13 August 2018By Brendan Monahan
Under what circumstances can a motion judge decide a contested factual issue using the expanded fact-finding powers under rule 20.04(2.1) of the Rules of Civil Procedure (the “Rules”) without oral evidence? That was one of the issues before the Ontario Court of Appeal in a recent decision, 2212886 Ontario Inc. et al. v. Obsidian Group Inc. et al., 2018 ONCA 670. In that case, the Court set aside a partial summary judgment, finding that it was not “in the interest of justice” to determine a key contested factual issue on the basis of a paper record alone.
Background: The dispute arose when the plaintiffs (respondents on the appeal), William and Kirsten Porteous (“William” and “Kirsten”), who had been operating a Crabby Joe’s Tap and Grill franchise in Brantford, Ontario, attempted to rescind a franchise agreement (the “Agreement”) they had entered into with the defendant franchisors, Obsidian Group Inc. and Obsidian Inc. Under the Arthur Wishart Act (“AWA”), the provincial statute that governs the relationship between franchisees and franchisors in Ontario, franchisees have the right to rescind a franchise agreement and seek damages against the franchisor in certain circumstances. One such circumstance, under s. 6(2) of the AWA, is where the franchisor never provided the required disclosure documentation to the franchisee, or where “the disclosure document provided by the franchisor… [is] so materially deficient as to constitute no disclosure at all.”1
The central question in the case was whether the omission of a chart showing anticipated weekly earnings projections for the Crabby Joe’s franchise (the “Chart”) in the disclosure document that had been provided to William and Kirsten rendered the document so materially deficient “as to constitute no disclosure at all,” thus giving rise to a right of rescission and damages under ss. 6(2) and 6(6) of the AWA. The answer to this question depended on whether the franchisor’s representative, Danny Grammenopoulos (“Danny”) had shown William and Kirsten a document containing the Chart at a meeting in May 2010. If the Chart was shown to them at that meeting, the franchisor had an obligation to include it in the disclosure document. Failure to do so would give rise to a right of rescission under s. 6(2).
The Motion Judge’s Decision: William and Kirsten moved for summary judgment, seeking rescission of the Agreement and rescission damages. Danny and William gave contradictory affidavit evidence on the summary judgment motion. William asserted that he and Kirsten were shown the Chart in the May 2010 meeting. Danny did not appear to have an independent recollection of the meeting, but “relie[d] on his practice in over 25 years in the franchise business to reach the conclusion that he did not show [William and Kirsten] an earnings projection.”2
In light of the contradictory evidence, the motion judge found that he could not make the necessary findings of fact at this stage and that there was a genuine issue that required a trial.3 However, his Honour then invoked the expanded fact-finding powers under r. 20.04(2.1) and (2.2), which include “weighing the evidence, evaluating the credibility of a deponent, and drawing any reasonable inference from the evidence.”4 In so doing, the motion judge observed that Danny’s affidavit was “heavy on speculation and general practice and light on direct knowledge” and therefore found that “notwithstanding any cross examination on Danny’s affidavit, I have great difficulty accepting his evidence.”5 The motion judge accepted William’s evidence regarding the May 2010 meeting, and granted judgment against the defendants in the amount of $964,805.33. The defendants appealed.
The Court of Appeal Allowed the Appeal: The Court of Appeal allowed the appeal in part and set aside the summary judgment. The Court was critical of the motion judge’s treatment of the evidence, including his outright rejection of Danny’s evidence6, as well as the fact that, in light of the apparent contradictions in William’s own evidence, “the motion judge did not explain why he accepted [William’s] evidence about what transpired at the May 2010 meeting, except that he had rejected Danny’s evidence.”7 The Court held that this was not a case that could be decided summarily on the basis of a written record alone:
I would set aside the summary judgment granted in this case. The key and essential finding that there was non-disclosure which amounted to a breach of s. 6(2) of the AWA and justified rescission and damages ought not to have been made in the circumstances of this case. That finding could not be made on the basis of untested evidence, and without invoking at least the powers under r. 20.04(2.2) to hear oral evidence.8
Of note, the Court did not disturb the motion judge’s finding on the separate issue of whether the limitation period for commencing a rescission claim under s. 6(2) of the AWA had expired (it had not).
The Takeaway: The Obsidian decision suggests that the Court of Appeal will not hesitate to set aside a summary judgment where the record includes contradictory evidence that has not been tested orally, particularly when such evidence relates to a key issue on which liability depends. However, the Court’s willingness to disturb the motion judge’s finding on what was essentially a pure factual matter—namely, whether William and Kirsten were shown the Chart in the May 2010 meeting—indicates that reviewing courts may show very little deference when determining whether a motion judge’s decision to use, or not use, the expanded fact-finding powers under the Rules are “in the interests of justice.” The Obsidian decision, following closely on the heels of Butera v. Chown, Cairns LLP, is yet another example of our courts’ restrictive interpretation of the Supreme Court’s decision on summary judgment in Hryniak v. Mauldin, 2014 SCC 7.
12212886 Ontario Inc. v. Obsidian Group Inc., 2018 ONCA 670 [ONCA Reasons] at para. 2.
22212886 Ontario Inc. v. Obsidian Group Inc., 2017 ONSC 1643 [SCJ Reasons] at para. 31.
3SCJ Reasons at para. 19.
4SCJ Reasons at para. 20.
5SCJ Reasons at para. 41.
6ONCA Reasons at para. 43.
7ONCA Reasons at para. 48.
8ONCA Reasons at para. 55.