A Wing And No Prayer: Ontario Court Of Appeal Rejects A Franchisor's Appeal Of A Rescission Judgment

As an update to a previous Cassels article,¹ the Ontario Court of Appeal upheld a lower court decision granting a franchisee's rescission claim based on non-disclosure in respect of a "Wild Wings" franchise. A copy of the decision (2355305 Ontario Inc. v. Savannah Wells Holdings Inc.) can be found here.² At trial, the franchisee (Jayasena) obtained a declaration in respect of rescission and resulting damages against the franchisor and several franchisor "associates" (as defined under the Arthur Wishart Act (Franchise Disclosure), 2000 (the Act).

All of the franchisor's grounds of appeal were rejected by the Court, including the main argument by the franchisor concerning whether it was in fact required to provide a franchise disclosure document at all. Specifically, the franchisor argued that it was entitled to rely on the Act's disclosure exemption under section 5(7)(a) whereby there was a resale of a franchise that was not effected by or through the franchisor. The Court upheld the lower court's finding that the parties entered into a new franchise agreement, thereby removing the ability to rely on the exemption. The Court made this finding despite a significant factual dispute between the parties concerning the validity of this new franchise agreement. The Court also held that the franchisor played "more than a passive role in the grant or transfer of the franchise" and thereby nullified the applicability of the exemption.

The Court also upheld the trial judge's damages determination and costs award. In respect of the latter, the Court confirmed the decision to award substantial indemnity-level costs due to an unaccepted offer to settle and the franchisor's allegations of fraud, collusion, and perjury against the franchisee and threats of collateral proceeding against counsel for the franchisee.

Footnotes

1. https://cassels.com/insights/a-wing-and-a-prayer-the-ontario-superior-court-of-justice-shoots-down-a-franchisors-exemption-defence-in-a-rescission-claim/

2. 2025 ONCA 505 (CanLII), (https://canlii.ca/t/kd6v3)