International Law

When Can You Rescind Your Ontario Franchise Agreement?

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One vexing question for franchisees is when they can rescind their franchise agreement, under the Arthur Wishart Act 2009 ONCA 385 (CanLII) (Franchise Disclosure), 2000, S.O. 2000, c. 3 ("the Act").

The question calls for an interpretation of sections 6(1) and 6(2) of the Act.the 

If the franchisee has not received anything purporting to be a disclosure document, they have under 6(2), two years to rescind the agreement.

If on the other hand, if they have received a disclosure document which was not fully compliant with section 5 and regulations, the franchisee has only 60 days to rescind.

What about the case in which what is purported to be a disclosure document is so incomplete as not to be an disclosure document at all?

A number of learned commentators have opined that even in this case, the franchisee has only 60 days to decide whether to rescind the agreement or not.

For example, Paul Jones, wrote at Blue Mau Mau, that the time limit was 60 days.

"Still in Ontario it is likely that some franchisees and their counsel will try to seek ways around the 60 day limitation period for late or incomplete disclosure. Rescission is such an attractive remedy. But it is the overall purpose of the Act that governs."

I argued that Paul Jones was not correct, and the recent Court of Appeal in 6792341 Canada Inc. v. Dollar It Limited, 2009 ONCA 385 fully supports my conclusion.

The Court of Appeal concluded that:

"One of the prime purposes of the Act is to obligate a
franchisor to make full and accurate disclosure to a potential
franchisee so that the latter can make a properly informed
decision about whether or not to invest in a franchise.

When key information is missing, a properly informed decision is not possible."

The Court of Appeal decided that in light of the missing documents which included an unsigned franchisor certificate, incomplete or no financial statments, no lease, no informaton on their affiliate, incomplete or missing information about the advertising fund, failure to describe the entire territory being granted, failure to describe their encroachment policy, failure to describe the licenses required to operate such a business, failure to describe volume rebates, that what ever had been given the franchisee was so deficient as not to have been a disclosure document at all.

Since the rescission had taken place within the two year period, as required by 6(2), the Court of Appeal ordered that the franchisor comply with the statutory requirements, refund the fee, purchase inventory and supplies, and make good any losses.

Full post as published by Misleading Advertising Law on May 12, 2009 (boomark / email).