COURT FILE NO.: CV-05-005944
DATE: 20060125
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PAYNE ENVIRONMENTAL INC. |
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John Russo, for the Plaintiff |
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Plaintiff |
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LORD AND PARTNERS LTD. |
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Douglas E.G. Phibbs, for the Defendant |
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Defendant |
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HEARD: January 18, 2006 |
REASONS FOR JUDGMENT
MURRAY J.
[1] This is a motion for summary judgment under the simplified procedure set out in Rule 76.07 of the Rules of Civil Procedure. The motion is brought by the plaintiff with respect to the defendant's failure to comply with the disclosure requirements of the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000. Chapter 3, amended by S. O. 2001, chapter 9, schedule D, s.1. In its motion material, the plaintiff seeks judgment against the defendant in the amount of $94,226.60 pursuant to s. 6 of the Arthur Wishart Act with respect to the repayment of money provided by the plaintiff to the defendant to secure a franchise, on account of supplies and equipment purchased in furtherance of the franchise and with respect to losses incurred in attempting to acquire, set up and operate a franchise. During the course of the motion, the plaintiff reduced the amount claimed.
The Facts
[2] In October of 2002, Mr. Ross Payne met with Mr. Barry Young, the President of the defendant Lord and Partners Ltd., with respect to a franchise opportunity. Lord and Partners is a manufacturer and supplier of environmentally friendly solvents, cleaners and specialty products. On November 14, 2000 a letter of intent was executed between the parties. Upon execution of the letter of intent, a deposit in the amount of $16,050.00 was provided as a franchise fee. This amount included tax.
[3] It should be noted that Mr. Young on behalf of Lord and Partners and Mr. Payne during negotiations before the execution of the franchise agreement discussed the purchase of a dealership and the execution of a dealership agreement. They did not discuss or refer to a franchise either in the discussions leading up to the contract or in their agreement. Mr. Young was not aware that a dealership would be considered a franchise under the Arthur Wishart Act until the spring of 2004, well after the execution of the document. In my reasons for judgment, I have referred to the franchise agreement. It is not disputed that in law the parties executed a franchise agreement, but neither party used the language of franchisor/franchisee. At the time the franchise agreement was executed, they referred to it and it was styled as a “Dealer Network Agreement”.
[4] On or about December 12, 2002, Payne Environmental Inc. and Lord and Partners entered into a franchise agreement whereby Payne Environmental was provided the exclusive right to show Lord and Partner products, accessories, parts and associated products in the territory of Mississauga East. Lord and Partners did not provide Payne Environmental with the disclosure documentation required by s. 5 of the Arthur Wishart Act at the time of execution of the agreement. It is also agreed that after signing the agreement, disclosure was not provided.
[5] On November 12, 2004, a formal request in writing to rescind the agreement pursuant to s. 6 of the Arthur Wishart Act was made by Payne Environmental to Lord and Partners. The notice of rescission was issued to Lord and Partners based on its failure to provide disclosure documents as required by s. 5 of the legislation.
[6] In the motion for summary judgment the amount claimed by Payne Environmental was $94,266.60. This amount is made up of the following:
1. $16,050.00 on account of money paid to Lord and Partners to secure the franchise-otherwise known as the “franchise fee”. On the return of the motion for summary judgment, the plaintiff agreed to reduce this claim to $15,000.00. The evidence supports this claim.
2. $39,473.75, on account of supplies and equipment purchased from Lord and Partners in connection with entering into the agreement.
The supplies/equipment purchased are set out in the affidavit of Ross Payne as follows:
(a) Trailer -- $12,225
(b) Trailer upgrades and improvements -- $13,015
(c) Parts washer demo system -- $4055
(d) Paint and cleaner demo system -- $5,455
(e) Product proportioner -- $250 or
(f) Lord and Partner uniform clothing -- $331.43
(g) Product samples -- $271.87
The affidavit of Ross Payne also indicates that on December 12, 2002, Payne Environmental paid to Lord and Partners the amount of $39,473.75. However, the amounts reproduced above and set out in the affidavit add up to $35,603.30 and not to $39,473.75, as is claimed. The discrepancy is not clarified in the affidavit of Ross Payne. At the hearing of the motion, the plaintiff agreed that the amount claimed should be reduced to $35,000. The evidence supports this reduced claim.
3. $38,742.85 as compensation for the losses that were incurred in acquiring, setting up and operating the franchise. During the course of the motion, as a result of certain objections made by counsel for the defendant, this claim was modified. The evidence before me establishes the following losses were incurred:
(a) Meals and related expenses -- $1454.28
(b) Publications -- $80.29
(c) Truck fuel and service -- $2473.29
(d) Office equipment -- $634.12
(e) Postal expenses -- $192.53
(f) Parking and taxi expenses. -- $40.25
(g) Truck/trailer accessories and demo equipment -- $850.10
(h) Photocopy and stationary expenses -- $143.82
(i) Legal fees -- $3517.42
(j) Truck lease, license, insurance, and trailer insurance -- $19,423.80
(k) Accounting fees -- $668.75
(l) Trailer parking -- $1238.56
(m) Business insurance -- $2245.40
The total of these amounts is $32,962.61. The defendant argued that the amount of $2473.29 related to expenses for truck fuel and service was not a proper claim because no log book was kept. The defendant says that according to CCRA rules, this would prevent this amount from being claimed as a deduction from income tax. I agree with the plaintiff that this does not prevent the plaintiff from claiming this amount from the defendant in this case. The evidence establishes that the sum of $2473.29 was expended by the plaintiff and is properly claimed as part of the losses incurred.
From the aggregate amount of $32,962.61, it is not disputed that the gross revenue should be deducted. The gross revenue from the franchise is $11,278.88. Therefore the losses incurred by the franchisee in acquiring, setting up and operating the franchise are $21,683.73. This amount does not include any amounts due to the plaintiff by virtue of the application of ss. 6 (6) (a), (b), and (c) of the Arthur Wishart Act.
[7] Lord and Partners did not provide Payne Environmental with any of the amounts requested as stipulated in the Arthur Wishart Act following the notice of rescission. This motion for summary judgment results from that non-payment.
[8] There is no dispute between the parties that the Arthur Wishart Act applies, that there was no disclosure by the franchisor as required by the legislation, that notice of rescission was sent by the plaintiff to the defendant within the requisite time, and, subject to the adjustments as set out above, that the amounts claimed were expenses or losses incurred by the plaintiff.
The Law Applicable on a Summary Judgment Motion under the Simplified Procedure
[9] In Newcourt Credit Group Inc. v. Hummel Pharmacy Ltd. , (1998), 38 O.R. (3d) 82, (Div. Ct.), Swinton J. for the Divisional Court said, at p. 86 O.R., with respect to rule 76.06(14) (the predecessor of rule 76.07(9)):
Decisions reached by judges of the General Division have correctly concluded that rule 76.06(14) establishes a lower threshold than that applied under rule 20.04 motions for summary judgment: Bradley-Kelly Construction Ltd. v. Ottawa-Carleton Regional Transit Commission , (1996), 30 O.R. (3d) 301 (Gen. Div.), Guarantee Co. of North America v. Witts, [1997] O.J. No. 1657 (Gen. Div.). Rule 76.06(14) provides that the motions judge "shall" grant summary judgment, unless he or she is unable to do so without cross-examination on the affidavits, or because there is some injustice in doing so. The wording suggests that the motions judge should make determinations of fact, including determinations of credibility, unless unable to do so without cross-examination.
In McGill v. Broadview Foundation (2001), [2001] O.J. No. 108 (QL) ( C.A.), the Court of Appeal said as follows, at para. 4, about rule 76.06, the predecessor of rule 76.07:
The purpose of rule 76.06 is to allow the parties to bring forward a relatively inexpensive application for summary judgment. Evidence to be considered includes the affidavits of the parties, any supporting material that can properly be placed before the court and the affidavits of witnesses. Summary judgment can only be granted when all of the evidence reviewed in total upon applying the principles of justice and fairness demonstrates a clear case wherein the motions judge may enter judgment. In circumstances where the case is not clear or where it dictates that justice and fairness would suggest otherwise, it is appropriate for the judge to refer the matter to trial.
In Masini USA Inc. v. Simsol Jewellery Wholesale Ltd., 67 O.R. (3d) 229, Mr. Justice Spence had an opportunity to view the jurisprudence relating to summary judgment under the simplified procedure. In that case, Justice Spence was required to deal with the argument that if a genuine issue for trial was raised, then a trial should be ordered. He said as follows at paragraph 17 of the judgment:
…it would be proper for the court, on a rule 76.07 motion for summary judgment to determine a genuine issue if the motions judge is able to do so without cross-examination and it would not be unjust to decide the issue on the motion (rule 76.07(9)).
[10] I have no doubt that this is an appropriate case for summary judgment. The main issue between the plaintiff and the defendant is the correct interpretation of ss. 6(6)of the Arthur Wishart Act. As noted above, the disagreements between the parties with respect to the calculation of damages have led to certain modifications in the amount claimed by the plaintiff. The affidavit material filed on the plaintiff’s behalf supports the amount now claimed by the plaintiff. The defendant did not file any affidavit material which erodes or undermines the plaintiff’s claim for compensation as set out herein.
The Relevant Provisions of the Arthur Wishart Act
[11] Section 5 of the Arthur Wishart Act is the section which obligates the franchisor to make detailed disclosure. Section 6 of the Act permits the franchisee to rescind the franchise agreement if disclosure pursuant to s. 5 of the Act is not made. Subsection 6(2) provides that a franchisee may rescind the franchise agreement no later than two years after entering into the franchise agreement if the franchisor never provided the disclosure document. Subsection 6(6) sets out the amounts payable by the franchisor in the event of rescission by the franchisee. Before attempting to set out the position of the defendant on this summary judgment motion, it is useful to set out the relevant section of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, chapter 3. Section 6 is as follows:
6. A franchisee may (1) rescind the franchise agreement, without penalty or obligation, no later than 60 days after receiving the disclosure document, if the franchisor failed to provide the disclosure document or a statement of material change within the time required by section 5 or if the contents of the disclosure document did not meet the requirements of section 5. 2000, c. 3, s. 6 (1).
(2) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than two years after entering into the franchise agreement if the franchisor never provided the disclosure document. 2000, c. 3, s. 6 (2).
(3) Notice of rescission shall be in writing and delivered to the franchisor, personally, by registered mail, by shall be fax or by any other prescribed method, at the franchisor’s address for service or to any other person designated for that purpose in the franchise agreement. 2000, c. 3, s. 6 (3).
Effective date of rescission
(4) The notice of rescission is effective,
a) on the day it is delivered personally;
b) on the fifth day after it was mailed;
c) on the day it is sent by fax, if sent before 5 p.m.;
d) on the day after it was sent by fax, if sent at or after 5 p.m.;
e) on the day determined in accordance with the regulations, if sent by a prescribed method of delivery. 2000, c. 3, s. 6 (4).
(5) If the day described in clause (4) (b), holiday, the notice of rescission is effective on the (c) or (d) is a next day that is not a holiday. 2000, c. 3, s. 6 (5).
(6)The franchisor, or franchisor’s associate, as the case may be, shall, within 60 days of the effective date of the rescission,
a) refund to the franchisee any money received from or on behalf of the franchisee, other than money for inventory, supplies or equipment;
b) purchase from the franchisee any inventory that the franchisee had purchased pursuant to the franchise agreement and remaining at the effective date of rescission, at a price equal to the purchase price paid by the franchisee;
c) purchase from the franchisee any supplies and equipment that the franchisee had purchased pursuant to the franchise agreement, at a price equal to the purchase price paid by the franchisee; and
d) compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up and operating the franchise, less the amounts set out in clauses (a) to (c). 2000, c. 3, s. 6 (6).
The Position of the Defendant
[12] The real dispute in this case relates to the interpretation of ss. 6 (6). There is no dispute about the interpretation of ss. 6(6)(a), (b) or (c). The dispute about these subsections relates to how they are read in the context of ss. 6(6) as a whole. The defendant takes the position that ss. 6(6)(d) provides for compensation to the plaintiff for any losses that the franchisee incurred in acquiring, setting up and operating the franchise less the refund of the franchise money, less any equipment that the franchisee purchased from the franchisor. I agree. The defendant says that the losses incurred in acquiring setting up and operating the franchise amount to $21,683.73 . The defendant argues that from this amount one must deduct the franchise fee of $15,000 and then further deduct the cost of any equipment that the franchisee purchased from the franchisor which in this case is $35,000. According to the defendant that leaves a net claim for economic loss of zero ($21,683.73 less $15,000 less $35,000). With respect this is an untenable interpretation of ss.6(6)(d) of the Arthur Wishart Act. Subsections 6 (6) (a),(b), and (c) set out specific refund and payment obligations on the franchisor in the event of rescission. Pursuant to these subsections, the franchisor must (a) refund franchise fees, (b) purchase inventory from the franchisee at a price equal to the purchase price, and (c) purchase from the franchisee supplies and equipment purchased pursuant to the franchise agreement at a price equal to the purchase price paid by the franchisee. Subsection 6(6)(d) of the Act is designed to compensate the franchisee for all losses the franchisee incurred in acquiring, setting up and operating the franchise. This calculation of “all losses incurred” under ss. 6(6)(d), at least initially, may include the amounts which have been identified in ss. 6(a),(b), and (c). It is precisely because “all losses incurred” may include the amounts identified by ss. 6(6)(a),(b), and (c) that those amounts are deducted from “all losses” in order to ensure there is no duplication in the calculation of compensation to be paid pursuant to that subsection. In theory, the amounts calculated pursuant to ss. 6(6)(a),(b), and (c) are included in “all losses incurred” under ss. 6(6)(d) and then deducted from the total amount in order to avoid duplication. Then all amounts owing pursuant to ss. 6(6)(a),(b),(c) and (d) are added together to determine the total amount owing by the franchisor to the franchisee pursuant to that subsection of the legislation. In this case, the plaintiff did not include in its ss.6(6)(d) calculation any of the amounts owing pursuant to ss. 6(6)(a),(b) and (c). As long as these amounts have not been included in the calculation of all losses incurred, no deduction need be made.
[13] The other problem with the defendant's interpretation of ss. 6(6) is that it would result in one head of damages offsetting another head of damages. The defendant reads ss. 6(d) as the only section that is relevant to the computation of compensation payable by the franchisor to the franchisee in cases of rescission. Clearly, if the franchisee was compensated only on the basis of the ss. 6(d), the overall purpose of s. 6 would be defeated. The defendant’s interpretation would have the franchisor pay only the amount calculated pursuant to ss. 6(d). If this were the case, the plaintiff would not be compensated for any of the amounts owing pursuant to ss. 6(6)(a),(b) and (c). The purpose and object of these subsections of the Arthur Wishart Act are to put the franchisee in the position that it was prior to entering into the franchise agreement. The defendant’s interpretation of ss. 6 would defeat that purpose. Subsections (a) to (d) are to be read conjunctively. In the case of 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd . [2005] O.J. No.3040, the Court of Appeal when discussing the purpose of the Arthur Wishart Act said the following at paragraph 31:
The Act is designed to put the franchisee back in its pre-franchise position where there has been non-disclosure, provided notice is served within the prescribed time.
The defendant's interpretation of ss. 6 of the legislation is contrary to the plain language of the subsection and is inconsistent with the purpose of the legislation.
Damages
Subsection 6(6)(a)
[14] The franchisee is entitled to a refund from the franchisor of the franchise fee in the amount of $15,000.
Subsection 6(6)(b)
[15] No amount is claimed under this subsection by the franchisee.
Subsection 6(6)(c)
[16] The franchisee is entitled to be paid to the amount out of $35,000 on account of supplies and equipment purchased from Lord and Partners in connection with entering into the franchise agreement. The franchisor has a right to the return of any such supplies and equipment. If the franchisee is unable or unwilling to return to the franchisor the various supplies and equipment purchased pursuant to the franchise agreement and stipulated above, the franchisor will not be obligated to pay the corresponding amount.
Section 6(6)(d)
[17] The plaintiff franchisee now claims $21,683.73 as compensation for losses that were incurred in acquiring, setting up and operating the franchise. As stated above, this amount does not include any amounts calculated pursuant to ss. 6(a), (b) and (c) and therefore represents the correct amount calculated pursuant to s. 6(d). If the amounts from ss. 6 (a), (b) and (c) had been added to the ss. 6 (d) calculation of “all losses incurred”, then of course those amounts would have been subtracted to arrive at the same result of $21,683.73.
[18] Lord and Partners Ltd. has commenced a third-party claim against, Mr. Murray Box and Pallett Valo,LLP. In this action the plaintiff claims that Mr. Box, a solicitor with the firm of Pallett Valo, provided legal advice to the plaintiff and to the defendant from October to December 2002 concerning the franchise agreement. It is alleged that the legal advice of Mr. Box and Pallett Valo was relied on and acted on by the defendant. It is asserted that Mr. Box or Pallett Valo did not advise the Lord and Partners Ltd. that it did not comply with the disclosure requirements of the Arthur Wishart Act.
[19] Mr. Young on the behalf of Lord and Partners deposes that at the beginning of his negotiations with the plaintiff, he provided to the plaintiff a document styled Dealer Network Agreement. Mr. Payne then provided the dealership agreement to his solicitor, Mr. Box of the law firm Pallett Valo. Mr. Box prepared a lengthy memorandum to Ross Payne dated October 31, 2002. The memorandum makes 43 critical comments about the proposed Dealer Network Agreement. In particular, there are a number of matters which are suggested to be added to the agreement, which, without specifically saying so, refer to disclosure requirements in the Arthur Wishart Act and Ontario regulation 581/00, which details the constituent elements of the disclosure document.
[20] Mr. Young says that throughout the negotiations between the plaintiff and the defendant, Mr. Box knew that Mr. Payne and he were using his memorandum of October 31, 2002 as a guide to negotiations. Mr. Young says that both he and Mr. Payne relied on his expertise and advice as a commercial law professional.
[21] The defendant alleges that Mr. Box and the law firm owed a duty to the plaintiff to provide proper and correct advice to the defendant and that the advice given was negligent thereby creating the defendant’s liability to the plaintiff for non-compliance with the disclosure requirements of the Arthur Wishart Act 2000. The defendant Lord and Partners seeks contribution and indemnity from the third parties based on the alleged negligence of Mr. Box and Pallett Valo.
[22] The defendant argued that the alleged negligence of Mr. Box and Pallett Valo was an issue that ought to be determined in the trial of the main action. I disagree. The right of the plaintiff franchisee to recover money in accordance with s. 6 of the Arthur Wishart Act is clear. The franchisor must pay to the franchisee the amounts due pursuant to ss. 6 (6) within 60 days of the effective date of the rescission. The franchisor has no right to delay payment because there are other claims being made. There is no reason to defer the franchisee's right to judgment pending the resolution of the defendant’s allegation against the solicitor and/or his law firm.
[23] The defendant also argued that there was a breach by the franchisee of the duty of fair dealing as set out in s. 3 of the legislation. As I understand the argument, the defendant says that Mr. Payne and Mr. Box were fully aware of the disclosure obligations of the franchisor under the Arthur Wishart Act. The defendant says he was not aware of his legal disclosure obligations. On behalf of the defendant, Mr. Young says that because he was not told by Mr. Box or by Mr. Payne that the Arthur Wishart Act applied, then the defendant was deprived of the right to decide whether to comply or not comply with the disclosure provisions of the Act. The defendant says that prior to the execution of the franchise agreement, the plaintiff owed a duty of fair dealing to the defendant and that the duty was breached by Mr. Payne and by Mr. Box. The defendant says that both Mr. Payne and Mr. Box were aware that the disclosure made prior to the execution of the agreement or the disclosure required by the agreement did not meet the requirements of the legislation. In so many words, the defendant says that the plaintiff and Mr. Box constructed a trap which he unwillingly and unknowingly fell into. The undeniable implication of the defendant's assertion is that the plaintiff and Mr. Box intentionally did not request the disclosure required pursuant to the Act knowing that they could raise a failure to disclose argument subsequent to the execution of the agreement and rescind the agreement if it was in their interest to do so. It is apparent that the defendant feels that he was taken advantage of by Mr. Payne and Mr. Box. The defendant asserts that Mr. Box owed him a duty to advise him that the Arthur Wishart Act applied because he took an active role in advising on the content of the franchise agreement.
[24] Lack of knowledge of the legislation by the defendant is no defence. The fact that the plaintiff and/or his solicitor had knowledge of the disclosure provisions of the legislation (and therefore had knowledge of the obligations imposed on the franchisor) and the fact that the plaintiff did not disclose this knowledge to the defendant cannot amount to a breach of any duty of fair dealing even assuming that such duty exists prior to the execution of a franchise agreement. On this point, see Personal Service Coffee Corp. v. Beer (c.o.b. Élite Coffee Newcastle)[2005] O.J. No. 3043, where the Court of Appeal holds that the language of s. 3 contemplates the existence of an agreement and speaks in terms of the performance and enforcement of such an agreement. The court said that s. 3, which imposes a duty of fair dealing, deals with the situation where disagreements arise between the parties when the agreement is in force and effect and provides remedies where it is alleged that the duty of fair dealing has been breached by one of the parties.
[25] In this case, the complaint by the defendant alleging a breach of the duty of fair dealing established by s. 3 of the Act relates to the time period leading up to the execution of the franchise agreement and does not relate to the period of time when the agreement was in force. Section 3 does not apply to the period prior to the execution of the agreement.
[26] I certainly think it would have been preferable for Mr. Box to suggest to Mr. Young during the negotiations leading up to the execution of the franchise agreement that he retain a lawyer to advise him separately with respect to the contents of the agreement and the obligations of a franchisor under the applicable legislation. Whether not so advising Mr. Young amounts to any breach of duty is not for me to say in the context of this motion for summary judgment. On the other hand, Mr. Young was aware that Mr. Box was acting as legal adviser to Mr. Payne. Mr. Young had every opportunity to retain his own counsel. There is no evidence that Mr. Box ever spoke directly to Mr. Young. In fact, the evidence is to the contrary. There is no evidence that Mr. Box or Pallett Valo was ever retained by Mr. Young or by Lord and Partners. At no time has Mr. Box or Pallett Valo sent an account to Mr. Young or to Lord and Partners for legal services rendered with respect to this transaction.
Conclusion
[27] The plaintiff is entitled to judgment in the amount of $71,683.73.
Costs
[28] I will entertain brief written submissions on costs. The plaintiff shall file his submissions within 15 days from the date of this judgment. The defendant shall file his brief written reply submissions within 15 days from the date of receiving the plaintiff's submissions. The submissions should be sent to my chambers at the Superior Court in Milton Ontario.
___________________________
MURRAY J.
Released: January 25, 2006
