In the recent Ontario Court of Appeal decision in PQ Licensing S.A. v. LPQ Central Canada Inc. ("PQ Licensing"), the Court considered whether the mandatory mediation process prescribed by a franchise agreement impacted the limitation period applicable to a franchisee’s rescission claim. The Court found that the franchisee’s claim for rescission was not barred even though the franchisee had delivered its notice of rescission nearly a decade prior. This decision hinged on the alternative dispute resolution provisions set out in the franchise agreement.
In 2009, the franchisee delivered a notice of rescission asserting that the franchisor had breached its disclosure obligations under s. 5 of the Arthur Wishart Act (Franchise Disclosure), 2000 (“AWA”). The franchisor disputed the validity of the rescission notice. In 2011, the franchisee then commenced an action for rescission. The franchisor objected, relying on the provisions of the franchise agreement which required disputes between the parties to be mediated and then arbitrated. The franchisee did not commence an arbitration and the action stagnated.
Two years later the franchisor moved to dismiss the action on the basis that the limitation period for the arbitration had expired. The Court decided that the question of whether the limitation period had expired should be determined by an arbitrator. The franchisee served a notice of arbitration, and an arbitrator was appointed.
The arbitrator was asked to decide whether the arbitration was out of time because the franchisee had not commenced its claim within two years of the date the franchisor disputed the notice of rescission, and decided against the franchisor. The arbitrator interpreted the alternative dispute provisions in the franchise agreement in light of the Limitations Act, 2002 (“Limitations Act”) and the AWA, and found that the parties plainly agreed to a comprehensive scheme for the resolution of their disputes. He found that the franchise agreement required the parties to first mediate their dispute as a precondition to arbitration. As a result, he held that the limitation period for the franchisee’s claim for rescission did not begin to run until after the mediation prescribed by the franchise agreement had taken place. As this had not yet occurred, the arbitrator accordingly concluded the claim was not barred by a limitation period.