In the July 6, 2012 decision of the Ontario Superior Court of Justice in Vijh et al v. Mediterranean Franchise Inc. et al (2012 ONSC 3845), the court answered the often posed question of what happens if a franchisor delivers an Ontario franchise disclosure document electronically.  Unlike the franchise legislation in PEI, New Brunswick and Manitoba, electronic delivery of a franchise disclosure document is not expressly permitted under the Ontario Arthur Wishart Act (the Act).  Indeed, Section 5(2) of the Act requires that the disclosure document be delivered by only one of two methods:  personally or by registered mail.

In this case, the franchisee (after consenting to receiving the disclosure document by e-mail and after operating the “Taste of the Mediterranean” franchise for nearly two years) sought to rescind the franchise agreement under Section 6(2) of the Ontario Act and recover costs and damages because of the “improper delivery method”.  In this motion for partial summary judgment, both sides agreed that there were no other deficiencies with the disclosure document and that the franchisor had otherwise fully complied with its disclosure obligations. 

Relying on the decision of the Ontario Court of Appeal in Imvescor (4287975 Canada Inc. v. Imvescor Restaurants Inc., [2009] O.J. No. 1508 (C.A.)), which held that breaches of the timing requirements or non-material deficiencies with the contents of the disclosure document gives rise only to the shorter 60 day right of rescission under Section 6(1), the court rejected the franchisee’s argument that the two year rescission remedy should be available for the “much less significant” breach of the method of delivery requirement.  Justice Belobaba reasoned that the “obvious legislative intent” of providing for two different rescission remedies “is to make clear that the two-year rescission right is reserved for the much more serious situation where no disclosure document is provided.”  The court went on to state that the franchisee’s only statutory remedy in the circumstances was limited to the damages remedy under Section 7 and tended to agree with the suggestion by the franchisor’s counsel that these damages may well be limited to “the cost of printing the emailed disclosure document”.

While this decision is a welcome one for franchisors as it reinforces that the longer two year rescission remedy should only be available in limited circumstances where no disclosure document is provided at all or where there is a material deficiency with the contents of the document, it implies that the 60 day rescission remedy would likely still be available where a disclosure document is provided electronically.  It also serves to highlight the need to amend the Act (enacted more than a decade ago) to expressly allow for electronic delivery of the disclosure document.