In March, 2013, the British Columbia Law Institute (“B.C. Institute”) published a “Consultation Paper on a Franchise Act for British Columbia” (the “B.C. Consultation Paper”), which includes a review of the structures of various types of franchise systems, the legal framework of the franchise relationship and franchise legislation existing in five other provinces of Canada, the United States and Australia. UNIDROIT’s Model Franchise Disclosure Law (Rome, 2002) (the “Uniform Act”) is referred to as the proper model for a Franchise Act for British Columbia (“B.C. Act”), although with some important variations.
B.C. Institute’s Tentative Recommendations
With regard to a potential B.C. Act, the B.C. Institute makes the following “tentative recommendations”:
- that British Columbia join the provinces of Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island in regulating franchising in “a nearly uniform regulatory standard…”;
- the Uniform Act should generally provide the model for a B.C. Act;
- any franchise legislation passed in B.C. should not be more onerous than that of the currently regulating provinces;
- mandating mediation is not seen as a reasonable means of correcting the power imbalance in a franchise relationship; a franchise disclosure document should, however, contain a statement that voluntary mediation may be proposed by any party (as provided in Ontario and Manitoba);
- ‘relationship legislation’ is rejected in favour of general statutory duties of “good faith and fair dealing in accordance with reasonable commercial standards”;
- if a disclosure document or statement of material change “substantially complies” with a Franchise Act and its regulations, then it should be valid, despite having a technical irregularity that does not affect the substance of either document;
- a deposit by a prospective franchisee that does not exceed a maximum to be established by Regulation may be taken and would be fully refundable if the franchisee did not enter into a franchise agreement. Further, the payment of a deposit by a prospective franchisee would not require it to enter into a franchise agreement;
- a disclosure document would have to state whether or not an exclusive territory is to be granted to a franchisee;
- a disclosure document should state whether the franchisor intends to use alternate channels of distribution (such as the internet) to market goods or services of a franchise system on its own;
- a franchisor should be entitled to use an electronic transmission to deliver a disclosure document under specific conditions intended to ensure its proper delivery;
- a franchisee should have a right of action for a misleading profit projection, except when the projection has a reasonable basis;
- a franchisor may use a “wrap around” disclosure document prepared for another jurisdiction, provided further information required to comply with B.C. franchise disclosure legislation is first added to it;
- claims arising under a franchising agreement, as well as under a B.C. Act, would be required to be brought in B.C. only;
- an extra-provincial venue (somewhere other than B.C.) for arbitrating a claim arising under a franchise agreement would be prohibited;
- a franchisee should not be able to claim damages for a loss already recovered through a statutory rescission remedy (i.e. no ‘double recovery’);
- the presumption of deemed reliance of a franchisee on a misrepresentation in a disclosure document or statement of material change may be rebutted by proof that the franchisee actually knew of the misrepresentation before signing a franchise agreement; and
- a prohibition on a franchisee waiving or releasing its statutory rights would not apply to a post-dispute settlement agreement.
Once comments from interested parties have been taken into account by the B.C. Institute, the B.C. Consultation Paper will be submitted to the Legislature of the Province of British Columbia for potential enactment. The Legislature of course will have the power to make changes during the legislative process.
Closing Comments on B.C. Consultation Paper
The B.C. Consultation Paper presents a clear statement of what potential franchise legislation in British Columbia should contain. It is to be commended for its practical and cooperative approach to existing franchise legislation in five other Canadian provinces. If its tentative recommendations are adopted and enacted by the B.C. Legislature, British Columbia will continue to assist with the process of substantial uniformity of franchise legislation in Canada.
Written submissions regarding the B.C. Consultation Paper are due by September 30, 2013 and may be sent to: email@example.com.