46 LEXPERT MAGAZINE
|
APRIL 2016
| FRANCHISING LAW |
But the legislation hasn't really evolved.
Alberta's law has not changed since the
1995 update and Ontario hasn't revised
the AWA – which doesn't even allow for
electronic delivery of disclosure documents
– since its inception 15 years ago. Most of
the provinces don't have any statutory pro-
visions to cover distant sales, such as those
made online.
To be sure, BC's new Franchises Act re-
ceived Royal Assent late last year and the
government is busily draing regulations.
At press time, it wasn't clear when the Act
would be proclaimed. "My best guess is
that the legislation will be in force in the
latter part of 2016," says Blair Rebane of
Borden Ladner Gervais LLP in Vancouver.
But even the British Columbia legisla-
tion is substantially similar to the outdated
franchise laws in the other jurisidictions.
For example, the provisions regarding two
of the most significant elements of fran-
chise legislation, namely the disclosure pro-
visions and the duty of good faith and fair
dealing, closely mirror their counterparts
elsewhere in the country.
As it turns out, disclosure is the major
bugbear. Ontario, for example, is one of
the only jurisdictions in the world that has
an open-ended and subjective standard of
disclosure that includes "all other mate-
rial facts." To make matters worse, there's
no guidance in the legislation as to what
"other material facts" should include, leav-
ing room for considerable interpretation
on key disclosure items.
has imposed a standard of perfection that's
just too high."
is makes life disproportionately dif-
ficult for small and medium-sized franchi-
sors seeking to expand their business.
"ere's a level of disconnect between
the standards enunciated in the case law
and people who want to start franchising,
who are typically small-business types,"
Weinberg says. "McDonald's probably
wouldn't be where it is had today's stan-
dards been in place when the company
started up."
Focusing on what should and shouldn't
be disclosed and when it should be dis-
closed, then, continues to be a pervasive
topic of debate among stakeholders, fran-
chise lawyers and the courts. Debate re-
garding the duty of good faith and fair
dealing isn't far behind. e upshot is that
franchisors and their lawyers can't rely on
standard approaches when interpreting
commercial contracts.
"You always have to take the equities
into consideration in a different way than
you would if you were dealing with parties
of equal bargaining strength," says Michael
Melvin, who practises in the Fredericton
office of McInnes Cooper. "It becomes a
key piece of what you're doing."
e uncertainty also creates undue costs
for individual franchisees and constitutes a
significant entry barrier for foreign compa-
nies looking to enter the retail marketplace
in Canada.
So dire is the uncertainty that in con-
junction with business considerations dis-
cussed later in this article, it is prompting
questions about the continued viability of
the franchise model in general. "ere are
discussions about whether the franchise
model is still worth pursuing because of
the increasing burden of regulation and
the growing complexity of disclosure,"
says Jennifer Dolman of Osler, Hoskin &
Harcourt LLP in Toronto. "ere's a lot of
rethinking going on."
Not unexpectedly, then, Ontario's
Stakeholder Panel recommended that revi-
sions to the Arthur Wishart Act be focused
on creating more disclosure certainty for
users, "taking account of legislative and
case law developments in Canada, the
United States, and elsewhere, and identify-
ing opportunities for harmonization with
the other provinces."
To their credit, BC legislators followed
Alberta's lead by putting a "substantial
compliance" provision in their law. It pro-
vides that minor defects not affecting a
document's substance will not give rise to
rescission, the primary remedy for inad-
equate disclosure.
at is not to say that the British Co-
lumbia legislation won't suffer from a fair
dose of the interpretive uncertainty that
plagues the rest of Canada.
"e BC government did not adopt
recommendations made by the CFA [Ca-
nadian Franchise Association] and OBA
[Ontario Bar Association] proposing to
limit disclosure requirements to a finite
list of 'material facts' or to further restrict
the definition of a 'franchise agreement'
to the agreement granting the franchise,"
says Larry Weinberg of Cassels Brock &
Blackwell LLP in Toronto. "As such, the
same indefinite scope of what may need to
be disclosed in any one case, present in the
other provinces, will likely be a feature of
British Columbia's legislation."
In fact, it is becoming increasingly chal-
lenging and costly for franchisors to com-
ply with governing legislation in any prov-
ince even with the advice of lawyers with
expertise in franchising.
"e only way to determine what's right
and wrong regarding disclosure in Canada
is to go to court," Weinberg says. "Regret-
tably, the case law is showing us that it's
very easy for a franchisor to make mistakes
pointed out in hindsight by a judge who
LARRY WEINBERG
CASSELS BROCK
& BLACKWELL LLP
"The only way to determine
what's right and wrong regarding
disclosure in Canada is to go
to court. Regrettably, the case
law is showing us that it's very
easy for a franchisor to make
mistakes pointed out in
hindsight by a judge who
has imposed a standard of
perfection that's just too high."
