Court Clarifies Rescission Rights Under Ontario's Franchise Law
By: Debi M. Sutin

Soon after the passage of Ontario's franchise legislation, The Arthur Wishart Act (Franchise Disclosure), 2000 (the "Act"), lawyers began to debate the distinction between the 2 statutory remedies available to a franchisee when there has been non-compliance with the disclosure requirements under the Act..

Recent Ontario court decisions have now clarified a franchisee's right to rescind under the Act where the franchisor has provided a deficient disclosure document. The decisions demonstrate the necessity of strict compliance with the disclosure obligations imposed upon franchisors under the Act so as to enable prospective franchisees to make an informed investment decision.

The Act provides a franchisee with a right of rescission in two separate and distinct scenarios: Section 6(1) of the Act allows a franchisee to rescind the franchise agreement no later than 60 days following its receipt of the disclosure document if the franchisor failed to provide the disclosure document within the time required under the Act, or if a disclosure document did not meet the requirements of the Act. Under Section 6(2) of the Act, the franchisee has 2 years from the date of entering into the franchise agreement if a franchisor fails to provide a disclosure document.

Since the passage of the Act, the question has been whether a disclosure document that is so deficient in its information provided that it can be said not to be a disclosure document at all, for purposes of the Act.

Eight years following passage of the Act, the Court of Appeal for Ontario has now affirmed that a materially deficient disclosure document is not a disclosure document at all, thus entitling a franchisee the right to rescind within 2 years following the execution of the franchise agreement.

In 6792341 Canada Inc. v. Dollar It Limited, a franchisee attempted to rescind its franchise agreement pursuant to Section 6(2) of the Act and made application to the Superior Court for declaratory relief. The Court dismissed the application on the grounds that, as the franchisee had received a disclosure document, it was entitled only to the right of rescission under Section 6(1) of the Act. The franchisee's notice of rescission was delivered well after the expiry of the 60-day period following its receipt of the disclosure document. The franchisee's appeal to the Court of Appeal was granted and in his reasons, MacFarland J.A. held that the deficiencies in the disclosure document were so material that "the only reasonable conclusion is that the franchisor never provided the disclosure document within the meaning of Section 6(2)".

The respondent franchisor acknowledged that the disclosure document was missing required information required under the Act and its regulations but took the position that a disclosure document having been provided, the franchisee was entitled to rescind only within the 60 day period provided by Section 6(1) of the Act.

The Court, in its reasons, looked to the purpose and intent of the Act, being to protect the interests of franchisees and to permit a prospective franchisee to make an informed decision about whether to make the investment. Among the deficiencies noted by the Court, the disclosure document provided by Dollar It Limited did not include, among other information:

(1) a signed and dated Certificate of disclosure;

(2) financial statements or an opening balance sheet;

(3) a copy of the lease for the premises under which the franchisee was the subtenant;

(4) information on the franchisor's affiliate which was the tenant and sublandlord of the premises;

(5) prescribed information pertaining to the franchisor's advertising program; and

(6) a description of the exclusive territory to be granted and the franchisor's policy on proximity between franchisees

The Court held that the provisions of Sections 6(1) and 6(2) must be read and interpreted broadly in light of the intended purposes of the Act and that to interpret those provisions strictly would "lead to absurdity". Taken together, the deficiencies were substantial enough to preclude the franchisee from making an informed decision and thus concluded that a disclosure document was never provided within the meaning of Section 6(2) of the Act. An order was granted declaring that the franchisee had the right to rescind the franchise agreement within the 2 year period following execution of the franchise agreement.

In its decision, the Court acknowledged that each case must be considered on its own facts and accordingly, it is not clear whether any of these deficiencies alone would have been sufficient to constitute a failure to provide disclosure within the meaning of the Act or whether the Court relied on the fact of a number of deficiencies. Of particular significance is the Court's inclusion in the noted deficiencies the failure to provide a copy of the lease for the premises at which the franchised business was to be operated as well as information regarding the franchisor's affiliate which was the tenant under the lease and the franchisee's sublandlord. The Court held that the requirement to provide a copy of the lease and to provide information about the franchisor's affiliate (tenant and sublandlord) were both material facts required to be disclosed, in addition to the prescribed information in the Regulations, pursuant to Section 5 of the Act.

In rendering its decision, the Court relied on the recent decision of the Alberta Court of Appeal in Hi Hotel Limited Partnership v. Holiday Hospitality Franchising Inc. (discussed more fully in the January 2009 issue of Franchise and Distribution@Gowlings) which held that the absence of a signed and dated Certificate alone was sufficient to establish that there was no disclosure provided and accordingly the franchisee was entitled to the 2 year rescission period.

In view of the Ontario appellate court's decision, it is imperative that franchisors in Ontario comply strictly with the disclosure requirements of the Act and its regulations including the disclosure of material information particular to the specific location at which the franchised business will be operated. A generic, "standard form" disclosure document will not suffice to protect a franchisor from the severe penalties imposed under the Act for non-compliance.

If you have any questions regarding these recent decisions or if we can be of assistance with your franchise program, please feel free to contact any member of our Franchise and Distribution Law practice group.

Accessibility for Ontarians with Disabilities
By: Maryam Dorafshar

Two regulations under the Accessibility for Ontarians with Disabilities Act, 2005, (the "AODA") came into force on January 1, 2008. TheAccessibility Standards for Customer Service regulation (the "Standard") outlines the requirements of the Standard and the Exemption from Reporting Requirements regulation exempts organizations with fewer than 20 employees, unless the organization is a designated public sector organization, from some documentation requirements of the Standard. These regulations will be reviewed by 2013 to determine whether any of the requirements should be changed.

Businesses with at least one employee and that provide goods or services to the public are now legally required to make their customer services operations accessible to people with disabilities. This will be achieved by identifying and removing barriers to customer service in areas such as operational practices, policies and procedures, communications and staff training.

How to Comply

All businesses must meet mandatory compliance requirements and file accessibility reports to evidence compliance with the required standards. Specifically, businesses must:

1. develop and establish policies, practices and procedures governing the provision of goods or services to persons with disabilities, including a policy about the use of assistive devices;
   
   
2. use reasonable efforts to ensure that their policies, practices and procedures are consistent with the following principles:
   
   
   1. respect for the dignity and independence of persons with disabilities;
      
      
   2. the provision of goods or services to all person in an integrated manner unless an alternate measure is necessary;
      
      
   3. enabling a person with a disability to obtain, use or benefit from the goods or services (temporarily or on a permanent basis);
      
      
   4. giving an opportunity equal to that given to others to obtain, use and benefit from the goods or services;
      
      
3. communicate with customers with disabilities in a manner that takes into account the customer's disability (such as providing a publication in audio or Braille);
   
   
4. train customer service staff, volunteers and people responsible for developing the business' customer service policies, practices and procedures in the provision of accessible customer service;
   
   
5. permit customers with disabilities who have support persons or service animals to use them while accessing goods or services in premises open to the public and, where admission fees are charged, provide advance notice concerning what admission, if any, would be charged with respect to a support person;
   
   
6. provide notice when accessibility to services or facilities for customers with disabilities is temporarily disrupted (for example, posting signs at the entrance of a building to let customers know that one or more elevators is temporarily out of service); and
   
   
7. develop a process for all customers to provide feedback respecting the provision of customer services to persons with disabilities and for the business to take action on complaints.

Compliance Deadlines and Reporting

Businesses with up to 19 employees must comply with the standard starting January 1, 2012 but are not required to file an accessibility report so that these smaller businesses (with limited resources) can focus their efforts on achieving results.

Businesses with 20 or more employees must comply with the standard starting January 1, 2012 and file accessibility reports starting in 2012.

Failure to Meet Accessibility Obligations

The AODA addresses the implementation and enforcement of the regulations. Non-compliance may have severe consequences, including monetary fines. Individual persons found guilty of an offence under the AODA will be subject to a fine of up to $50,000 per day on which the offence occurs or continues to occur. Corporations found guilty of an offence under the AODA face a fine of up to $100,000 per day for each day that the offence continues to occur.

Helping You Meet Your Legal Obligations

The Ministry of Community and Social Services published the Guide to the Accessibility Standards for Customer Service (the "Guide"). The Guide provides a basic overview of the requirements of the Standard and is designed to help businesses and others understand and meet their obligations. The Guide is available at http://209.167.40.96/page.asp?unit=cust-serv-reg&doc=guide&lang=en.

Conclusion

Although enforcement will not begin for most business until 2012, businesses, including franchisors and franchisees would do well to prepare to implement these policies to minimise disruptions and make the transition to the new rules trouble-free.

Who, What, Where and When

• Gowlings' Franchise and Distribution National Practice Group released the results of its national survey to uncover information regarding the motivations of franchisees to invest in a franchise. The survey results have now been published on the websites of each of the Canadian Franchise Association (www.cfa.ca), the International Franchise Association (www.franchise.org) and the U.S. Commercial Service (www.trade.gov/cs/) . The study found the age demographic of those opening new franchises is dropping, with 38% of new franchisees between 35 and 44 years old. Although almost half had considered opening their own business, they saw the profit potential of a well-known brand name and franchisor support/training as key influences in their choice. For the complete survey results please visit www.gowlings.com/franchise.
  
  
• At the annual Spring Dinner Meeting of the Ontario Bar Association's Joint Subcommittee on Franchising, Ned Levitt moderated a panel discussion of the challenging issues faced in the sale of a franchised business. Entitled "Everything is for Sale", the panel discussed the unique concerns, including the disclosure considerations, raised in sales between franchisees, sales of franchisor-owned units to franchisees and the sale of an entire franchise system by the franchisor.
  
  
• Two articles authored by Len Polsky will appear in the 2009-2010 edition of the Canadian Business Franchise Handbook, one entitled "What is a Franchise Agreement?" and the other on Franchisee Associations and Advisory Councils.
  
  
• Debi Sutin's article on the rescission remedy for deficient disclosure under franchise legislation will be published in the August 2009 issue of the Hamilton Law Association Journal.