Franchise Rescission in Ontario; The Purpose of Disclosure

Back in August, 2008 I reported on the decision of the Ontario Superior Court of Justice in 4287975 Canada Inc v Imvescor Restaurants. The franchisee paid $15,000.00 to the franchisor before receiving a disclosure document for an upscale restaurant chain. The franchisee then did not sign the franchise agreement until almost six months later.

Just under the two year limitation period for rescission for non-disclosure a noted franchise litigator brought an action on behalf of the franchisee asking how to interpret the rescission provisions of Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 in these circumstances. The provisions allow for rescission for 60 days from the date of the receipt of the disclosure document where the disclosure document is late or incomplete.  But in this case at that point in time the franchise agreement had not yet been signed so there was nothing to rescind based on the late disclosure.

At trial the judge said that the purpose of the Act is to ensure that franchisees have adequate information on which to make a decision. In this case the franchisee had six months to review the document. It also had the option of not entering into the franchise agreement. There no right of rescission for failing to deliver a disclosure document.

The franchisee was unhappy with this and appealed.

This decision came out last week. The franchisee lost again. The Court of Appeal said:

"The Act, interpreted in the light of this modern interpretive approach, is clear that a rescission remedy is available to the franchisee in two separate situations, and that the two situations are not to be blurred into one. This interpretation is further bolstered by the purpose of the Act, which is in part to ensure that the franchisee has at least fourteen days to review a disclosure document before signing an agreement. “

Still in Ontario it is likely that some franchisees and their counsel will try to seek ways around the 60 day limitation period for late or incomplete disclosure. Rescission is such an attractive remedy. But it is the overall purpose of the Act that governs.