ONTARIO SUPERIOR COURT OF JUSTICE ONTARIO LIMITED. -and- GREG KELLY, JOAN KELLY, ONTARIO INC. and TRADESMAN HOME INSPECTIONS

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1 ONTARIO SUPERIOR COURT OF JUSTICE Court File No.: CV B E T W E E N: ONTARIO LIMITED Plaintiff -and- GREG KELLY, JOAN KELLY, ONTARIO INC. and TRADESMAN HOME INSPECTIONS STATEMENT OF DEFENCE AND COUNTERCLAIM 1. The Defendants admits the allegations contained in paragraphs 9, 12, and 26 of the Plaintiff s Statement of Claim. 2. The Defendants deny the allegations contained in paragraphs 1, 4, 5, 6, 7, 8, 10, 11, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 27, 28, 29, 30, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48 and 49 of the Plaintiff s Statement of Claim and puts the Plaintiff to the strict proof thereof. 3. The Defendants have no knowledge of the allegations contained in paragraphs 2, 3, and 31 of the Plaintiff s Statement of Claim and put the Plaintiff to the strict proof thereof.

2 2 4. The Defendants, Greg and Joan Kelly are a married couple living in Belleville, Ontario. 5. The Defendant, Ontario Inc. is an entity incorporated pursuant to the laws of the Province of Ontario of which the co-defendants, Greg and Joan Kelly are the principal and directing minds. 6. The Defendant, Tradesman Home Inspections is not a separate entity. Rather, it is the business name under which Ontario Inc. carries on business. 7. The Defendants serve and file this Statement of Defence and Counterclaim on a completely without prejudice basis to their right to have the venue in which the action has been commenced transferred to Belleville. 8. The Defendants plead and the fact is that the action has no connection whatsoever to the City of Toronto and that the Statement of Claim was improperly filed there. 9. The Defendants plead that the proper venue for the action is the City of Belleville, Ontario as that is where the contract that is the subject of the dispute was entered into. 10. The Defendants plead that the only connection that the City of Toronto has with the within action is the Plaintiff s selection of lawyer.

3 3 11. On June 4, 2011, the Defendants Greg Kelly, Joan Kelly and Ontario Inc. entered into a Franchise Agreement with the Plaintiff. 12. The Defendants plead and the fact is that the disclosure document which the Plaintiff was required to provide prior to the parties entering into the Franchise Agreement was incomplete, misleading and otherwise completely contravened the requirements of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c The Defendants plead that by reason of the Plaintiff s failure to oblige wellestablished disclosure obligations, the Franchise Agreement dated June 4, 2011 must be rescinded pursuant to the terms and provisions of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c The Defendants plead and the fact is that they never operated a second franchise in addition to the first. Rather, due to the Defendants expertise and productivity, the Plaintiff inquired with the Defendants about changing the geographical boundaries in which they were operating such that they had responsibility for a larger and busier territory being the Quinte Area. 15. The Defendants were agreeable to this material change to the Franchise Agreement. Due to the parties shared understanding that this would indeed constitute a material change to the Franchise Agreement, by the terms of the Arthur Wishart Act

4 4 (Franchise Disclosure) 2000, S.O. 2000, c. 3, the Plaintiff was required and did so provide a fresh disclosure document to the Defendants on June 30, The Defendants plead and the fact is that the fresh disclosure document they were provided on June 30, 2011 was incomplete, misleading and otherwise completely contravened the requirements for disclosure according to the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c The Defendants plead and the fact is that the Disclosure Documents provided by the Plaintiff in respect of this matter were non-compliant with the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 in the following ways which list is nonexhaustive and subject to change as the Defendants discover more about the Plaintiff and its operations: a) the Franchise Agreement was not attached to the Disclosure Document as required by law, despite making reference to the fact that it was so attached; b) the Disclosure Document was not signed by the principal and directing mind of the Plaintiff, Mr. Mike Smith, in his personal capacity as required by law; c) the Disclosure Document did not include a proper list of the individuals who had been disenfranchised or otherwise left the association in the previous year or in the past three years as required by law;

5 5 d) the Disclosure Document did not contain any particulars whatsoever detailing the relationship as between the master franchisor and the regional owner as required by law; and, e) the Disclosure Document did not provide any details whatsoever about what would happen to a franchisee if a regional owner were to be disenfranchised by the master franchisor. 18. By reason of the foregoing misrepresentation and non-disclosure by the Plaintiff, the Defendants could not make a properly informed decision. Rather, their decision to enter into the Franchise Agreement was based on misinformation and also a lack of information. 19. In addition to the basic contraventions of the franchise disclosure process set out by the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c. 3, the Defendants plead that the Plaintiff further contravened the legislation by taking steps to prohibit association between franchisees. 20. The Defendants plead that shortly after inquiring with the Plaintiff about what they believed was a deficiency in the Disclosure Document they were provided, the Plaintiff terminated the Defendants account thereby effectively prohibiting or

6 6 attempting to prohibit association between franchisees in contravention of the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c The Defendants plead that once they began inquiring with other franchisees about a possible deficiency in the Disclosure Document, the Plaintiff and its legal representation threatened to sue the Defendants for defamation. 22. The Defendants plead that the Plaintiff s numerous threats in this connection constitute a further contravention of the rule prohibiting a franchisor from interfering with association between franchisees as set out in the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c The Defendants plead that as a result of the Plaintiff s obvious and flagrant contravention of the disclosure process provided for the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c. 3, they are entitled to a rescission of the Franchise Agreement and restitution as set out in the legislation. 24. The Defendants plead that as a result of the Plaintiff s contravention of the duty of fair dealing, misrepresentation, failure to disclose, and prohibition or attempt to prohibit association between the Defendants and other franchisors, they are entitled to damages according to the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c. 3.

7 7 25. Accordingly, the Defendants plead that the Plaintiff s Claim should be dismissed with costs awarded against it on a substantial indemnity basis inclusive of applicable taxes and disbursements. COUNTERCLAIM 26. The Defendants, (Plaintiffs by Counterclaim), Greg Kelly, Joan Kelly, Ontario Inc. and Tradesman Home Inspections claim: a) A declaration that any and all franchise agreements as between them and Ontario Limited, and all of its successors and assigns are rescinded; b) A declaration that the Notice of Rescission dated July 20, 2012 is valid and was properly served and received by the requisite parties; c) A refund of any money received from them by Ontario Limited, other than money for inventory, supplies or equipment; d) An order requiring to purchase from them any inventory that they had purchased pursuant to the franchise agreement and remaining at the effective date of rescission, at a price equal to the purchase price paid by the franchisee;

8 8 e) An order requiring Ontario Limited to purchase from them any supplies and equipment that the franchisee had purchased pursuant to the franchise agreement, at a price equal to the purchase price paid by the franchisee; f) An order requiring Ontario Limited to compensate them for any losses that they incurred in acquiring, setting up and operating the franchise, less the amounts set out as aforesaid; g) Damages in the amount of $50, for breach of the duty of fair dealing, misrepresentation, failure to disclose and prohibiting association as between them and other franchisees; h) Punitive and aggravated damages in the amount of $50,000.00; i) Pre-judgment interest from and after Jul 20, 2012 and post-judgment interest in accordance with the terms and provisions of the Courts of Justice Act, R.S.O. 1990, c. C-43; j) Costs of this Counterclaim on a substantial indemnity basis together with applicable taxes and disbursements; and,

9 9 k) Such further and other relief as Counsel may advise and this Honourable Court deem necessary to do justice to the case. 27. The Defendants claim the following in the way of particular restitution which they are entitled to by operation of the terms and provisions of the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c. 3: a) Cost of Purchasing the Franchise $19, b) Palm Tech Software Purchase $ 1, c) Signage and Truck Lettering $ 1, d) Stationery, Contract Booklet, Thank-You Cards $ e) Luncheons including Gift Baskets $1, f) Newspaper Advertisements $ g) Magazine Advertising (Homes and Land) $ h) Telephone and Canada 411 $ i) Royalty Payments (to A Buyer s Choice ) $3, j) Training Course and Trip to Halifax, NS $6, k) Gasoline Expenses $1, l) Such further and other expenses as become known $ TBD 28. The Defendants repeat and rely upon the allegations contained in their Statement of Defence.

10 The Defendants seek a trial of the within Counterclaim contemporaneous with a trial of the main action herein. 30. The Defendants seek a trial at the City of Belleville in the County of Hastings. SCOTT MCMAHON O FLYNN WEESE LLP Barristers and Solicitors 65 Bridge Street East Belleville, Ontario K8N 1L8 Tel: (613) ext. 255 Fax: (613) smcmahon@owtlaw.com LSUC No.: 55608V Lawyer for the Defendants TO: Colin Pendrith Cassels Brock & Blackwell LLP 2100 Scotia Plaza 40 King Street West Toronto, Ontario M5H 3C2 Tel: (416) Fax: (647) spendrith@casselsbrock.com Lawyer for the Plaintiff