A recent decision of the Ontario Court of Appeal, 6792341 Canada Inc. v. Dollar It Ltd., serves as a valuable guide with respect to the specific standards against which franchisors will be held when fulfilling disclosure obligations under the Arthur Wishart Act (Franchise Disclosure), 2000 (the “Act”). More specifically, this decision provides guidance regarding the relative availability of the two statutory rescission provisions under the Act, which are available to franchisees under different circumstances in the case where a franchisor does not comply with its disclosure obligations.
The Act provides that if a franchisee receives a deficient disclosure document, they have 60 days to rescind the franchise agreement. However, if no disclosure document is received, the franchisee has 2 years to rescind the franchise agreement. What then happens if a franchisee receives a materially deficient disclosure document? This decision suggests that franchisee who receives a materially deficient disclosure document will be given 2 years to rescind the franchise agreement.
In allowing the franchisee to rescind the franchise agreement, the Court of Appeal held that the deficiencies in the disclosure document were so material and numerous that the only reasonable conclusion to be drawn was that it was not a “disclosure document” within the meaning of the Act. MacFarland J.A. noted that a document does not become a “disclosure document” for the purposes of the Act simply because it is referred to as such. In reaching this determination, it was noted that the Act must be considered and interpreted in light of its purpose, which is to ensure that franchisees are properly informed about whether to purchase the franchise being offered, through the imposition of rigorous disclosure requirements and strict penalties for non-compliance. It was found that a close examination of the missing and incomplete information clearly showed that the franchisee was not provided with enough information which would have enabled it to make such a decision.
This decision establishes that franchisors will be held to a very high standard in order to comply with the Act. For example, the Court held that the failure to sign and date the franchisor certificate would alone be reason to conclude that the franchisor did not provide a compliant disclosure document. Franchisors and their advisors must therefore be careful and diligent in drafting disclosure documents, adapting each to the particular circumstances under which the franchise offer is being made. However, the Court also pointed out that every case would turn on the facts particular to that case. So, presumably, and depending on the facts, the same deficiency may be more important in one situation than in another.