Franchisor was not excused from statutory mandatory disclosure obligations

Franchise agreements

Franchisor was not excused from statutory mandatory disclosure obligations

Franchisor provided franchisee with Franchise Disclosure Document (FDD) that indicated franchisor had “no reasonable means of estimating or predicting” costs of converting existing premises in lieu of building new premises. Franchisee and guarantors executed franchise agreement at time when location for franchise had not been determined, and franchisee later signed sublease before seeing head lease. Conversion costs ended up being in range of costs for building new premises, and franchisee and guarantors ultimately served notice of rescission. Franchisee and guarantors commenced action against franchisor and related companies for, among other things, declaration that franchise agreement was validly rescinded by them. Franchisee and guarantors brought motion for partial summary judgment relating to entitlement to rescind franchise agreement. Franchisor and related companies brought cross-motion for summary judgment dismissing claim of franchisee and guarantors in its entirety. Motion granted; cross-motion granted in part. Franchisor and related companies were not excused from their statutory mandatory disclosure obligations in s. 5 of Arthur Wishart Act (Franchise Disclosure), 2000 (Ont.) simply because location of proposed franchise was not identified before franchise agreement was signed. Form of lease included in FDD was materially incomplete, and FDD expressed uncertainty about costs. It was insufficient for franchisor to simply say that required material information was not known at time of disclosure, and plain words of Act did not allow for introduction of concepts of waiver or contracting out of disclosure obligations. It was premature to purport to deliver FDD under Act and enter into franchise agreement, and notice of rescission under s. 6(2) of Act was timely and effective since lack of disclosure was egregious. Peripheral claims were dismissed since franchisee and guarantors did not provide any focussed argument seeking to demonstrate that either of those claims had been proved or required trial.
Raibex Canada Ltd. v. ASWR Franchising Corp. (Sep. 7, 2016, Ont. S.C.J., W. Matheson J., CV-14-518145) 270 A.C.W.S. (3d) 752.