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Notice - Commencement of Proceeding as Notice Substitute

. 2352392 Ontario Inc. v. Msi

In 2352392 Ontario Inc. v. Msi (Ont CA, 2020) the Court of Appeal considered when a statutory notice provision [under s.6(3) of the Arthur Wishart Act (Franchise Disclosure), 2000], normally interpreted to be required outside of litigation, was satisfied by effective notice within a statement of claim:

[10] In effect, the notice of rescission and the claim for rescission were brought contemporaneously in this case. Is there a reason to interpret the Act in a way that requires a separate notice, and does not allow the third party claim, issued within two years after entering into the franchise agreement as required by s. 6(2), to constitute the required notice? In my view, there is not.

[11] As the Arthur Wishart Act is remedial legislation, it should be interpreted in a generous manner to redress the imbalance of power in franchising relationships, while also balancing the rights of both franchisees and franchisors: Mendoza v. Active Tire & Auto Inc., 2017 ONCA 471, 139 O.R. (3d) 230, at para. 13, leave to appeal refused, [2017] S.C.C.A. No. 405; Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 26; 4287975 Canada Inc. v. Imvescor Restaurants Inc. et al., 2009 ONCA 308, 98 O.R. (3d) 187, at para. 40, leave to appeal refused, [2009] S.C.C.A. No. 244.

[12] Under s. 6(2) of the Act, a franchisee has the right to rescind the franchise agreement within two years if the franchisor did not provide the statutory disclosure document. To do so, the franchisee must provide written notice of rescission. The purpose of the notice is to advise the franchisor that the franchisee is rescinding. Its purpose is not as a precondition to litigation. In fact, a review of the Hansard debate at the time the Act was introduced confirms that s. 6 was intended to allow the parties to extricate themselves from the agreement without litigation if the franchisor accepts the notice of rescission and complies with all the requirements in s. 6(6) within 60 days of receiving the notice: see Ontario, Legislative Assembly, Standing Committee on Regulations and Private Bills, Subcommittee Report: Franchise Disclosure Act, 1999, Bill 33, 37-1, (19 April 2000) at 11:10 (Joseph Hoffman, Director, Policy and Agency Relations Branch, Ministry of Consumer and Commercial Relations).

[13] Under s. 6(3), the only requirements for the notice are that it be in writing and delivered to the franchisor. Although it is fair to say that the Act appears to contemplate that notice will be given outside the context of litigation, a pleading can comply with the Act’s requirements. It did in this case. Moreover, it was not the respondents’ position that the language of the third party claim was too imprecise to give notice to the franchisor, as was the case in 779975 Ontario Ltd. v. Mmmuffins Canada Corp. (2009), 62 B.L.R. (4th) 137 (Ont. S.C.). This was not a case in which the franchisor was somehow prejudiced by the manner in which notice was given, nor did the respondents submit otherwise. Their position was that no pleading could constitute the required notice under the Act.

[14] The issue identified by the motion judge is that the pleading itself may be premature, particularly to the extent that it claims the damages and payments provided in s. 6(6) before the 60 days have gone by. However, the prematurity of the pleadings is a procedural matter that may have to be addressed by the parties, depending what positions they take. In this case, as in the Ahmed case, the pleading served only as notice and the parties subsequently issued new statements of claim. Although this procedure is anomalous, and certainly not the ideal or recommended approach, I see no basis to find that the third party claim could not constitute the written notice required under s. 6(3) of the Act – a finding that would have the effect of denying the franchisee’s right to rescind.

[15] To conclude, although a written notice of rescission delivered by the franchisee to the franchisor before commencing litigation is the normal and preferable procedure, to preclude a franchisee from using a pleading to provide notice of rescission to a franchisor and to find that such a notice cannot comply with the Act when there is no such prohibition in the Act itself, would be to favour form over substance and create a barrier to enforcement of the rights of franchisees under the Act.


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