Burnett Management Inc. et al v. Cuts Fitness for Men et al

Rescission Decision of Ontario Superior Court of Justice

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This is an action for rescission of a master franchise agreement. The plaintiffs, all master franchisees for the purposes of the Arthur Wishart Act, did not receive a disclosure document prior to paying master franchise fees and signing a letter of intent. The disclosure document had a number of deficiencies including that it was not delivered as one document at one time, didn't have any financial statements (or an opening balance sheet),didn't include copies of all proposed franchise agreement and agreements relating to the franchise and was not certified. The defendant franchisor did not appear at the trial. The court found that the disclosure document was so deficient as to not be a disclosure document as defined by the Arthur Wishart Act and that the master franchisees were entitled to rescind under s. 6(2) of the Act (which affords the franchisee a right to rescind within 2 years of entering into a franchise agreement)and to be compensated in accordance with the provisions of s. 6(6) of the Act. The court found that the plaintiffs were entitled to recover $176,735.32 under s. 6(6)of the Arthur Wishart Act. The plaintiffs were also entitled to recover unpaid fees under s. 7 of the Arthur Wishart Act in the amount of $9,400 that the franchisor had refused or failed to pay. Finally, the court awarded the plaintiffs $25,000 for the franchisor's breach of the duty of good faith. The franchisor had failed to disclose the true state of affairs of the Cuts franchise system to the franchisees and, in particular, the fact that the franchisor was in a state of rapid decline. The franchisor failed to respond to reasonable requests for information and assistance after the letter of intent was signed and the franchise fee was paid. In terms of other relief sought, the court declared that Cuts Fitness (Canada) Inc., Cuts Fitness for Men, LLC and Mr. Gennaro are "franchisor's associates" and therefore jointly and severally liable to the plaintiffs for the damages awarded. The plaintiffs were also awarded costs of $70.000. The court was mindful of the fact that the matter had drawn on for over 6 years, with the defendants vigourously pursuing a counterclaim of about 2 million dollars - which they abandoned weeks before trial.

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Published In: Franchise Updates

Reference Info:Decision | Canada

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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