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Author: Anthony Pugh and Sarah McMahon, Law Works P.C.
Editor: Ben Hanuka, Law Works P.C.
In 2462192 Ontario Ltd. v. Paramount Franchise Group, the Ontario Superior Court of Justice held that summary judgment was not appropriate for a franchise dispute where there were many disputed facts involving credibility, and where there was a novel legal issue.
Paramount Franchise Group (“Paramount”) is a franchisor of restaurants that specialize in Middle Eastern cuisine. The franchisees plaintiffs received a disclosure document, as is required under s. 5 of the Arthur Wishart Act (Franchise Disclosure), 2000, and the franchise agreement was executed soon after. A few months later, a second disclosure document was delivered to the franchisee. Two years later, Paramount issued a notice of default to the franchisees, and shortly after, the franchisees issued a notice of rescission. Paramount took over the franchise.
The franchisee commenced an action for over $2 million in damages and brought a motion for summary judgment.
The main facts in dispute involved whether all franchisees received a disclosure document, whether the consultant who provided the franchisees with projections was independently hired by the franchisees or was acting on behalf of Paramount, and whether Paramount’s actions in taking over the restaurant was prompted by the notice of rescission.
Of most important relevance were the issues that involved credibility. One allegation to be decided in the dispute was whether Paramount forged the signatures of the franchisees on the disclosure document. Another key issue before the Court was whether Paramount was entitled to take over the franchise and exclude the franchisee, and if so, whether it was entitled to keep the equipment left in the restaurant and keep the proceeds of sale when the restaurant was sold.
The franchisees also argued that their evidence should be preferred to the evidence of Paramount, because they were able to provide direct evidence about the observations they had made. In contrast, Paramount was only able to provide the court with information about their general practices.
The Court held that summary judgment was not appropriate in this dispute, because there were too many disputed issues of fact that involved credibility, including issues that involved fraud and forgery. It was necessary for the judge to make the appropriate assessment having heard all the evidence and, ultimately, make findings of credibility.
It was also unclear whether Paramount’s decision to take over the franchise was prompted by the franchisee’s notice of rescission or by the alleged defaults of the plaintiff. The Court held that even if Paramount was prompted to take over the franchise by the notice of rescission, it was not clear what, if anything, either party was entitled to do. As this was a novel question, the Court held that it should be decided at a trial.
This case serves as a reminder to litigators that when a case involves significant disputed facts, credibility issues, and novel legal issues, summary judgment is not the appropriate procedure.Tags : Rescission, Disclosure, Termination, Damages
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