Don't Wing It When It Comes to Disclosure... or a Trial: Case Comment on Jayasena

  • April 03, 2023
  • Jonathan Mesiano-Crookston, with thanks to Sara Fahmi for her assistance

Jayasena Management Corp. (“Jayasena”), 2023 ONSC 1008, the franchisee plaintiff corporation, bought a Wild Wing franchise from a predecessor franchisee. The plaintiffs’ real estate agent had previously worked for the franchisor. The agent provided the plaintiffs, the franchisee and its principals, with sales figures from the franchise system.

The franchisor approved the purchase in January 2013. The Court also held that about six months later the two personal operators of Jayasena and a representative of the franchisor, a Mr. Smiciklas, met at the franchisor’s head office to sign a franchise agreement. What happened at this meeting was disputed. The parties’ positions will be discussed below.

The plaintiffs operated the business for about 18 months, losing money. They eventually delivered a notice of rescission and handed the store back to the franchisor.

At no point was a disclosure document ever given to the plaintiffs. Therefore, the issue was whether the franchisor was exempted from disclosure because of section 5(7)(a)(iv) of the Arthur Wishart Act, 2000.[1] Disclosure is not required for “the grant of a franchise by a franchisee if … the grant of the franchise is not effected by or through the franchisor.” A related provision, section 5(8), provides that a “grant is not effected by or through a franchisor merely because the franchisor has a right, exercisable on reasonable grounds, to approve or disapprove the grant, or to receive a transfer fee”.

The plaintiffs’ position was that the parties had signed a franchise agreement, it was clearly a grant of a franchise, and thus the franchisor was disentitled from relying on the s. 5(7)(a) exemption. The plaintiffs produced the only copy of any franchise agreement on the record and it had been signed by Mr. Smiciklas alone. The plaintiffs testified that they had attended at the franchisor’s head office, signed one copy of the franchise agreement, which was fully executed and which copy the franchisor kept, and left with a second copy which had only been signed by Mr. Smiciklas. They had been told this was their file copy and so their signing it was not necessary.

The defendants’ position was that the grant of the franchise had not been effected by or through them. They asserted that: