A recent decision arising out of the Ontario Superior Court of
Justice has addressed the issue of whether a franchisee has the
right to rescind where the only deficiency for disclosure is the
method by which it was delivered.
In Vijh v. Mediterranean Franchise Inc., both the
franchisor and the franchisee were in agreement that, other than
with respect to the method of delivery, the franchisor fully
complied with the disclosure requirements set out in the Arthur
Wishart Act (Franchise Disclosure),2000 (the
"Act"). The issue turned on whether the franchisee,
after waiting almost two years, could rescind the franchise
agreement pursuant to the Act based solely on the fact that the
disclosure document was e-mailed rather than delivered personally
or by registered mail as required by the Act. In this
instance, the franchisee had provided consent for the disclosure
document to be e-mailed.
The Court concluded that where a complete disclosure document
was provided to the franchisee, such as in this case and the only
deficiency was the method by which the document was delivered, the
two-year right of rescission will not be available.
In considering the legislative intent of the Act, the Court
stated that the purpose of the Act is to provide two routes for
a 60-day right of rescission if a disclosure document was
provided late or lacked the required content pursuant to section
a two-year right of rescission if no disclosure document was
ever provided pursuant to section 6(2).
The reason for these two options is to make clear that the
two-year rescission right is set aside for situations that are much
more serious, such as where no disclosure document was
provided. If the franchisee is allowed to rescind for up to
two years for any breach of the Act, despite how minor it may be,
then why have section 6(1)? Why differentiate between the
60-day rescission right for late or incomplete delivery of the
disclosure document and the two-year rescission right for no
In support of its ruling, the Court made reference to the
Ontario Court of Appeal's decision in 4287975 Canada
Inc. v. Imvescor Restaurants Inc. which concluded that not
every breach of disclosure requirements will justify
rescission. In other words, the two-year right of rescission
is only available where there is "a complete failure to
provide a disclosure document" or where the disclosure
document provided was "materially deficient" but not
where it was "merely late".
The court held that if a breach of the requirements for timing
and content under the Act allows for only a 60-day right of
rescission, it would seem illogical that a mere breach of the
delivery requirement, which is much less significant, would warrant
a two-year right of rescission under section 6(2).
While this case should not be taken to mean that franchisors do
not have to abide by the delivery methods as required by the Act,
it should be taken as a lesson to both franchisees and franchisors
that there is a reason why the Act provides for two routes of
rescission and further, that a deficient delivery method,
especially in the instance where such a method was consented to by
the franchisee, may not be a severe enough breach to trigger the
two-year right of rescission.
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