The recent case of 1448244 Alberta Inc. v Asian Concepts Franchising Corporation ("Asian Concepts"), a decision of the Court of Queen's Bench of Alberta, serves as a reminder of the importance of technical compliance with the disclosure requirements in Canada, particularly those relating to certificates of full disclosure, and of the consequences of failing to properly comply with those obligations.
In this case, the plaintiff franchisee alleged that the defendant franchisor, Asian Concepts Franchising Corporation, had provided a significantly deficient disclosure document, and the franchisee sought to obtain partial summary judgment in the form of a declaration that the disclosure document provided was not "substantially complete" within the meaning of the Alberta Franchises Act ("the Act") and its Regulations, as it sought to rescind its franchise agreement.
The franchisee alleged that the disclosure document was deficient in a number of respects, but that the lack of two signatures on the certificate alone was sufficient to render the disclosure not "substantially complete". The Court agreed, noting in its reasons that because the disclosure document contained only one signature, this deprived the franchisee of having two parties motivated by potential liability to make full disclosure, and also of a potential cause of action against a second signatory in the event that the franchisee suffered a loss resulting from a misrepresentation contained in the document.
The Court relied on the Alberta Court of Appeal's decision in Hi Hotel Ltd. Partnership v Holiday Hospitality Franchising Inc., reiterating the statement by the Court of Appeal in that case that a signed certificate is extremely important, and in fact, "... is the linchpin of the substance of the disclosure".
The Court in Asian Concepts held that the incomplete certificate prevented the disclosure document from being substantially complete as required by the Act, and granted partial summary judgment in the form of a declaration that the disclosure document was not substantially complete.
This decision is a reminder to franchisors in Canada of the importance of complying with the form and content requirements of applicable provincial franchise statutes, in particular, those requirements relating to certificates. The decision is an example of how non-compliance with such requirements can result in a finding that a disclosure document is not substantially complete, or so deficient as to amount to no disclosure at all, and provide franchisees with an easy way out of a franchise agreement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
