In some cases, a franchise relationship ends after many years of
business. At the point of termination, the parties must wrestle
with a number of issues, including customers, inventory, and (as we
Part 1) the impact of any post-termination restrictive
In other cases, however, the franchise relationship barely gets
off the ground. Remember, Section 13 of the Alberta Franchises
Act states that, if a franchisor fails to give a prospective
franchisee a complete "disclosure document," then the
franchisee may rescind (or cancel) the franchise agreement and end
the relationship. However, the franchisee must send the
cancellation within certain time limits: either 60 days after
receiving the disclosure document, or within 2 years after the
franchisee is granted the franchise, whichever occurs first.
A failure to give complete disclosure allows the franchisee to
cancel. So what does it mean to give complete disclosure?
Under the Act, a franchisor must make a number of
disclosures, including (but not limited to):
Basic information about the name and address of the franchisor
and the length of time the franchisor has operated the
The names of the directors, general partners and officers of
the franchisor who will have management responsibilities;
Details on convictions for the previous 10 years relating to
the franchisor and its associates, and any of the directors,
general partners and officers of the franchisor;
Lawsuits or pending lawsuits involving misrepresentation, and
unfair or deceptive acts or practices;
Details of any bankruptcy or insolvency proceedings, voluntary
The names, mailing addresses and phone numbers of all existing
franchisees presently operating an outlet in Alberta under the same
trade name as the franchise being offered, and the addresses and
phone numbers of those outlets; and
Financial statements of the franchisor, among other
If proper disclosure is not made, a franchisee may
cancel and recover any net losses incurred in acquiring, setting up
and operating the franchised business.
In 1448244 Alberta Inc. v. Asian Concepts
Franchising Corporation, 2013 ABQB 221 (CanLII), an
Alberta court reviewed a franchisee's claim that it did not
receive proper disclosure. Specifically, the franchisee alleged
that the disclosure document was deficient and therefore not
'substantially complete' within the meaning of the
Act because the document was signed by only one
director. The Regulations are clear that a disclosure document must
include a certificate that is to be signed by at least two
officers or directors of the franchisor. The fundamental question:
Does the lack of two signatures to the disclosure document provided
by the franchisor mean that it is not 'substantially
complete' within the meaning of the Act?
Described another way: the substance of the disclosure
document itself was not challenged in this case. The only complaint
was that the certificate, which accompanies the disclosure
document, was only signed by one, instead of two, directors.
The Alberta Court of Appeal reviewed this situation in 2008 in
the Hi Hotel case. In that case, the certificate
accompanying the disclosure document contained no
signatures, and was therefore found not to be "substantially
complete" within the requirements of the Act. In the
Asian Concepts decision, the Court concluded that a
disclosure document with only one signature was deficient, since it
deprived the franchisee of a potential cause of action against a
second signatory to the disclosure document. This finding opened
the door for the franchisee to recover losses incurred in
acquiring, setting up and operating the franchised business. The
Court confirmed: "...the lack of misrepresentation, or the
lack of reliance on representations, are irrelevant to the issue at
hand. What matters is whether the disclosure document which was
provided was substantially complete or not. And when the statute
requires two signatories responsible for and liable for the
required disclosure, yet only one is provided, the disclosure
statement cannot be said to be 'substantially complete.'
This is plain and obvious."
What are the lessons? Franchisors in Alberta should take care to
ensure that the disclosure document follows the strict requirements
of the Act and Regulations, both as to form and substance.
Seemingly minor gaps in compliance can result in serious
consequences for the franchisor. Franchisees, on the other hand,
will be reviewing compliance with a careful eye in situations where
the franchisee wishes to extricate itself and end the relationship.
Of course, both parties should always seek appropriate legal advice
when entering into and concluding franchising relationships in
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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