff knew for certain that the sales of the franchise were below expectations.

63 On cross-examination Mr. Dovey agreed that it was not unusual for small businesses to have incomplete records. He also confirmed with plaintiff's counsel that when a business is shut down it is not unusual that there is a gap in the business and financial records.

Applicable law

64 The defendant relies upon the case of Jirna Ltd. v. Mister Donut of Canada Ltd., [1975] 1 S.C.R. 2. This was a case heard at all three levels of the court, being the Ontario Supreme Court, the Ontario Court of Appeal and the Supreme Court of Canada. The Court of Appeal and the Supreme Court of Canada overturned a trial division decision which had held that there was a fiduciary relationship created when a franchisor and a franchisee enter into an agreement. The trial judge held that this duty imposes obligations on the franchisor beyond those set out in the contract made between the parties. The Court of Appeal of Ontario and the Supreme Court of Canada held that the terms of the agreement made between the parties is the full agreement and that there is no fiduciary obligation created beyond compliance with those terms.

65 An Ontario case that came after the Jirna case, although not going so far as to say there was a fiduciary duty between a franchisor and a franchisee, does speak about a duty of care that could be imposed upon a franchisor in particular circumstances. This case is found at Tab 10 of the plaintiff's case book, namely Ronald Elwyn Lister Ltd. v. Dunlop Canada Limited (1978), 85 D.L.R. (3d) 321. At pp. 334-335 of this decision, in discussing fraudulent misrepresentation or deceit, Mr. Justice Rutherford stated:

	In order to succeed in an action for fraudulent misrepresentation or deceit, the plaintiff must prove that the defendant made a false statement of fact knowing it to be false or recklessly without caring whether it was true or false, with the intent that it be acted upon and which the plaintiff in fact acted upon to his detriment: Derry et al. v. Peek (1889), 14 App. Cas. 337 (H.L.); Peek v. Gurney et al. (1873), L.R. 6 H.L. 377. As a matter of pleading, the particular matters constituting fraud must be specifically alleged as a matter of proof, the plaintiff is confined to the particular fraud alleged, which must be clearly and distinctly proved.
	In the present case, it is evidence from the pleadings that the only specific allegation of fraud against Dunlop related to "the representations in respect to financial forecasts provided by the defendant."
	Aside from any technical problems arising in respect to the plaintiffs' allegations of fraudulent misrepresentation, I would hold that no allegation of fraud has been proven to the requisite degree. I would refer specifically to the question of forecasting which (consistent with the pleadings) seemed to be the plaintiffs' chief area of concern in the deceit aspect of its action. However, there is not sufficient evidence to draw the inference of fraudulent intent (that is, knowledge of falseness or recklessness) on the part of Dunlop or its employees, either in respect of the forecasts, or generally, in relation to other alleged statements.

66 Mr. Justice Rutherford went on to elaborate on the claim of negligent misrepresentation by the plaintiff against the defendant. Mr. Justice Rutherford stated at p. 336 that there was no fiduciary duty between the franchisor and franchisee. He stated that the relationship between the parties was "indistinguishable" from that in the Jirna case in which the Court of Appeal and the Supreme Court of Canada found that no fiduciary duty was present in such a relationship. Mr. Justice Rutherford went on to state at page 336:

However, I would be prepared to find, if it would avail the plaintiffs, that Dunlop owed to the plaintiffs a duty to be careful in respect of representatives made relating to past profitability and anticipated future performance of the Guelph retail outlet. In this regard, I accept as correct the reasoning of the English Court of Appeal in respect of negligent misstatement in Esso Petroleum Co. Ltd. v. Mardon, [1976] 2 All E.R. 5. In that case the plaintiff lessee of a gasoline station recovered damages from the defendant oil company based upon the defendant's negligent estimation of annual gasoline consumption. This estimate induced the plaintiff to enter into a tenancy agreement which was financially disastrous for the plaintiff.

And further at p. 337:

	There is one aspect of the present case, however, which, in my view, is fatal to the plaintiffs' claim for damages for negligent misrepresentation. I have already stated my finding that cl. 11 of the franchise agreement was effective, in the circumstances of this case, to exclude contractual liability upon Dunlop arising apart from the express terms of that document. I have further come to the conclusion that cl. 11 was effective to exclude liability for negligent misrepresentation as well.
	There is no doubt that as a general rule, the parties to a contract may agree to exempt one party or another from the consequences of tortious conduct. Whether or not a particular clause in an agreement excludes liability for any particular claim, whether contractual or tortious, is a question of construction of the clause before the Court. In my view, the agreement between the parties expressed in cl. 11 that no "representation" or "statement" has been made and that there was no "presumption of fact" upon which the dealer relied in entering into the agreement acts as an effective bar, in the circumstances of this case, to recovery on the basis of any pre-contractual representation other than one made fraudulently. I draw support for this view from two other Canadian decisions which considered the effect of the terms of a subsequent contract in relation to a claim for damages for negligent misrepresentation: Dodds et al. v. Millman (1964), 45 D.L.R. (2d) 472, 47 W.W.R. 690 (B.C.S.C.), and Peters v. Parkway Mercury Sales Ltd. (1975), 58 D.L.R. (3d) 128, 10 N.B.R. (2d) 703 (C.A.).

67 In the case of P.M. Foods Ltd. et al. v. Pizza Hut Inc. et al. (1985), 6 C.P.R. (3d) 330 Mr. Justice Lutz for the Alberta Queen's Bench at pp. 357-358 stated:

	The court must then look at the contractual obligations including the effect of the exclusionary clause as they relate to the breaches of contract as alleged and to the alleged misrepresentations.
	I now return to the allegations for which the plaintiff submits it is entitled to damages.
	Firstly, in so far as the contractual obligations are concerned, it cannot be said that the defendants failed to discharge their obligations. The duties of the defendants are clearly set forth under DUTIES OF COMPANY (ante, p. 348). The plaintiff on the one hand relied on this contractual obligation and attempted to expand it by suggesting that while it was not definitive, I should interpret it as such, which I will not and cannot do, for how can I say that what the defendants did was not up to the proper standard when no evidence was adduced to prove what the standard would be? Secondly, the plaintiff executed the franchise agreements with clear and unambiguous disclaimer or exempting clauses. Whatever discussions or representations were made prior to the executing of these agreements were funnelled into those agreements and it is not for the plaintiff to complain after the fact. One must begin with the assumption that all the terms material to, once put in writing, have been embodied in the contract: see Hayward v. Mellick, 5 D.L.R. (4th) 740, supra, 117.
	Finally, one must construe the contract in its entirety, including the disclaimer clause. It is within the competence of the parties to contract out of their liabilities, and in my view they did so here; alternatively, it was clear from the evidence that the very matters about which the plaintiff complained were not matters that induced them into entering into the contracts.
	It is true that a disclaimer clause does not affect liability where the representation complained of is to an overriding or collateral matter. What of the matters complained of here as enumerated earlier? Even if they can be considered as overriding or collateral, it cannot be said that they were inducements to the entering into of the contracts. They, at best were but statements of general opinion, not existing fact.
	That, in my view is but an expression of opinion, for there is nothing in the evidence to suggest that those representations were not true; for even if they could be construed as a forecast by the defendants as a party who had special skill and knowledge, the defendants trivialized the advice.

68 Further with respect to the issue of misrepresentation, the plaintiff pleaded both fraudulent and negligent misrepresentation. In P.M. Foods Ltd. et al. supra, at p. 363 Mr. Justice Lutz states with respect to this issue:

To succeed for deceit, the pleader must meet the test that a false statement was made knowing it to be false or recklessly without caring whether it was true or false, with the intent it be acted upon, which the party affected did, to his detriment.

And at p. 364:

	Where the representor honestly believes the statement complained of is true, he cannot be liable in deceit, even though he is ill-advised, stupid, credulous, or even negligent: Cheshire and Fifoot's Law of Contract, 10th ed., p. 245. Like innocent or negligent misrepresentation, there must be a positive misstatement of fact as distinct from intention as to the future, or opinion.
	It is my view that none of the statements complained of here were such that it can be said that those from whom they issued did not hold an honest belief as to their existence, and, but for the mismanagement on the part of the plaintiff would be true, or alternatively, those statements were provided to the plaintiff as statements of information or of intention, as to the future or as opinion. Even if the plaintiff's pleas of deceit or fraudulent misrepresentation were sound, insufficient proof has been adduced to support the same, for reasons given.

69 In a further case provided by the plaintiff namely Avos Holdings Ltd. v. American Motors (Canada) Inc. (1985), 39 A.C.W.S. (2d) 14, a decision of the Supreme Court of British Columbia, Madam Justice Proudfoot at pp. 28-29 of that decision in discussing fraudulent misrepresentation states:

If there is evidence of fraud, the evidence of the misrepresentation is admissible: Gallen et al. v. Butterley et al. (1984), 53 B.C.L.R. 38 ( C.A.) at p. 49. Fraud is an extremely serious claim and must be strictly pleaded and proven. The constituent elements of fraud are: (1) a false misrepresentation of fact or present intention; (2) made "knowingly or without belief in its truth or recklessly, careless whether it be true or false;" and (3) the intention of the maker of the statement to harm is irrelevant: Derry v. Peak (1889), 14 A.C. 337 (H.L.) at p. 374.

70 In discussing negligent misrepresentation Madam Justice Proudfoot states at pp. 33-34:

	The case at bar is, in my opinion, quite similar on the facts to Esso Petroleum Co. Ltd. v. Mardon, [1976] Q.B. 801, [1976] 2 All E.R. 5 ( C.A.). I agree with counsel for the plaintiff that that case establishes the principle that if a party in precontractual negotiations is known to rely on the other's knowledge, expertise, and representations made, that party owes a duty of care that the representations made are accurate. The defendant purported to have skill and knowledge of its own affairs, and it knew Avos Holdings was relying on the representations made to it. A.M.C. owed to the plaintiff a duty of care in making those representations. The defendant represented that Avos Holdings would be the sole dealer in the Kelowna area within 90 days of the plaintiff's dealership commencing and made that representation negligently as it did not know when Mussellam Motors could be terminated.
	The defendant argued that any such negligence is precluded by the exclusionary clause of the contract. That argument was dealt with in Zenith Steel Fabricators Limited v. Challenger International Services Ltd., [1985] B.C.J. No. 1008 (B.C.S.C.), March 13, 1985, No. C823614, Vancouver Registry, MacLachlin, J. (as she then was). The court said:

On these facts an action lies in tort for negligent misrepresentation notwithstanding a limitation and liability contained in a subsequent contract: Esso Petroleum Co. Ltd. v. Mardon, [1976] Q.B. 801, [1976] 2 All E.R. 5 ( C.A.). A pre-contractual misrepresentation inducing the plaintiff to enter into a contract to his financial detriment is consider a tort independent of the contract and unconnected with its performance with the result that the rule precluding a tort action for damages excluded by a contract does not apply: Ronald Elwyn Lister v. Dunlop Canada Ltd. (1978), 19 O.R. (2d) 380, 85 D.L.R. (3d) 321 (H.C.).

Decision
(a) Purchase and Sale Transaction of Plaintiff's Franchise

71 The defendant's counsel vigorously asserted that the matter before me was a straight-forward one. There was an admission made by the plaintiff that the agreement of purchase and sale of the franchise in question was between the plaintiff and 710497 Ontario Ltd. The statement of claim was not served on 710497 Ontario Ltd., presumably as that company was no longer operating, and it would have been a waste of time. The trial proceeded against the defendant Baker's Dozen Donuts Corporation. Counsel for the defendant corporation submitted that there was no cause of action against his client arising out of the actual purchase of the franchise, as Baker's Dozen Corporation was simply not a party to that contract.

72 I do not find the resolution of this matter to be as straight-forward as counsel for the defendant asserts. Moreover, I do not find that I have to conclude as a matter of fact that 710497 Ontario Ltd., which sold the franchise to the plaintiff, was simply a "sham", and that it was really the corporate head office of Baker's Dozen in disguise, in order to find that Baker's Dozen was liable for any damages suffered by the plaintiff. There were two components to the purchase of the franchise by the plaintiff. One involved the purchase of the assets, and one involved the purchase of the "Baker's Dozen" name. In my view, if the evidence at trial supported the fact of fraudulent or negligent misrepresentation, by representatives of the corporate head office, then a claim for damages could be made against the corporate head office for such misrepresentations. As set out above, I have found as a fact that representatives of the corporation were intimately involved in all aspects of the sale of this franchise. The corporation was the franchisor and signed the franchise agreement. The corporation may not have sold the specific assets of the franchise, but it sold the right of the plaintiff to sell Baker's Dozen Donuts. The corporation, in my view, cannot escape liability by asserting it was not the actual vendor of the franchise pursuant to the purchase and sale agreement.

(b) Fraudulent and/or Negligent Misrepresentation

73 I have set out the requirements for a court to find there has been fraudulent or negligent misrepresentation, as enunciated in several cases which were cited to me. As in the case of Ronald Elwyn Lister Ltd., supra, the specific allegation of fraud against Baker's Dozen related to the figures set out in the pro forma document that was given to the plaintiff prior to the purchase of the franchise and which the plaintiff relied on in deciding to purchase the franchise. I have already found that the pro forma document was in fact prepared by an employee of the defendant corporation, and was given to the plaintiff by another employee.

74 On a balance of probabilities, based on the evidence at trial, I find that there is insufficient evidence to draw the inference of fraudulent intent (that is knowledge of falseness or recklessness) on the part of Baker's Dozen or its employees, either with respect to the pro forma document, or generally in relation to other alleged statements about the franchise, such as why the franchise was being sold, or the fact that a median, affecting the entrance to the plaza would be removed. Further, as Mr. Justice Lutz stated in P.M. Foods et at. v. Pizza Hut Inc. et al. (1985), 6 C.P.R. (3d) 330 at p. 364:

It is my view that none of the statements complained of here were such that it can be said that those from whom they issued did not hold an honest belief as to their existence, and, but for mismanagement on the part of the plaintiff would be true, or alternatively, those statements were provided to the plaintiff as statements of information or of intention, as to the future or as opinion.

75 I find that the pro forma document provided to the plaintiff falls into the same category as the "forecasts" discussed by Mr. Justice Lutz above. It is a matter of note to me that the pro forma document, if a prospective purchaser accounted for loan financing, depreciation, personal salary and income taxes does not by any means suggest the franchise would generate a large profit, or a significant return on investment, even up to year 3. Mr. Khachik had every opportunity to explore those forecasts with a financial advisor and it was his obligation to do so.

76 I have also considered the claim of negligent misrepresentation by the defendant corporation, and the duty of care owed by the franchisor to the franchisee that is discussed in the cases of Ronald Elwyn Lister Ltd., supra, and Avos Holdings Ltd. v. American Motors (Canada) Inc. (1985), 39 A.C.W.S. (2d) 14.

77 Firstly, I find that the delivery of the pro forma document complained of by the plaintiff is not in the same category as the conduct of the defendant in Avos Holdings, supra. In that case, the plaintiff was induced to enter into an agreement with the defendant on the representation that he would have the only A.M.C. car dealership in the Kelowna area within 90 days of the plaintiff's dealership commencing. That did not turn out to be the case, and the plaintiff suffered damages as a result of having direct competition to his dealership, in a relatively small geographic area that could not support two dealerships. If, in the case before me, the defendant had induced the plaintiff to buy the franchise on the representation that it would be the only Baker's Dozen franchise in the immediate area, and then had sold another franchise to a person to operate that business close to the plaintiff's franchise, liability for negligent misrepresentation in my view would attach to the defendant. That is not the type of conduct that is complained of by this plaintiff.

78 I find that there is insufficient evidence to establish on a balance of probabilities that the defendant corporation negligently misrepresented statements to the plaintiff which induced him to enter into the franchise agreement and the purchase of this particular franchise. Further, I find the defendant corporation did not breach any duty of care owed to the plaintiff when it provided the pro forma document to the plaintiff, and made statements to the plaintiff about the franchise. I find the facts of this case are distinguishable from the facts in the case of Esso Petroleum Co. Ltd. v. Mardon, [1976] 2 All E.R. 5, for example, in part because of the actions of the plaintiff in the case before me, which are set out below.

79 Secondly, and more importantly, the case before me, is on all fours with those cases that have found a disclaimer paragraph in the parties' agreement, a full defence to an allegation of negligent misrepresentation or failure to live up to a duty of care, that may exist between a franchisor and a franchisee. It is also to be noted that the pro forma form itself contained a very specific disclaimer with respect to the reliability of the numbers on the document.

80 The franchise agreement is the legal contract between the plaintiff and the defendant corporation. Its terms cannot be ignored simply because the plaintiff's business failed. The plaintiff was represented by independent counsel when he signed this agreement, and I must presume he understood what he was signing and the consequences of same.

81 As Mr. Justice Rutherford said in Ronald Elwyn Lister Ltd., supra, this contractual term, that is the disclaimer clause, is "fatal" to the plaintiff's claim for damages for negligent misrepresentation. Paragraph 25.11 of the franchise agreement could not be clearer in placing full responsibility on the shoulders of the plaintiff, for investigating himself all aspects of the finances of the franchise prior to buying same, for accepting fully the financial risks of the franchise and for accepting that the franchisor has not given any warranties or guarantees, express or implied, about the volume, profits or success of the franchise. Mr. Justice Rutherford relied on two other Canadian decisions which he refers to at p. 337 of his decision, in support of his finding, which ratio I concur with, that the language of the disclaimer clause in the franchise agreement herein is a complete defence to the plaintiff's claim for damages based on negligent misrepresentation or breach of an imposed duty of care of the defendant franchisor.

82 Further, Mr. Justice Lutz stated in P.M. Foods Ltd. et al., supra, at p. 358:

One must construe the contract in its entirety, including the disclaimer clause. It is within the competence of the parties to contract out of their liabilities, and in my view they did so here;

83 I wish to make it clear that I agree with those cases that hold such disclaimer clauses are no defence to a proven fraudulent misrepresentation by a defendant or where the breach of the duty of care is akin to the facts in Esso Petroleum Co. Ltd., supra.

84 The defendant corporation could still be liable to the plaintiff if it breached the terms of its contract with the plaintiff as set out in the franchise agreement, and thereby caused the plaintiff to suffer damages as a result of any such breach. The plaintiff claims there were breaches of the franchise agreement. These breaches of the agreement are set out in paragraphs 11, 12, and 13 of the statement of claim. I find that the evidence at trial does not support the claim for a breach of contract by the defendant corporation which resulted in any damages suffered by the plaintiff.

85 Specifically, I find that although the plaintiff complained that the level of training, support, and promotion provided by the corporate head office to his franchise was completely unsatisfactory, there was no evidence presented at trial as to the standard of such service given to other franchises, or whether the delivery of these services, assuming it was the same as the level given to the plaintiff, resulted in the failure of other franchises.

86 The franchise agreement executed between the parties is found at Tab 54, in Exhibit 1. Contrary to what Mr. Paraskakis stated in court, Baker's Dozen was responsible, pursuant to Article 6 of this contract, to provide training to the plaintiff. The franchise agreement language appears in some paragraphs, to be more applicable to a new franchise owner, however, it was the agreement between the parties.

87 Article 6 of the agreement sets out the training that Baker's Dozen was to provide to the plaintiff. The evidence from the plaintiff was that this training was virtually non-existent. Mr. Kotsovolas testified that all the plaintiff had to do was ask, and further training would be given. Mr. Paraskakis was unhelpful on this issue and stated the head office did not provide the training course on a re-sale of the franchise. Although I put no real faith in Mr. Kotsovolas' testimony that he does not recall the plaintiff requesting training from the head office, I cannot accept that the plaintiff was handed a franchise, where Baker's Dozen's name was at stake, with no interest by the franchisor in the success of the location. I find that there was initially some training offered to the plaintiff and his brother as to how to run the business and which they both described in court. I further find that supervisors attended regularly at the franchise location for, among other reasons, to check out the location and protect the interests of the franchisor. Ultimately, I find that it was the responsibility of the plaintiff, if the initial training was insufficient, to request further and better training. There was no evidence at trial that satisfies me on a balance of probabilities that the defendant corporation breached this term of the contract to the degree that it would be liable for damages suffered by the plaintiff.

88 The plaintiff further claims that the defendant corporation failed to provide him with advertising, promotion and support with respect to the operation of the business, after the franchise was opened. The franchise agreement at Article 7, and Article 8 sets out what the franchisor is responsible for with respect to such services. There is no detail however, as to the extent of these services either in the franchise agreement or in the material provided by head office to the plaintiff and which is found in Exhibit 1, at Tabs 2, 3, and 7. The evidence at trial was that a certain level of these services was provided by the defendant corporation. Based on the plaintiff's evidence, I would certainly not describe the delivery of these services as generous. Ultimately, however, I find that on a balance of probabilities, there is insufficient evidence to support the claim of the plaintiff that the defendant was in breach of its obligations set out in the franchise agreement. There was no evidence that I could find in the plaintiff's favour with respect to the claim set out in paragraph 12 of the statement of claim, regarding the price charged to the plaintiff for products and supplies.

89 I find, as Mr. Justice Lutz stated in P.M. Foods Ltd., supra, that:

How can I say what the defendants did was not up to the proper standard when no evidence was adduced to prove what the standard would be?

I have absolutely no evidence to rely on to prove that on a balance of probabilities the defendant failed in performing its obligations pursuant to the franchise agreement, and thereby caused the failure of the plaintiff's business. There is no evidence that the delivery of the services by the defendant to the plaintiff was below the standard, nor is there any evidence that the level of services provided to the defendant, even if it was inadequate, was the cause of the failure of the plaintiff's franchise.

90 I find as a fact that the allegation set out in paragraph 14 of the statement of claim is utterly unfounded, and ought not to have been pleaded as there was no evidence at trial that could possibly form the basis for this allegation against the defendant corporation.

(d) Fiduciary Duty/Partnership

91 As set out above, the Supreme Court of Canada in Jirna et al., supra, found that there is no fiduciary obligation created by virtue of a franchise agreement. The plaintiff pleaded that there was such a duty and that the plaintiff's franchise was carried on in "partnership" with the defendant corporation. Not only is the case referred to above a complete defence to this specific claim, the franchise agreement itself addresses this very issue.

92 Paragraph 24.01(a) of the franchise agreement, in clear and unambiguous language, sets out that there is no fiduciary relationship between the parties, that the franchisee is an independent contractor, and that the franchise agreement cannot be relied on to constitute the franchisee "a partner, joint venturer, employee, servant, agent or representative" of Baker's Dozen for any purpose whatsoever. The balance of that paragraph goes on to set out how the franchise is to carry out that agreed intention of the parties.

93 Accordingly, based both on the jurisprudence with respect to this issue, and the binding contract between the parties, the claim of the plaintiff under this head of relief must fail.

(e) Plaintiff's Obligations and Responsibility for Franchise's Failure

94 The franchise agreement not only sets out the obligations of the franchisor, it also sets out the obligations of the franchisee. For example, in Article 9.02, the franchisee agrees to "devote his entire time, labour, skill, effort, and attention to the franchised business and the management, conduct and operation thereof". Moreover, it is clear from the franchise agreement that there is an obligation on the franchisee to seek and take more training in the operation of the franchise business, if the franchisee is not properly trained to run the franchise successfully.

95 The evidence at trial disclosed that approximately 13 months after the plaintiff purchased this franchise he purchased a dry cleaning business in the same plaza. I find that the plaintiff, after the purchase of that dry cleaning business, did not devote his entire time and labour to the Baker's Dozen franchise. He clearly had to spend some time in this dry cleaning business, notwithstanding that the plaintiff testified that he had employees for this business.

96 I find that the plaintiff did nothing to assist himself in ensuring that he had a successful franchise business. I am satisfied on a balance of probabilities that the plaintiff was, to a great extent, the maker of his own misfortune. I accept that the plaintiff visited the site of the franchise several times before purchasing it. The plaintiff chose the site for his business with his eyes open. The median is obvious to any observer. As I understand it, this median would not easily be removed. I find the plaintiff determined that this obstruction to the access to his business would not dramatically affect the success of his business, when he bought the franchise.

97 The plaintiff did not attend to the necessary functions of a owner/manager with respect to his record keeping, his banking, or his financial statements. The plaintiff was not ignorant of business management. I find the plaintiff was qualified to operate a successful franchise, but for whatever reason, he did not seek the help, both professional and financial, that he should have when he needed it. The plaintiff may not have been as successful as he hoped in the first month or so based on what he reported were the sales of the franchise. However, there was absolutely no evidence at trial that the plaintiff did anything specific about the alleged shortfall in the sales. There was no evidence that the plaintiff wrote to either the franchisor or to his lawyer complaining specifically as to what the shortfall was with the franchise business. Moreover, once the plaintiff did discover that the sales were less than anticipated, I find that he had an obligation to diligently keep track of all sales and expenses from that time onward in order to satisfy both himself, the franchisor, and in this case ultimately the court, that his allegations were well-founded.

98 Once the franchise failed, I find that the plaintiff went back in history and recreated a very dismal state of affairs that he believes were all caused by the franchisor. Although I am sympathetic to what happened to the plaintiff, I find that much of the plaintiff's problems are the result of his own conduct and not that of the defendant corporation.

99 I do wish to comment that I find the defendant corporation was less than candid about the actual terms of the sale of the franchise to the plaintiff. Perhaps if the defendant corporation had been more open about what was actually going on with respect to the sale, the plaintiff would have been less inclined to develop a conspiracy theory, which he clearly did, which included the defendant corporation, the TD bank, and the previous owners of 710497 Ontario Ltd. The fears and imagination of the plaintiff might have been put to rest if there had been complete disclosure as to the role of the defendant corporation in the sale of the franchise to the plaintiff. Mr. Paraskakis maintained his position at trial that the sale of the franchise to the plaintiff had nothing to do with the corporate head office. I have found as a fact that that was not the case.

100 Lastly, the memory of all of the witnesses did not assist the plaintiff's case. Moreover, some witnesses could not even be produced. The passage of almost 10 years from the time of the closing of the store to trial worked against the plaintiff. It is the plaintiff's responsibility to move a matter on to trial, and the result of not doing so is no one's fault but the plaintiff's.

(f) Damages

101 Although I have dismissed the claim of the plaintiff against the defendant for damages, if I am wrong in that finding, I will briefly deal with the issue of the quantum of damages in the event that the plaintiff's claim had been successful. At trial there were two different approaches given to the assessment of damages. Those approaches are set out succinctly in the reports of the two valuators which were filed as exhibits in this trial, and which I have discussed above.

102 I find that in the circumstances of this case, the assessment of the plaintiff's damages by the defendants' valuator is more compelling than the assessment of damages by the plaintiff's valuator. The plaintiff's valuator places the plaintiff's entire loss on the shoulders of the defendant and I find in the circumstances of this case that that would not be appropriate. Perhaps, in a case where better financial records had been kept, and the court could more accurately assess the real loss of the plaintiff, and account for what the plaintiff did to mitigate his losses, that approach would be appropriate. However, on the facts of this case where the financial records of the plaintiff are entirely inadequate and unhelpful in determining what the actual sales and costs of the franchise were, and what the plaintiff contributed of his own funds, I find that reliance on such records to calculate the total losses of the plaintiff as his valuator did, is not appropriate.

103 Accordingly, I would assess the damages in the amounts set out in Mr. Dovey's report being $9,178.00, which gave the plaintiff 6 months to produce the financial statements that would show that the pro forma results were not being attained.

(g) Counterclaim Relief

104 The defendant, plaintiff by counterclaim, has proved the facts which form the basis of the counterclaim. The plaintiff, defendant by counterclaim, admitted at trial and on discovery the amounts that were owing under the counterclaim. The amount of the liquidated damages plus interest at the rate of 13.9%, being the prejudgment interest rate for the 3rd quarter of 1990, is set out in Exhibit 9. The total amount owing to January 4, 1999 with interest is $151,364.67. The corporate plaintiff and Vazgen Khachik, who personally guaranteed all of the obligations of the corporate plaintiff under the franchise agreement, the sub-lease, and the promissory note, are jointly and severally liable to the defendant for this amount.

105 Accordingly, judgment to issue as follows:

1.		The plaintiff's claim against the corporate defendant for fraudulent and negligent misrepresentation and the resulting claim in damages for such misrepresentation is dismissed.
2.		The plaintiff's claim for damages for breach of the franchise agreement contract made between the plaintiff and the corporate defendant is dismissed.
3.		The counterclaim amount against the plaintiff corporation and the personal defendant by counterclaim is allowed in the amount of $151,364.67 to January 4, 1999.
4.		Interest on the above amount at the rate of 13.9% from January 5, 1999 to today's date.

106 If the parties are unable to settle the issue of costs, counsel should contact the trial co-ordinator within 2 weeks, to make an appointment to make submissions with respect to costs prior to any such appointment. Counsel should submit any offer's to settle this matter, that were made, as well as any draft bill of costs they consider appropriate.

MOSSIP J.

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