In March 2013, the Ontario Superior Court of Justice released a
new rescission remedy decision that underscores the serious
consequences resulting to franchisors from deficiencies in their
disclosure documents required under Ontario's Arthur
Wishart Act ("the Act").
In Apblouin Imports Ltd. v. Global Diaper Services
Inc. ("Global Diaper"), the Court granted a
plaintiff franchisee's motion for partial summary judgment
granting rescission of the franchise agreement pursuant to section
6(2) of the Act. The Defendant franchisor, Global Diaper
Services Inc. ("Global"), was an Alberta based company
engaged in supplying and washing cloth diapers under the
"Happy Nappy" trade name. In 2008, Global was a small
franchise system with one corporate outlet and two franchisees in
Alberta. In June 2008, Global entered into a franchise agreement
with the plaintiff, Apblouin Imports Ltd. ("Apblouin"),
for the operation of an Ontario franchise. Apblouin's principal
traveled to Alberta and, prior to signing the franchise agreement,
was given an "Ontario Franchise Disclosure Document" and
signed an acknowledgement of receipt. Over time, Apblouin became
dissatisfied with the franchise and, in August 2009, delivered a
notice of rescission demanding that Global refund all amounts spent
by Apblouin on the business, totalling over $200,000, for failing
to provide a disclosure document as required by section 5 of the
Apblouin argued that it was entitled to rescission within the
two-year limitation period under section 6(2) of the Act, which
applies where the franchisor "never provided" a
disclosure document, rather than the narrower 60-day limitation
period under section 6(1) which applies where the disclosure
provided is merely deficient. Although Apblouin had received a
disclosure document from Global, it argued that the document
provided was so deficient it amounted to no disclosure at all. The
Court agreed, focusing on four deficiencies in Global's
disclosure: the identification of the franchisor, earnings
projections, financial statements and the franchisor's
certificates. The Court also rejected Global's argument that
Apblouin was unlikely to have been disadvantaged by any
deficiencies in the disclosure provided because its principal was a
sophisticated businessman with considerable franchising experience,
as the Wishart Act does not permit varying levels of
disclosure on a case by case basis.
Like all rescission cases, Global Diaper is a
cautionary tale for all franchisors. Franchisors should take
regular care to ensure that their Ontario disclosure documents are
up to date and compliant with the requirements of the Act.
1 2013 ONSC 2592 [Global
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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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