Should the case of Chu v. Chowdhury (c.o.b. Liberty Car and Truck Rental), [2008] O.J. No. 1975 proceed to trial, the Ontario Superior Court will be faced with the challenge of determining the point at which a disclosure document is so deficient that it cannot be considered to be a disclosure document at all.

The plaintiffs had brought a motion for summary judgment seeking rescission of two licensing agreements with the defendant, a corporation that carried on business as retailer and licensor of Liberty Car and Truck Rental. The defendant conceded that the plaintiffs’ businesses were “franchises” within the meaning of the Arthur Wishart Act (Franchise Disclosure), 2000 (the Act).

Prior to the plaintiffs’ execution of the licensing agreements, the defendant had provided the plaintiffs with a pamphlet that included a sales report, unaudited financial statements and an overview of the Liberty Car and Truck Rental requirements and business. The plaintiffs alleged that the information addressed only three of the disclosure requirements prescribed in the Act.

The plaintiffs alleged that they had not been provided with a “disclosure document” that met the statutory requirements of the legislation since the information provided was so lacking (including the absence of any franchisor’s certificate) that it constituted no disclosure document at all. They claimed a 2-year right of rescission pursuant to section 6(2) of the Act. While the defendant conceded that the information did not address all of the disclosure items prescribed in the legislation, the defendant took the position that it had provided a disclosure document (albeit a deficient one) so the plaintiffs were limited to a 60-day rescission right (which had long expired).

Motion for Summary Judgment Denied

Interestingly, despite what appears to have been a desperate, retroactive effort by the defendants to re-characterize previously delivered information as a “disclosure document,” the court denied the plaintiff’s motion. The Honourable Madam Justice Sandra Chapnik held that the issue before the court was a question of mixed fact and law that could only be addressed after examining the evidence. Accordingly, the plaintiffs’ motion for summary judgment for rescission and compensation for losses was dismissed.

This decision indicates that courts will be reluctant to grant the rescission of a franchise agreement by way of summary judgment if the defendant franchisor can show that any information that would address the disclosure requirements in the legislation had been provided (even if it does not appear that the information was provided for disclosure purposes at the time it was provided). If this case goes to trial it will, in effect, decide the issue of whether a nominal level of disclosure on the part of the franchisor will effectively constitute “no disclosure” under s. 6(2) of the Act.