ONTARIO
SUPERIOR COURT OF JUSTICE
Between:
Brian Walden and Beverley Walden
Applicants
and:
887985 Alberta Ltd. o/a AG Connexions, K. Todd Hicks and John DeWitt
Respondents
Appearances:
Counsel for Applicants: D. MacKeigan
Counsel for Respondents: W. Sarasin
Heard: July 28, 2004
Judgment
[1] The Applicants seek a declaration that a Franchise Agreement they entered into with the Respondents on November 17, 2001 is rescinded; or, in the alternative, a declaration that the Franchise Agreement is void, voidable or unenforceable. The Applicants further seek damages in the amount of $46,296.12 representing losses incurred by them in acquiring, setting up and operating the franchise business.
[2] The Respondents seek an Order requiring a trial of the issues.
The Evidence
[3] The Applicants are husband and wife. At the relevant time, the Respondent company, Ag Connexions (“Ag”) was a Franchisor incorporated pursuant to the laws of Alberta. Mr. Hicks was the principal of the company and a Franchisor’s Associate as defined in the Arthur Wishart Act (Franchise Disclosure), 2000 S.O. 2000 c. 3 . (“the Act”)
[4] For the purpose of deciding the issues before me, the Act is the governing and applicable legislation.
[5] Ag operated a purchasing network for the use of its members most of whom were farmers. Members were permitted to purchase certain products from Ag thereby obtaining volume discounts and other benefits.
[6] To assist in the growth of its membership base, Ag sold franchises to interested dealers. A franchise covered a defined sales “territory”. Within that territory, the dealer/franchisee had the opportunity to “sign up” customers in the agricultural community who would become members. The dealer/franchisee was compensated on the basis of the membership development in the defined territory.
[7] On March 7, 2001, Ag advertised that it needed a franchisee for the area in and around Blyth, Ontario.
[8] Mr. Walden responded to the advertisement by contacting Gary MacDonald, a sales representative for the company. He met with Mr. MacDonald in or about May/June, 2001 and was provided with a brochure and an explanation about the program.
[9] Mr. Walden then received a draft franchise agreement prepared by Ag and on June 29, 2001 Ag received $45,000 from Mr. Walden in partial payment of a franchise.
[10] On July 4, 2001, Mr. Walden received an email from Mr. Hicks. The email was addressed to “Brian Walden” and stated in part as follows, “Hi Brian: I’ve attached a copy of the Promissory Note as per our recent discussions. I would ask for your review and witnessed signature and return a copy of the same direct to my attention via facsimile at ....With respect to the training dates and location, we’ll have final confirmation tomorrow...the location will be at Cambridge, Ontario.....Best regards, K. Todd Hicks President Ag Connexions”
[11] On July 9, 2001 Mr. Walden received a two page document by fax from Ag. The first page was a letter dated July 9, 2001 to the “PERSONAL ATTENTION OF BRIAN WALDEN”. The letter was addressed to Brian Walden and began “Dear Brian”. The letter was apparently signed by Mr. Hicks and made reference to the Promissory Note that was attached for Mr. Walden’s review and signature (my emphasis).
[12] The Promissory Note was dated July 4, 2001 and was defined as being from Brian Walden to Ag. The body of the Note acknowledged the wire transfer of $45,000. Under the terms of the Note, Mr. Walden was bound to pay the balance of $21,240.00 [1] in full by November 12, 2001. It further required that “all payments by Brian Walden to Ag Connexions ... be made by wire transfer to the Royal Bank...” The Note was signed by Mr. Hicks and a witness. There were two further signing lines; one identified for Brian Walden and one identified for “Witness”. These lines were blank.
[13] On July 11, 2001, Mr. and Mrs. Walden attended the training seminar offered by Ag in Cambridge, Ontario. Todd Hicks did not attend personally. He was represented by Robert Vandal.
[14] Exhibit 3 is the Franchise Agreement executed by Mr. Walden and Mr. Vandal on July 11, 2001 in Cambridge.
[15] The first part of this Agreement read as follows:
FRANCHISE AGREEMENT
THIS AGREEMENT, made and entered into at Cambridge , ON. on the 11 th day of July 2001, by and between:
887985 Alberta Ltd. o/a AG CONNEXIONS
(hereinafter called Ag Connexions)
and
BRIAN WALDEN
(hereinafter called the “Franchisee”) [2]
[16] In the body of the Agreement itself, the parties to the Agreement were identified as “Ag Connexions” and “the Franchisee”.
[17] In paragraph 1 A of the Agreement, Ag acknowledged payment of $62,000.00 from the Franchisee.
[18] The terms and conditions of the Agreement included four Schedules. There was no reference to anyone other than the Franchisee and “Ag Connexions” until page 17, the last page of the Agreement, where signatures were identified and required. There are three signatures on this page, namely, R. Vandal, Brian Walden and Beverley Walden. Mrs. Walden signed the Agreement in the space identified for the “Franchisee” and placed her signature underneath her husband’s.
[19] Mrs. Walden has asserted under oath that she signed the agreement as a witness only and at the direction of Mr. Vandal.
[20] There is no evidence before the Court from Mr. Vandal. No one else other than Mr. Vandal and Mr. and Mrs. Walden were present when the documents were signed. Mr. Walden’s evidence as to the purpose and intent of Mrs. Walden’s signature (as a witness only) at the time the documents were signed is consistent with the evidence of Mrs. Walden.
[21] Schedule “A” of the Agreement defined the Territory covered by the Agreement, namely, “The exclusive whole and entire Region of Bruce County.”
[22] In Schedule B (which was also attached to and formed part of the Agreement), the parties were again identified as Ag and Brian Walden. Schedule B was signed by Mr. Vandal, Mr. Walden and Mrs. Walden. Mrs. Walden again placed her signature below her husband’s and in the area identified for the “Licensee”.
[23] The Schedules were also prepared by Ag.
[24] On the same day that the Agreement was signed, Ag also received a signed Promissory Note dated July 11, 2001 in the amount of $21,340.00. The two payments incorporated GST owing with respect to the purchase of the franchise.
[25] The Promissory Note was identical to the Note previously sent to Mr. Walden by Mr. Hicks save and except for the date that had been changed from July 4 to July 11 and the inclusion of an acknowledgement that Ag held the right to place any proceeds from membership sales due to Mr. Walden against any outstanding balance owed by him to Ag.
[26] The signing lines were identified for “K. Todd Hicks, President” and “Brian Walden”. There was a signature line beside each name for a “Witness”. Mr. Vandal signed “For K. Todd Hicks” and Mr. Walden signed on the line identified “Brian Walden”. Mrs. Walden signed her name on the line designated “witness” next to each of the signatures of Mr. Vandal and Mr. Walden.
[27] On July 11, 2001, Mr. Walden also received a disclosure document from Ag and a document entitled “Receipt of Documentation”. This latter document was dated July 11, 2001 and addressed to “Brian Walden”. It stated as follows: “Dear Brian, This document will acknowledge that all pertinent documentation has been provided and received as of the date shown below. I BRIAN WALDEN HEREBY ACKNOWLEDGE THAT I AM IN RECEIPT OF THE FRANCHISE AGREEMENT AND DISCLOSURE DOCUMENT FOR THE PURCHASE OF BRUCE COUNTY IN THE PROVINCE OF ONTARIO, CANADA.” There were two signing lines; one identified for Brian Walden and one for a Witness. Mr. Walden signed on this line where his name was located and Mrs. Walden signed on the line identified for the Witness.
[28] Shortly after the Agreement was executed, Mr. Walden ran into some difficulties. Mr. Walden and Mr. Hicks discussed changing the territory defined in the first Agreement as “the whole and entire region of Bruce County” to a geographic area closer to the Waldens’ residence.
[29] On August 17, 2001 Mr. Hicks sent a letter addressed to Brian Walden that commenced with the salutation, “Dear Brian”. The letter confirmed their discussions with respect to a transfer of the franchise ownership from Bruce County to a group of townships in Huron County. He listed the townships to be included in the “modified” Franchise Agreement. The total cost of the new Franchise would be $45,000. (including GST).
[30] On or about September 24, 2001 Mr. Walden made one sale. The commission statement dated October 15, 2001 stated that the sale took place outside the territory defined in the franchise.
[31] On October 4, 2001 Mr. Hicks sent another letter that was addressed to “Brian & Bev Walden”. This letter started with “Dear Brian & Bev:” He attached a copy of the Sales Receipt for the purchase of Huron County. The receipt was dated June 29, 2001 but referred to payment for a franchise covering the new defined territory. The receipt acknowledged payment of $45,000 from Brian and Bev Walden: “This receipt is to confirm out (sic) acceptance of the final payment, as per the terms of the Deposit Receipt ......in consideration for the dealership rights of the Territories ....of Northern Region of Huron County in the Province of Ontario including the Township of Ashfield, Colborne, West Wawanosh, East Wawanosh, Turnberry, Howick, Morris and Grey ....From: Brian and Bev Walden”. It was signed T. Hicks. The name Gary McDonell – Director of Dealership Operations was stroked out.
[32] In his letter, Mr. Hicks wrote, “As previously agreed upon, this replaces the original Franchise Agreement and sale of Bruce County that was initially purchased for the amount of $62,000 plus applicable taxes. This letter will confirm that the Promissory Note dated the 11 th day of July, 2001 is null and void....I’ll be forwarding triplicate copies of the amended Franchise Agreement to reflect the necessary adjustments. I’ve had my signature witnessed and would ask for the same on all copies where I’ve indicated...” (my emphasis)
[33] In effect, both Applicants obtained the second Franchise for the amount that had been transferred to Mr. Hicks for the first Franchise. The Huron County territory had been divided such that the Applicants could obtain a franchise for the County without debt. The Promissory Note was cancelled.
[34] The first Franchise Agreement was not amended in writing. Rather, a fresh document was generated by Ag.
[35] In the second written Agreement, the parties were identified as follows:
FRANCHISE AGREEMENT
THIS AGREEMENT, made and entered into at Cambridge , ON. on the 11 th day of July 2001, by and between:
887985 Alberta Ltd. o/a AG CONNEXIONS
(hereinafter called Ag Connexions)
and
BRIAN & BEV WALDEN
(hereinafter called the “Franchisee”) [3]
[36] Mrs. Walden’s name appears in the definition section and the body of the Agreement. Further, her name is typed and included in the acknowledgement and signing section.
[37] The Agreement was executed by Mr. Hicks (whose signature was witnessed by “Marcus Cormier”) and by Brian Walden and Bev Walden whose signatures were witnessed by “John Walden”. It is of note that Mr. Hicks requested that the signatures be witnessed and yet there in no space or line specifically designated for this purpose on the face of the Agreement itself.
[38] The date of the Agreement was not changed to reflect the actual date of execution.
[39] Schedule “A” of this Agreement defined the Territory covered by the Franchise as “The exclusive whole and entire Region of North Huron County specific to The Townships of Ashfield, Colborne, West Wawanosh, East Wawanosh, Turnberry, Howick, Morris and Grey in the Province of Ontario”.
[40] The License Agreement (Schedule B) was dated July 11, 2001 and signed by the same persons in the same manner as the Franchise Agreement. The parties were identified as Brian & Bev Walden.
[41] Schedule C required completion of the date. The date entered was November 17, 2001. In Schedule C, Brian Walden and Bev Walden signed covenants in favour of Ag. Their signatures were again witnessed by John Walden. Schedule C had not been completed in the first Agreement.
[42] Neither Mr. nor Mrs. Walden received any further disclosure documentation other than that which had been received in July, 2001 with respect to the first Franchise Agreement.
[43] On June 4, 2003, counsel sent a letter to Mr. Hicks requesting a full refund of the monies paid to Ag. The demand letter incorrectly referred to the date of the second Agreement as July 11, 2003. The second Agreement was not reached until November 17, 2001.
[44] Mr. Hicks declined. On July 29, 2003 the second Franchise Agreement was formally rescinded in writing by the Applicants. On September 22, 2003, the Applicants served a fresh Notice of Rescission referring to the correct date of the second Franchise Agreement, namely, November 17, 2001.
[45] The Applicants claim $46,323.20 for damages including the franchise fee ($45,000.00) and miscellaneous expenses incurred setting up the operation.
Issues in Contention
A. Was Mrs. Walden a party to the first Franchise Agreement?
[46] Ag prepared the written Franchise Agreement.
[47] Mrs. Walden is not identified anywhere either in the definition section of the Agreement or in the body of the Agreement as a party/franchisee. Her name does not appear as a franchisee in the acknowledgment/signing section of the Agreement at the end of the document.
[48] Prior correspondence from Ag was addressed to Mr. Walden alone.
[49] The email dated July 4, 2001 and the covering letter dated July 9, 2001 from Mr. Hicks were addressed and sent to Mr. Walden alone. In those communications, Mr. Hicks required a witnessed “signature” not “signatures”.
[50] The Promissory Note was signed by Mr. Walden alone. Mrs. Walden’s signature appears on a line identified as “Witness”.
[51] On July 11, 2001, Mr. Walden signed a document entitled “Receipt of Documentation” in which he acknowledges that all pertinent documentation has been provided and that he is in receipt of the franchise agreement and disclosure document for the purchase of Bruce County in the Province of Ontario. Mrs. Walden signed this receipt as a “Witness”. The document is addressed to Brian Walden alone and confirms, “ I, Brian Walden, hereby acknowledge that I am in receipt of .....for the purchase of Bruce County ....” (my emphasis). Ag prepared this document for signature.
[52] Mrs. Walden signed the Franchise Agreement directly underneath her husband’s signature in the space provided for “Franchisee” and in the space provided for “Licencee”. However, contrary to the Promissory Note, there is no separate or distinct signing line or designated space for the placement of the signature of a “Witness”.
[53] There is no evidence from Mr. Vandel contradicting the evidence of Mrs. Walden (or Mr. Walden) that she signed the document at the direction of Mr. Vandel.
[54] Mrs. Walden attended the training session. The session was for trainees, interested parties and potential franchisees. The training session was not limited to franchise holders. There is no direct or indirect evidence from the Respondent with respect to how or in what capacity Mrs. Walden had identified herself or was enrolled at the training session.
[55] Even if Mr. Walden had told Mr. Hicks that it was always the full intention of both Mr. and Mrs. Walden to act as franchisees as alleged by Mr. Hicks (and denied by Mr. and Mrs. Walden), there is no evidence that this intention was ever reduced to writing by the parties. The Agreement was not amended by the parties at the time of execution or any time therafter to reflect this intention.
[56] There is no evidence from Mr. Vandel with respect to what was discussed by the parties at the time the first Franchise Agreement was executed.
B. Was there proper and adequate disclosure in compliance with the Arthur Wishart Act?
[57] S. 5 of the Arthur Wishart Act (An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors) R.S.O. 2000 c. 3 states as follows:
(1) A franchiser shall provide a prospective franchisee with a disclosure document and the prospective franchisee shall receive the disclosure document not less than 14 days before the earlier of the signing by the prospective franchisee of the franchise agreement or any other agreement relating to the franchise; and the payment of any consideration by or on behalf of the prospective franchisee to the franchiser...
(3) A disclosure document must be one document, delivered as required under ss (1) and (2) as one document at one time...
(4) The disclosure document shall contain, (a) all material facts, including material facts as prescribed; (c) copies of all proposed franchise agreements and other agreements relating to the franchise to be signed by the prospective franchisee; (d) statements as prescribed for the purpose of assisting the prospective franchisee in making informed investment decisions; and (e) other information and copies of documents as prescribed.
(7) This section does not apply to,...(c) the grant of an additional franchise to an existing franchisee if that additional franchise is substantially the same as the existing franchise that the franchisee is operating and if there has been no material change since the existing franchise ...was entered into.
[58] S. 6 of the Act provides that
(1) a franchisee may rescind the franchise agreement without penalty or obligation no later than 60 days after receiving the 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;
(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 franchiser never provided the disclosure document.
[59] Under the Act, delivery of a Disclosure Document to a franchisee is obligatory. Schedule B of the Regulations determines the information to be included in the disclosure document. [4]
[60] At Tab 8 of the Joint Document Brief is a copy of the disclosure document Mr. Walden asserts he received with respect to the first Franchise Agreement.
[61] At Tab 9 of the Joint Document Brief is a copy of the disclosure document that according to Mr. Hicks, Mr. Walden ought to have received.
[62] The Franchise Disclosure Document at Tab 8 is dated June 29, 2001. It refers to Exhibit “A” as the Franchise Agreement; Exhibit “B” as the Opening Balance sheet of the Franchisor; and, Exhibit “C” as a list of the Franchisees, indicating their territory, residence and telephone number. The Document at Tab 8 does not include Exhibits “B” or “C”.
[63] The Franchise Disclosure Document at Tab 9 produced by Mr. Hicks as the document Mr. Walden ought to have received is dated May 31, 2001 and includes Exhibits “B” and “C”.
[64] As I have indicated, there is no evidence from Mr. Vandel with respect to the copy of Disclosure actually provided to Mr. Walden at the time. There is no evidence from the Respondent with respect to the contents of the actual disclosure document provided to Mr. Walden.
[65] No assignment fee was paid by Mr. Walden to Mr. Hicks (as required under paragraph 6 C 1) to “assign” the first agreement to himself and Mrs. Walden. There is no evidence that Mr. Hicks sought such payment.
[66] The Franchise Disclosure Document received by Mr. Walden was not signed by the Franchisor. No financial documents were attached. The document did not include a list of franchisees.
[67] The Respondent did not provide a Franchise Disclosure Document with respect to the second Agreement. It is the position of the Respondents that they provided disclosure in accordance with the legislative requirements. They also argue that, in the alternative, even if disclosure was not given, it was not required under the Act for the subsequent Agreement. The Respondents submit that they were exempt from the disclosure obligation since the second Agreement was simply an amendment of the first and there had been no material change.
[68] The Franchise Disclosure Document received by Mr. Walden was prepared by Ag.
[69] The Disclosure Document was retained by Mr. Walden at his home where Mrs. Walden also resided. Mrs. Walden was able to review it there.
[70] There was no further disclosure from the Respondent in conjunction with either the first Franchise Agreement or the second Agreement.
[71] As indicated, the Respondents did not provide further disclosure in conjunction with the second Franchise Agreement and rely on s. 5 (7) (c) as grounds for not doing so.
C. Rescission
[72] If no disclosure document is given, a franchisee has the remedy of rescission of the Agreement without penalty or obligation, no later than two years after entering into the franchise agreement pursuant to s. 6(2) of the Act.
[73] There is a requirement to send a notice of rescission. In this case the Applicants sent two notices of rescission dated July 29 and September 22, 2003 respectively. The earlier notice of rescission referenced the date of the Franchise Agreement. Both Agreements were dated July 11, 2001 although the second Agreement was actually executed and became effective on a different date . The notice of rescission is effective on the day it is sent by fax if it is sent by 5:00 pm.
[74] Pursuant to s. 6(6) of the Act, upon receipt a franchisor has specific obligations. The Applicants relying on the obligations set out in s. 6(6) (a) and (d), namely refund and compensation as the basis for the Order sought from the Court.
[75] Just under $1200 of the compensation claimed relates to items purchased under the first Franchise Agreement but were used in the operation of the Franchise in the second Agreement.
[76] According to s. 7 of the Act, a franchisor’s failure to comply with section 5 of the Act creates joint and several liability. When read in conjunction with s. 8(1), the Act provides that in a case of rescission where there are monies owed and they are not paid, the franchisor and associate are jointly and severally liable pursuant to s. 8(1). Pursuant to s. 11, the parties are unable to contract out of the rights and obligations under the Act.
[77] There is no evidence before the Court that Mrs. Walden as a franchisee, received a disclosure document from the franchisor as required under the Act
D. Damages
[78] The Applicants rely on s. 6 (6) of the Act wherein it states that the franchiser shall within 60 days of the effective date of rescission refund to the franchisee any money received from or on behalf of the franchisee, other than money for inventory, supplies or equipment ... compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up and operating the franchise.
Analysis
[79] The Applicants served the Respondents with a notice of rescission. There was no response. Accordingly, the Applicants commenced this Application.
[80] The statutory provisions with respect to the necessity, timeliness, content and delivery of documentary disclosure are clearly defined in the legislation.
[81] Accepting the only evidence before the Court as to the Disclosure documents that Mr. Walden actually received from the Respondents, it is uncontradicted that Mr. Walden received the document less than 14 days before signing the first Agreement. Based on the only evidence before the Court, it is also clear that the disclosure document actually received by Mr. Walden was seriously deficient.
[82] The two Franchise Agreements clearly differ with respect to the named parties to the Agreements, the price of the franchise and the territories defined in the Agreements. With the execution of the second Agreement, Mr. Walden no longer had the right, authority or obligation to operate a franchise in Bruce County.
[83] There is no evidence that the Applicant purchased an “additional” franchise, that is, a franchise in addition to the existing franchise. The second franchise was, in fact, a replacement of the first and included new essential terms such as price and territory.
[84] In order to be exempt from disclosure under the Act, the burden of proof is on the Respondents to satisfy the Court that all of the conditions are met.
[85] Rule 39.01 (5) of the Rules of Civil Procedure sets out principles governing Affidavits for use on an Application. Even on a lax or liberal application of these Rules to the affidavits of Mr. Hicks in response to the Application, the affidavits are less than satisfactory with respect to reliability.
[86] The Applicants have sought an Order that the Affidavit of Mr. Hicks be struck on the basis that it is scandalous, based on hearsay and asserts conclusions of law.
[87] As I have indicated, Mr. Hicks was not present when the first Franchise Agreement was signed and no evidence is before the Court from the representative who was. Mr. Hicks is therefore not in any position to provide personal evidence as to what transpired during the course of that meeting.
[88] There is no evidence to corroborate Mr. Hicks’ bald assertion that the documents tendered by the Applicants have been doctored. In responding to the content and nature of the documents tendered by the Applicants as actually having been received by them, Mr. Hicks had the opportunity to elicit evidence either from his own files or from someone who had personal knowledge about Mrs. Walden’s role at the time of signing the documents or from the person who delivered the Disclosure documents to Mr. Walden. Without explanation, he failed to elicit such evidence.
[89] Given the lack of evidence from the Respondent with respect to the purpose of the location of Mrs. Walden’s signature on the first Franchise Agreement at the time the signature was applied to the document; in light of all of the other evidence with respect to the identity of Mr. Walden alone as a party to this Agreement; and, upon application of the contra preferentum rule, I find that Mrs. Walden was not a party to the first Franchise Agreement.
[90] I further find that the Respondents have failed to discharge the onus of proving that they were entitled to an exemption under the Act. The addition of a party to a Franchise Agreement, the change in purchase price of the franchise and the change in territory under the Agreement were sufficient factors to warrant compliance with the Disclosure requirements of the Act. Even if I were wrong in this regard, as I have indicated, the second Agreement was clearly not a grant by the franchiser of an additional franchise to the Applicants.
Conclusions
[91] The Applicants are entitled to protection of the Act. The Respondents have not produced a copy of the Disclosure documentation it delivered to the Applicants. The copy the Applicants filed with the Court as having been received from the Respondents is seriously deficient. The Respondents have not met the onus upon them and are not entitled to the exemption provision in the Act.
[92] The Applicants are not entitled to damages arising before the execution of the second Franchise Agreement. It is the second Franchise Agreement that is rescinded.
Order
[93] The Franchise Agreement executed on November 17, 2001 is rescinded.
[94] The Respondents shall pay to the Applicants $45,000.00 plus interest in accordance with the provisions of the Courts of Justice Act RSO 1990 c. C43.
[95] If they are unable to reach an agreement, the parties may make submissions to me in writing with respect to costs within the next thirty days.
DATE: January 23, 2005
“ L. C. Templeton”
__________________________________
Justice L. C. Templeton
[1] for a total payment of $66,240.00 for this franchise
[2] The highlighted portions reflect words that are highlighted on the face of the Agreement.
[3] The highlighted portions reflect words that are highlighted on the face of the Agreement.
[4] A copy of the Regulations is attached hereto. I note, in particular, s. 5(3) of the Act; s. 15 of Part 2.
