In a recent decision of the Ontario Superior Court of Justice, 2130489 Ontario Inc. v. Philthy McNasty's (Enterprises) Inc. (2011 ONSC 6852), the court examined the issue of limitation periods in respect of statutory rescission claims under the Arthur Wishart Act (Franchise Disclosure), 2000 (the "Act").
The Act appears straightforward with respect to the limitation period for a franchisee delivering a notice of rescission (two years from the date of execution of the franchise agreement, or sixty days from delivery of the franchise disclosure document, depending on the reason for rescission).
However, once the notice of rescission is delivered, the Act is unclear as to how long a franchisee has to bring an action in court with respect to the franchisor's failure to abide by the notice of rescission.
In this case, the franchise agreement was executed on October 9, 2007. The franchisee issued a notice of rescission under the Act on September 23, 2009, just under two years after the agreement was executed. The court noted that under the Act, the franchisor has sixty days in which to satisfy the Act's rescission obligations under the Act. By November 3, 2009 (and within the sixty days), the franchisor advised the plaintiff franchisee that the notice of rescission was being disputed. The plaintiff franchisee commenced an application seeking rescission of the franchise agreement on November 29, 2010.
The court held that the franchisee had properly issued its notice of rescission within the two year limitation period outlined in the Act. The court then addressed when the cause of action arose in regards to the franchisor's failure to respond to the notice of rescission. The court held that under the Limitations Act, 2002, the franchisee had two years from when the franchisor rejected the rescission claim to bring an action against the franchisor. In this case, the court found the claim against the franchisor was discoverable on November 3, 2009, which was the date on which the franchisor advised the franchisee that it was disputing the rescission claim. As such, the application brought on November 29, 2010 was commenced in time and was not barred by the Limitations Act, 2002.
This decision is helpful in clarifying the limitation period with respect to rescission actions. Even if a franchisee issues a notice of rescission within the appropriate time allowed, the franchisee still has to ensure that an action is brought as soon as that franchisee is aware that the franchisor will be disputing the rescission claim. Franchisors should pay close attention to this limitation period as a defence when dealing with rescission claims under Ontario's franchise legislation.
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