Canada: Franchise And Distribution @ Gowlings: February 6, 2014 - Volume 8, Number 1

Last Updated: February 13 2014
Article by Pam Vermeersch and Juliana Mah

In this issue:

  • Canada's New Anti-Spam Legislation to come into force July 1, 2014
  • Non-Competition Clauses May Bind Non-Arm's Length, Non-Signatories to a Franchise Agreement
  • A Profitable Franchisee Can Obtain Damages under a Rescission Claim.
  • Update on British Columbia's Franchise Legislation

Canada's New Anti-Spam Legislation to come into force July 1, 2014

It is time for franchisors and franchisees to begin considering the potential impact of Canada's new anti-spam legislation ("CASL") on their business, as it was recently announced that this legislation will be coming into force on July 1, 2014.

CASL is designed to protect Canadian consumers from receiving unsolicited commercial electronic messages (a "CEM"). A CEM is any electronic message the purpose of which is to encourage participation in commercial activity. The definition of commercial activity is broad and includes such activity as offering for sale or advertising goods or services. CASL applies to CEM's sent or received by a computer in Canada. The CASL will be regulated by the Canadian Radio-television and Telecommunications Commission ("CRTC").

Read the full article - Canada's New Anti-Spam Legislation to come into force July 1, 2014

Non-Competition Clauses May Bind Non-Arm's Length, Non-Signatories to a Franchise Agreement

The recent decision Pet Valu Canada Inc. v. 1381114 Ontario Limited1 is unique because it is one of the first decisions in Canada to explicitly hold that non-competition clauses may be binding on non-arm's length parties to a franchise agreement.

Prior to the Pet Valu decision, the courts have only discussed corporate alter egos by stating in Bark v. Fitz2 that, "If the non-competition clause did not bind the principal of the corporate franchisee, that clause would be effectively meaningless: the principal could simply start a new corporation."

Read the full article - Non-Competition Clauses May Bind Non-Arm's Length, Non-Signatories to a Franchise Agreement

A Profitable Franchisee Can Obtain Damages under a Rescission Claim

Franchisors should take notice of a recent decision from the Ontario Court of Appeal, 2189205 Ontario Inc. v. Springdale Pizza Depot Ltd., which upholds several decisions from the Superior Court of Justice and the principles articulated in them. The key take-away from this case is that a franchisor must provide a complete and specific disclosure document to a potential franchisee or face harsh remedies, including the potential for a profitable franchisee to rescind their franchise agreement and keep the profits.

In this decision, the Plaintiff Franchisees purchased a Pizza Depot franchise from an existing franchisee. After operating the franchise for several months, the Plaintiffs served a Notice of Rescission for failing to receive proper disclosure pursuant to the Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c.3 ("Wishart Act") and commenced an action against the Franchisor and the previous franchisee.

Read the full article - A Profitable Franchisee Can Obtain Damages under a Rescission Claim

Update on British Columbia's Franchise Legislation

We brought you a news alert a few months ago regarding British Columbia Law Institute's project on bringing forth recommendations for a Franchise Act for British Columbia. The British Columbia Law Institute (BCLI) published a consultation paper with tentative recommendations back in March 2013 and asked franchisors, franchisees, business and consumer organizations and the general public to give the BCLI input about franchise regulation in B.C. The consultation phase of the project ended on September 30, 2013. The BCLI is currently in the process of preparing a final report and recommendations for submission to the B.C. legislature. We will keep you updated on the status of the project and let you know when any further action has been taken in respect to bringing forth franchise legislation in British Columbia.

Provinces that have enacted franchise legislation are: Alberta, Ontario, New Brunswick, Prince Edward Island, and most recently, Manitoba. If British Columbia enacts a Franchise Act, it will be the sixth province in Canada to do so.

Read the article on - Update on British Columbia's Franchise Legislation


1 Pet Valu Canada Inc. v. 1381114 Ontario Limited, et al, 2013 ONSC 5361 (CanLII).

2 Bark & Fitz Inc. v. 2139138 Ontario Inc., 2010 ONSC 1793, [2010] OJ No 1428.

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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