6792341 Canada Inc. v. Dollar It Ltd., 2009 Carswell Ont. 2514
The franchisee received a purported disclosure document before entering into a franchise agreement with the franchisor. The disclosure document did not contain certain information required by s. 5 of the Arthur Wishart Act (Franchise Disclosure), 2000 (the Act) and the relevant Regulations. The franchise proved not to be successful after approximately eight months. The franchisee argued that disclosure was so deficient that it did not amount to disclosure for the purposes of s. 6(2) of the Act, which provided for a two-year rescission period. The franchisor claimed that deficient disclosure only permitted rescission under s. 6(1) of the Act, which provided for a 60-day rescission period.
The franchisee unsuccessfully brought an application for a declaration that it had a right to rescind the franchise agreement under s. 6(2) of the Act without penalty or obligation. The franchisee appealed and the appeal was allowed. The trial judge’s interpretation of ss. 6(1) and (2) defeated the entire purpose of the Act which was to protect the interests of franchisees. Disclosure under the Act was not optional. A single complete disclosure document had to be provided. The franchisee was not provided with information that would have enabled it to make an informed decision to enter into the franchise agreement. The failure to sign and date what purported to be the “Franchisor Certificate” was in itself a basis for finding that the disclosure document was not in compliance with the Act. Complete failure to disclose financial information precluded any finding of substantial compliance. The franchisee should have received a copy of the head lease under which it was expected to enter into a sublease with an affiliate of the franchisor, as well as information about the sub-landlord. Other deficiencies in the disclosure document were so stark and material that it could not be considered a disclosure document under the Act.