18 | LEXPERT • June 2016 | www.lexpert.ca/usguide-corporate/
"other material facts" should include, leaving room for consider-
able interpretation on key disclosure items.
To their credit, BC legislators followed Alberta's lead by putting
a "substantial compliance" provision in their law. It provides that
minor defects not affecting a document's substance will not give
rise to rescission, the primary remedy for inadequate disclosure.
at is not to say that the British Columbia 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 [Canadian 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."
Among other things, all this uncertainty creates undue costs
for individual franchisees and constitutes a significant entry
barrier for foreign companies looking to enter the Canadian
retail marketplace.
Fortunately, there is a move to change, as evidenced by the mere
enactment of BC's new laws. In Ontario, when the Business Law
Agenda Stakeholder Panel, created to make the province a more
competitive business jurisdiction, filed its report in July 2015, one
of the 12 pieces of legislation targeted for a major revamp was the
AWA, which governs franchising law.
e Stakeholder Panel recommended that revisions to the
AWA 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 identifying
opportunities for harmonization with the other provinces."
In early March, the government set up a new Business Law
Advisory Council with a mandate to advance the Panel's recom-
mendations. Still, just what kind of priority the AWA will get in
the massive task involving the overhaul of many statutes remains
to be seen.
Meanwhile, the lingering uncertainties have engendered
considerable high-profile litigation.
"ere were more franchising decisions in 2015 than any year
in recent memory, and a couple were incredibly significant," says
David Shaw of Blake, Cassels & Graydon LLP in Toronto.
e key decisions, mostly in Ontario and Québec, featured
the likes of GM, Pet Valu and Dunkin' Donuts. But, arguably,
what the collective impact of the complex, sometimes difficult to
comprehend jurisprudence did most was to highlight the need for
legislative change.
e Québec Court of Appeal, for example, found Dunkin'
Donuts liable to the tune of about $11 million for breaching its
duty of good faith towards a group of 21 franchisees. e court
ruled that the franchisor had failed to protect and enhance its
brand in the face of a competitive onslaught from Tim Hortons
that saw Dunkin' Donuts' market share reduced from 12.5 per
cent in 1995 to 4.6 per cent in 2003.
"We're all waiting to see if Dunkin' Donuts will impose signifi-
cant obligations on franchisors to keep up with developments in
the business world," says Joëlle Boisvert of Gowling WLG LLP
in Montréal.
But the "wait" period could be somewhat lacking in focus.
"e Court of Appeal was not clear on what 'enhancement'
meant, so franchisors are still calling me all the time about that,"
says Stéphane Teasdale of Dentons Canada LLP in Montréal.
As well, because Québec has no franchise legislation, contro-
versy still rages about whether and how Dunkin' Donuts affects
the duties of franchisors in provinces that do have franchise laws.
"Some commentators have argued [that the Supreme Court
of Canada's decision in] Bhasin, [which for the first time held
that a duty of good faith existed with respect to all contractual
dealings], combined with Dunkin' Donuts, increases the duties
of franchisors across Canada," says Jennifer Dolman of Osler,
Hoskin & Harcourt LLP in Toronto. "But Dunkin' Donuts is
based on concepts contained in the Civil Code of Québec that are
not mirrored in the law of other Canadian provinces and, in any
event, the decision is not binding on courts outside of Québec."
Nadia Effendi of Borden Ladner's Toronto and Ottawa
offices thinks courts have been careful not to import Bhasin into
franchise law. "What judges are saying is that the focus should be
on the duties spelled out in the legislation," she says.
Less than three months aer the Dunkin' Donuts ruling, the
Ontario Superior Court of Justice deferred to GM's business
judgment in dismissing a class action brought by dealers aer the
company's Canadian arm, in a reorganization aimed at avoid-
ing a Companies' Creditors Arrangement Act filing, refused to
renew some 240 dealer agreements. Interestingly, the reasons for
judgment made no reference to Dunkin' Donuts.
At press time, the GM case was on appeal to the Ontario Court
of Appeal, while the Supreme Court of Canada had denied leave
to appeal in Dunkin' Donuts — therefore the status of even the
clearer principles enunciated in these cases remains uncertain.
"The idea behind franchising is to grow
with partners who are independent
contractors and invest their own capital.
Making the franchisor a joint employer
annuls that concept because it means
the franchisor becomes invested in the
business of the individual franchisee."
Stéphane Teasdale
Dentons Canada LLP
FRANCHISING
