|
Franchise - Franchisor's Associate. 2483038 Ontario Inc. v. 2082100 Ontario Inc.
In 2483038 Ontario Inc. v. 2082100 Ontario Inc. (Ont CA, 2022) the Court of Appeal considers some aspects of the Arthur Wishart Act, including personal liability of a "franchisor's associate":(2) Franchisor’s associate
[26] The Wishart Act contains the following definition of a “franchisor’s associate”:“franchisor’s associate” means a person,
(a) who, directly or indirectly,
(i) controls or is controlled by the franchisor, or
(ii) is controlled by another person who also controls, directly or indirectly, the franchisor, and
(b) who,
(i) is directly involved in the grant of the franchise,
(A) by being involved in reviewing or approving the grant of the franchise, or
(B) by making representations to the prospective franchisee on behalf of the franchisor for the purpose of granting the franchise, marketing the franchise or otherwise offering to grant the franchise, or
(ii) exercises significant operational control over the franchisee and to whom the franchisee has a continuing financial obligation in respect of the franchise[.] [27] Both the appellants and respondents agree that Mr. Davis, as the sole director and shareholder, had control over the franchisor, and therefore meets the first step of the “franchisor’s associate” test under the Wishart Act. The question then becomes whether Mr. Davis was directly involved in the granting of the franchise or was someone who exercised operational control over the franchisee and was owed a continuing financial obligation regarding the franchise.
[28] The trial judge made findings of fact based on the evidentiary record that the statements made at pages two to four of the disclosure documents were “representations” for the purpose of granting, marketing, or offering to grant the franchise. These findings of fact were open to the trial judge and therefore are entitled to deference. Mr. Davis also gave sworn testimony that he intended to be personally liable for his signature on page four. Based on these facts, Mr. Davis was directly involved in the grant of the franchise under clause (b)(i)(B).
[29] I am also unconvinced by the appellants’ reading of the statute. The appellants contend that the concept of direct involvement in s. 1(b)(i) modifies ss. 1(b)(i)(A) and 1(b)(i)(B). For example, section 1(b)(i)(B) would read as follows:“franchisor’s associate” means a person,
(b) who,
(i) is directly involved in the grant of the franchise,
(B) by making [direct] representations to the prospective franchisee on behalf of the franchisor for the purpose of granting the franchise, marketing the franchise or otherwise offering to grant the franchise ... . [30] The appellants’ proposed reading of the statute would contravene established principles of statutory interpretation. As Professor Ruth Sullivan has written, “[t]he starting point of every interpretative exercise is determining the ‘ordinary meaning’ of the text. This is what Driedger means when he says the words of an Act are to be read in their ordinary, grammatical sense”: Ruth Sullivan, Statutory Interpretation, 3rd ed. (Toronto: Irwin Law, 2016), at p. 59. It is presumed that the legislature’s “choice of words, word order, and structure and its sequencing of material are careful and orderly, with an accurate appreciation of the impact on meaning”: Sullivan, at p. 129.
[31] In interpreting the Wishart Act, this court has emphasized the need to defer to the legislature’s wording. Analyzing s. 6 of the Wishart Act, for example, this court held that “a fair interpretation of the Act is one that balances the rights of both franchisees and franchisors. To read in the remedy that the appellant is proposing is inconsistent with such an interpretation and was clearly not within the contemplation of the legislature”: 4287975 Canada Inc. v. Imvescor Restaurants Inc., 2009 ONCA 308, 98 O.R. (3d) 187, at para. 40.
[32] The appellants advance a strained and unnatural reading of s. 1. Simply put, the legislature would have inserted the word “direct” into s. 1(b)(i)(B) if it had intended to import the concept of direct involvement into that provision and thereby limit the application of the subsection. I do not agree with the appellants that an alternate meaning should be imputed, contrary to the contemplation of the legislature.
[33] In any event, the representations were made directly to the franchisee parties because Mr. Davis reviewed the disclosure documents, permitted his signature to be applied after the statements he wrote at pages two to four, and knew that this package would be provided to prospective franchisees. . Royal Bank of Canada v. Everest Group Inc.
In Royal Bank of Canada v. Everest Group Inc. (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal of franchise-related rescission actions.
Here the court considered whether certain parties qualified as the franchisor's 'associates':[13] Finally, the trial judge explained why she found that Ms. Graham and Paramount Leasing were franchisor’s associates, as defined in the Wishart Act. With respect to Ms. Graham, although she did not have the authority to approve the grant of a franchise, the trial judge found that her responsibilities amounted to being “involved in reviewing or approving the grant of the franchise.” These responsibilities included: (a) the initial vetting of prospective new franchisees; (b) evaluating prospective franchisees’ experience in the food services industry and noting red flags; (c) advising the principals of the results of her review, including outstanding debts; (d) undertaking initial meetings with prospective franchisees; and (e) briefing the principals on those meetings. Ms. Graham may not have been a director or officer, but neither was she a clerical or junior employee. She performed a significant role in the process of reviewing the applications, exercising professional judgment, and advising the ultimate decision-makers. We find no issue with the trial judge’s analysis.
[14] Similarly, we do not agree that the trial judge erred in finding Paramount Leasing was also a franchisor’s associate. As the trial judge amply explained, Paramount Leasing exercised significant operational control over the franchisees, and was owed a continuing financial obligation in respect of the franchise, satisfying the statutory definition of franchisor’s associate. As noted by the trial judge, Paramount Leasing had the power to terminate the franchisee’s lease for breach of the franchise agreement. These findings were supported by the evidence before the trial judge and were open to her.
|
