As any Ontario franchisor will tell you, the last few years have
not been a walk in the park for owners of franchise systems. The
current legislation in Ontario, known as the Arthur Wishart Act (Franchise Disclosure),
2000, has very strict rules about the type of disclosure
that a franchisor (one who grants a franchise) must make to a
perspective franchisee (one who is granted a franchise). While that
is fair and understandable, the Act also contains provisions which
impose a significant penalty or disadvantage on a franchisor for
even the most technical violation.
As an example, if the disclosure material contains the slightest
deficiency, a franchisee can operate its business for up to two
years before deciding whether or not to terminate the franchise
If the franchisee decides to terminate on that basis, it is
entitled to receive back from the franchisor all of the money paid
to the franchisor for the franchise rights including any money paid
for equipment purchased for use in the business. Obviously, that
equipment has to be returned.
In this case, the franchisor was ordered to pay compensation to
the franchisee in a substantial amount for certain supplies and
equipment payable upon the return of that equipment.
The franchisee had kept almost all of these items in storage in
a barn in rural Ontario since 2009. It was now prepared to deliver
this material to the franchisor in exchange for payment.
The franchisor argued that the franchisee was "unable"
to return the supplies and equipment because of their poor
condition given that they had been in storage for almost five
years. The franchisor argued that the poor condition was at least
partially as a result of what it alleged was improper removal and
storage by the franchisee.
The Court ruled in favour of the franchisee. It determined that
under the legislation, equipment has to be repurchased regardless
of its condition. The Court considered that the legislation is
remedial in nature and contains no duty on a franchisee to mitigate
its damages. As a franchisee is entitled to be made whole, and as
there was no evidence in this case of any deliberate acts of damage
to the equipment by the franchisee, it was entitled to repayment of
the entire purchase price. Its condition was irrelevant.
The legislation is indeed remedial in nature. It came into force
as a result of an enormous amount of abuse heaped on unwitting and
vulnerable franchisees by unscrupulous franchisors. However, cases
like this must make one wonder as to whether or not the legislation
simply goes too far.
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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