Question: What are the support obligations of franchisors and
their "good Faith" and "Fair Dealing"
performance duties under the Arthur Wishart Act?
Answer: It is difficult to describe the legal
effect of every support obligation which a franchisor may owe to
its franchisees under Ontario's Arthur Wishart Act (the
"Act"). Such obligations
are heavily dependent on what is specified in a particular
franchise agreement. A franchisor should consider a number of
factors in determining whether a particular support obligation may
prove too onerous due to the Act or applicable case law.
A. Good Faith and Fair Dealing under the Act
Sections 3(1) to 3(3) of the Act impose statutory obligations of
"fair dealing" and "good faith" on a franchisor
and franchisee in their performance of a franchise agreement.
Sections 3(1) to 3(3) of the Act (emphasis added) provide:
Every franchise agreement imposes on each party a duty
of fair dealing in its performance and enforcement.
A party to a franchise agreement has a right of action for
damages against another party to the franchise agreement who
breaches the duty of fair dealing in the
performance or enforcement of the franchise agreement.
For the purpose of this section, the duty of fair
dealing includes the duty to act in good faith and in accordance
with reasonable commercial standards.
Primarily, the Courts of Ontario have interpreted such duties of
"good faith" and "fair dealing" to mean that
franchisors owe these duties in relation to performance of the
support obligations to their franchisees set forth in their
B. Support Provided by Franchisor to Franchisee
"Support" may include a broad range of obligations of
a franchisor to its franchisees. The word generally refers to
efforts by franchisors to assist their franchisees in operating
their franchised businesses. Examples of support include:
Initial training of management of franchisee;
Assistance with opening of the franchise for business;
Operational assistance and visits on an ongoing basis by the
An operations manual (often online);
On-line communications through an intranet;
Telephone and email support for operational questions;
Periodic meetings with each franchisee, plus an annual
convention with all franchisees;
Normally, a marketing program funded by franchisees;
Local marketing assistance;
Group insurance program;
Plans and specifications for construction/ renovation of a
System website: external one to attract sales; internal one
(intranet) to provide for quick communication between the
franchisor and its franchisees;
Leasing: franchisor/its associate may become the head tenant
and sublet to a franchisee, in which case franchisee must be kept
informed of communications with landlord; and
System changes: timely system changes to meet/beat the
C. Support Obligations in a Franchise Agreement
It is important that franchisors be conscious not to 'over
promise' obligations under their franchise agreements. In
Machias v Mr. Submarine Ltd., for example, the Ontario
Superior Court of Justice allowed the franchisee's claim for
rescission of its franchise agreement due to, among other claims,
the franchisor's failure to provide adequate support. The Court
The defendant failed to provide the promised support to the
franchise after it opened. The litany of post-contractual problems
cumulatively illustrates conduct on behalf of the defendant that
appears high handed in light of the obligations of good faith and
fair dealing [in the Act] between franchisor and franchisee.
Franchisors should be cautious not to include support provisions
which may prove too onerous for them to meet and thereby open
themselves to litigation under the Act.
When considering how Ontario Courts would interpret support
obligations of franchisors under their "good faith" and
"fair dealing" obligations, it is important first to
consider the express terms of the franchise agreement. Courts will
place primary emphasis on such terms and will use a contextual
approach in their interpretation of them. In the words of Justice
Strathy in the leading 2012 Ontario case of Fairview
Donuts, "[t]he court's responsibility is to give
effect to [the] contract and to require the parties to discharge
their contractual obligations fairly, in good faith and in a
commercially reasonable manner."
The resolution of contractual disputes under franchise
agreements is an evolving area of law in Ontario. The area deserves
close attention as it continues to develop.
Originally published in FranchiseCanada magazine
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).