In 1201059 Ontario Inc. and Pizza Pizza Limited,
the Ontario Superior Court of Justice addressed the disclosure
obligations of a franchisor in the context of the renewal of a
franchise agreement when the franchisee is required to incur
substantial renovation costs to its business premises. In this
case, the court held that the franchisor was not required to
disclose the renewal obligation in writing.
In this case, the crux of the franchisee's claim was that,
at the time of renewal, the defendant franchisor failed to
adequately disclose in writing (as required under the Arthur
Wishart Act ["the Act"], Ontario's franchise
legislation) the franchisor's requirement for proposed
renovations when he renewed his franchise agreement for a further
term of 5 years. The Plaintiff franchisee did not want to incur the
costs for any renovations and alleged that it suffered damages when
the franchisor attempted to proceed with renovations and allegedly
terminated the agreement before its date of completion.
One of the main issues considered by the Court was whether the
Defendant franchisor was exempt from the written disclosure
requirements as prescribed by the Act. More specifically, the Court
considered whether the proposed renovations to the franchisee's
business constituted a material change.
Section 5(7) of the Act provides that the requirement to give
written disclosure does not apply to the renewal of a franchise
agreement where there has been no interruption in the operation of
the business operated by the franchisee under the franchise
agreement and there has been no material change since the franchise
agreement was entered into. The Act defines "material
change" as a change in the business or operations of the
franchisor that would reasonably be expected to have a significant
adverse affect on the value or price of the franchise to be granted
or on the decision to acquire the franchise. A review of both
the original and the renewal agreements led the Court to find that
there were no material changes in the renewal agreement that could
be considered as fundamental to the Plaintiff's business
The Court applied the common-law test for materiality as
provided in Trillium Motor World Ltd. and General Motors of
Canada Ltd., and considered whether there was a substantial
likelihood that the proposed renovations, which had been known to
all franchisees since the original franchise agreement, would have
assumed actual significance in a reasonable investor's
deliberations to renew. Its analysis led to the conclusion that a
reasonable investor in the situation of the Plaintiff at renewal
would not have attached significance in what had already been known
to him prior to signing the original franchise agreement. In other
words, there were no material changes in the renewal agreement, as
the intention to proceed with the renovations and costs were
already disclosed to the Plaintiff and included in the original
The Court's position that the Plaintiff franchisee had been
fully informed prior to entering into the original franchise
agreement was also supported by the fact that the Plaintiff
franchisee knew that other Pizza Pizza franchise owners had
renovations completed at their operations, he attended conferences
where the renovations were discussed, and he had discussions with
the Defendant franchisor regarding such renovations. Lastly,
at no time prior to the renewal did the Plaintiff franchisee ever
object to or voice his concerns about the extent of the renovations
or the costs that he would incur.
This case sheds some light on an area of the Act which has been
the focus of limited jurisprudence. While courts continue to
assess materiality on a case-by-case basis, one thing is certain:
it is important for franchisors and their counsel to closely
consider all of the circumstances of the franchise relationship
when deciding what information to disclose in advance of the
renewal of a franchise agreement. Both franchisors and counsel
must be mindful that a failure to disclose material information
could result in an award of damages or rescission of the franchise
agreement under the Act.
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.
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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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