In MDG Kingston Inc. v. MDG Computers Canada Inc., 2008 ONCA 656, the plaintiff franchisee brought a claim for rescission and damages related to two franchise agreements. The defendant franchisor brought a motion to enforce the arbitration clause contained in each of the franchise agreements and stay the Court proceedings. In response, the plaintiffs brought a cross-motion for summary judgment for rescission of the agreement.
The franchisee claimed it was entitled to rescission because they had not received a disclosure document before signing the their second franchise agreement. The franchisor argued that: (1) the dispute should be determined by an arbitrator, and not the Courts; and (2) the second agreement did not contain any material changes thereby exempting them from the disclosure requirements.
Despite only having the two agreements as evidence, the motions judge determined that there were material changes between them entitling the franchisee to rescind the second agreement.
Furthermore, since the arbitration clause would have had to be contained within the disclosure document, the Court found that the arbitration clause could not be enforced.
The Ontario Court of Appeal (“OCA”) allowed the appeal, set aside the summary judgment and stayed the action. The OCA held that the Arbitration Act applied in this situation as there was no evidence to suggest that its application was excluded by the Arthur Wishart Act. The Arbitration Act states that where the matter before the court is governed by an arbitration agreement, the court must stay the action subject to limited exemptions. The OCA held that none of those exceptions applied in this case. In particular, the Court can refuse to stay an action where the case is a “proper case” for summary judgment. The OCA held that this case was not a proper case for summary judgment as the evidence before the motions judge was insufficient to make that finding.