TA & K Enterprises Inc v Suncor Energy Products Inc, 2011 ON
CA 613 (Released September 27, 2011) In this decision, the Court of
Appeal for Ontario concluded (1) that the franchise disclosure
requirements in the Arthur Wishart Act (Franchise Disclosure),
2000, SO 2000 ("Act") do not apply to
franchise agreements where the term of the franchise rights and
obligations is one year or less and (2) that "franchise
fees" do not include ongoing payments such as royalties.
The case came to the Court from Perell J.'s decision which
granted the defendant Suncor's motion to dismiss a proposed
class action brought by TA & K Enterprises Inc.
("TAK") on behalf of a class of over 200
former Sunoco retailers. The claim arose from Suncor's merger
with Petro-Canada and Suncor's subsequent decision to cull some
franchisees and re-brand the remainder. In asserting that Suncor
had not met an obligation to provide disclosure, TAK hoped to
recover some of its set-up and wind-down costs. In response, Suncor
relied on s. 5(7)(g)(ii) of the Act which provides an exemption
from disclosure where "the franchise agreement is not valid
for longer than one year and does not involve the payment of a
nonrefundable franchise fee".
Justice Goudge (MacFarland and Watt JJ.A. concurring) rejected
all of TAK's arguments. He held that although the franchise
agreement was signed on November 11, 2008 and due to expire on
November 14, 2009, it was not valid for longer than one year.
Rather, the "time frame during which the franchisee is bound
to certain rights and obligations" was only one year. The
franchisee's ability to repudiate the agreement for franchisor
non-performance in the period between the signing of the agreement
and the commencement of its performance did not tip the term length
over the one year.
Further, the existence of obligations such as indemnity and
confidentiality which survive the termination of the agreement did
not extend the agreement past one year. By definition those
obligations only arise after the termination of the agreement and
so after the agreement can be considered valid. The existence of a
clause within the franchise agreement which provided for a monthly
tenancy in the event the franchisee remained in possession and
continued to pay rent at the conclusion of the agreement did not
extend the term. Because the term came into force at the expiration
of the agreement, it did not extend it. Finally, a letter from
Suncor extending the franchise relationship on a month-tomonth
basis did not stretch the franchise agreement beyond a year.
The Court also dismissed TAK's claim that its payments to
Suncor were franchise fees and that as a result Suncor did not
satisfy the second branch of the disclosure exemption. Goudge J.A.
relied on the relevant regulation and the law reform report which
led to the Act to hold that a franchise fee is paid to become a
franchisee, and does not include royalties or other payments for
goods or services.
The Court's decision makes sense as a plain interpretation
of the Act. However, it leaves potential franchisees faced with
one-year agreements – which will surely now become more
popular with franchisors – to bargain for longer
agreements or more complete disclosure. The decision thereby does
not live up to the Act's broad goal of rebalancing power
between potential franchisees and franchisors.
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