Hi Hotel Limited Partnership v. Holiday Hospitality Franchising Inc., [2008] C.C.S. No. 7474

The franchisee, Hi Hotel Limited Partnership (Hi Hotel), entered into a franchise agreement with the franchisor, Holiday Hospitality Franchising Inc. (Holiday), for the operation of a Holiday Inn hotel.

Holiday sent Hi Hotel disclosure documents pursuant to the Alberta Franchises Act (the Act). However, the evidence brought before the Court clearly established that the required certificate of truth was neither signed nor dated by the franchisor’s officers and directors.

For almost one year, Hi Hotel paid large franchise fees and did not renovate the hotel as required under the franchise agreement. Alleging that the franchisor’s disclosure was insufficient pursuant to the Act, Hi Hotel rescinded the franchise agreement. In turn, Holiday claimed contractual penalties for failure to conduct the required renovations.

The chambers judge allowed Hi Hotel’s motion for summary judgment and upheld the party’s rescission of the franchise agreement. The issue raised in appeal was whether the court should overlook a violation of the Act on a mere technicality.

Madam Justice McFayden, on behalf of the Alberta Court of Appeal, found that the chambers judge did not err in concluding that Holiday had not provided a signed and dated certificate as part of its disclosure and was in violation of the Act. The mandatory language of the disclosure provisions of the Act and the Regulations, as well as the legislative intent to provide protection for prospective franchisees, all supported the chambers judge’s conclusion that the franchisor’s error was a fatal one.

Section 13 of the Act entitles a prospective franchisee to rescind all franchise agreements if the franchisor fails to provide the disclosure document. As required by the Regulations, the certificate is a mandatory part of the disclosure requirements and must be signed and dated. Furthermore, the franchisee was not required to establish that it suffered damages and the limitation period in the Act was inapplicable. For these reasons, Holiday’s appeal was dismissed.

The Honourable Mr. Justice Côté also concluded that the appeal should be dismissed. He found that the Act and Regulations compelled every franchisor to make all types of disclosure listed in the Regulations and that none of those requirement could be waived.

The legislation is aimed at protecting consumers or investors since ordinarily, the franchisor will have more knowledge and power than the franchisee. The certificate is the lynchpin of the substance of the disclosure; it is the opposite of mere form.

Holiday’s suggestion that Hi Hotel simply rescinded the agreement because it was financially advantageous to do so was not valid. Also, the illegality of the contract was not an issue. The question was whether the statutory conditions were met.