In a recent decision of the Ontario Superior Court of Justice, a franchisor was able to obtain summary judgment in respect of a proposed class action brought on behalf of 241 franchisees alleging the franchisor’s failure to deliver franchise disclosure documents. The case, TA & K Enterprises Inc. v. Suncor Energy Products Inc.,  O.J. No. 5532 (S.C.J.), is a helpful interpretation and reminder of the limits to the franchisor disclosure components of the Arthur Wishart Act (Franchise Disclosure), 2000 (the “Act”) in the Province of Ontario.
The franchisees operated retail stores selling gas and other products under the Sunoco brand name. The franchisor (Suncor) and the proposed class member franchisees entered into franchise agreements for one-year terms. No franchise disclosure documents were given to the franchisees, because Suncor relied on section 5(7)(g)(ii) of the Act, which provided that disclosure was not required if the franchise agreement was not valid for longer than one year and did not involve the payment of a non-refundable franchise fee, and section 5(7)(f), which provided that no disclosure was required where there was a renewal or extension of a franchise agreement and there had been no material change since the last renewal or extension.
Justice Perell of the Ontario Superior Court of Justice rejected the franchisees’ contention that the new agreements entered into by the franchisees were entirely new agreements rather than renewals or extensions. Further, Justice Perell declined to characterize royalty fees and other amounts paid by the franchisees to Suncor as “non-refundable franchise fees,” concluding that Suncor could rely on the legislative exception concerning disclosure.
The franchisees also argued that since they had signed franchise agreements a few days before the year term of the agreements the effective date of the agreement was the date of signing and thus the franchise agreements were for longer than one year, thereby depriving Suncor of its disclosure exemption. The court rejected this argument as well, stating that if an agreement is signed before it becomes operational, this does not preclude the availability of the s. 5(7)(g)(ii) exception under the Act.
Franchisors should take comfort in this decision as evidence that courts will uphold carefully-crafted franchise agreements that are deliberately structured to take advantage of the disclosure exemptions available under the Act.