The Alberta Court of Queen's Bench recently issued a
reminder to franchisors of the consequences of inaccurate
disclosure. In Mapleleaf Franchise Concepts, Inc. v. Nassus
Frameworks Ltd. the plaintiff, a franchisor of framing and
art supply stores, was denied enforcement of the non-competition
clause in their franchise agreement against a former franchisee for
having misstated the contents of the clause in their franchise
Like Ontario's Arthur Wishart Act, Alberta's
Franchises Act requires franchisors to deliver a
disclosure document to all prospective franchisees at least 14 days
prior to signing a franchise agreement. Under the Alberta
regulations, franchisors are required to disclose, among other
things, the existence and location in the franchise agreement of
terms that deal with renewal, termination and transfer of the
franchise. Under both the Alberta and Ontario regimes, franchisees
are deemed to rely on the contents of the disclosure document and
any misrepresentation of a material fact in a disclosure document
can give rise to a claim for damages.
In this case, the franchisor provided a disclosure document that
incorrectly described the non-competition clause in the franchise
agreement as prohibiting the franchisee from operating a competing
business within three kilometres of another franchise for two years
after termination or expiry.
The franchise agreement, a draft copy of which was attached to the
disclosure document, contained a slightly different provision. The
actual clause prohibited the franchisee from operating a competing
business within 10 kilometres of another franchise or the
franchisee's former designated territory for two years after
termination or expiry.
The franchisee subsequently signed a franchise agreement containing
the more restrictive 10 kilometre non-competition clause. Despite
testifying that he received and read the agreement, the franchisee
claimed he only read it briefly and believed it would reflect the
disclosure document. After his franchise agreement expired, the
franchisee simply disassociated his store from the franchisor's
brand and continued to operate in the same location as an
independent framing and art supply store.
The court found the franchisor was required to ensure their
disclosure document was accurate. Since it was not accurate with
respect to the description of the non-competition clause, a
material fact of the agreement, the franchisee was not prohibited
from carrying on business in his present location. Despite the
franchisee's admission at examinations for discovery that he
did not pay attention to the disclosure document and that it was
unimportant to him, the court found that he had sufficiently relied
on the misrepresentation to negate the enforcement of the
non-competition clause against him.
This case should stand as a warning to franchisors operating in
Canadian jurisdictions with statutory disclosure regimes. Even a
small discrepancy between the disclosure document and the franchise
agreement can have dire consequences on the enforceability of the
terms of the agreement.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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